On June 6, 2016, the Rapporteur of the European Parliament released a draft legislative resolution to modify EU Risk Retention.  The stated goal of this draft is to promote “Simple, Transparent and Standardized” (STS) securitization.  Since STS securitization assets must be fully self-liquidating, commercial real estate (CRE) is again left out in this proposal; not including CRE in the securitization regime means yet another drag on CRE capital formation.  The regulatory diktat picking winners and losers like this is almost always a bad idea.

The proposals themselves range from troubling to very troubling.  For example, members of the so-called “shadow banking sector” may be flatly excluded from taking part in the securitization market (see Amendment 28).  Also included is an increase of the EU risk retention requirement from 5% to 20% of the material net economic interest in the securitization transaction (see Amendment 40).   This amendment would also give the EU regulatory authority the ability to further raise or lower the risk retention requirement as it desires (see Amendment 48).

For more information on this draft legislative resolution, please read our recently released OnPoint.  We will update you about any further developments related to the continuing EU Risk Retention saga.