While Solvency II, CRD IV and the Alternative Investment Fund Management Directive (AIFMD) require different levels of due diligence and disclosure, and different standards of proof, asset managers who run money in ABS are bearing the burden of disconnected regulation.
“There’s a very similar set of regulations, but not quite identical,” said Rob Ford, partner at TwentyFour Asset Management. “The core of the regulation needs to be as simple as regulators are trying to make securitization.”
Simon Collingridge, formerly of Standard & Poor's but now working at Bishopsfield Capital Partners, the boutique set up by former ABN Amro bankers Mike Nawas and Steve Curry, said ABS was the perfect asset class for a world with tougher due diligence requirements.
“Securitization lends itself to surveillance in a way that other asset classes do not,” he said, pointing out that assets were segregated and transparent to investors.
Marc Mouton of Hogan Lovells, moderating the investor panel, said that harmonisation of regulations was a welcome message to hear.
One of the major planks of the Capital Markets Union programme launched by the European Commission this year is a review of the securitization market, which many hope will make regulation more consistent. The Commission is due to publish a Green Paper with its plans by September.
“In the past few years, there have been so many green papers and consultations it’s almost impossible to keep ahead of the game,” said Mouton. “The move to polishing existing regulation is welcome. We need to make sure people can comply with an overall regulation in one way.”
But Solvency II remained a sticking point — as it has been for years in the market.
Jan Hoefnagel, a portfolio manager at Aegon Asset Management (which runs money for Aegon insurance, among others) said that the Solvency II treatment of ABS compared with unrated corporate loans was “unfathomable”. He noted that due diligence requirements for whole loan books was also lighter than for ABS.
A regulator in the audience, formerly a senior structured finance banker, asked the panel whether insurers using internal models would help reduce the impact from Solvency II.
Hoefnagel responded by noting that the Dutch regulator would not allow capital requirements to stray far from the standardised model in Solvency II, while Ford said that smaller insurers without the capacity to adopt the internal modelling approach, would still be penalised.