EU Parliament Proposes Increased Risk Retention Requirement Across ABS Market

A recent draft report by the EU Parliament’s Committee on Economic and Monetary Affairs proposes an increased risk retention requirement, calling for issuers to hold as much as 20 percent of their deals, while reviewing new regulations meant to revamp Europe’s ABS rules and to incentivize “simple, transparent and standardized” (“STS”) deals, according to a recent Reuters’ article.

Paul Tang, a member of the EU Parliament in charge of steering the plan, said the tougher requirements will "help avoiding moral hazard and make the securitization market more stable during times of crisis.” The proposed risk retention levels would apply to all securitizations, even those that do not qualify under the STS framework.

Many in the industry, however, have objected, stating that it will make ABS funding “completely uneconomic,” according to Reuters.

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