Sector developments and company hires

Call for ‘risk-sensitive’ prudential approach
The ECB has published its comments in connection with the European Commission’s targeted consultation on the functioning of the EU securitisation framework. In particular, the ECB says that the experience it has gained - as an investor in the ABS market through its asset purchase programmes, a collateral taker in its credit operations and as the competent authority for directly supervising significant credit institutions – suggests that improvements are needed to support a more effective securitisation market.

The central bank notes that a well-functioning securitisation market is crucial for European banks, as it enhances their capacity to channel lending to the real economy, provides them with additional funding and allows risk to be transferred to investors. It suggests that achieving the Commission’s strategic objective of scaling up the securitisation market requires the regulatory framework being flexible enough to accommodate the diverse securitisation business models followed by European banks.

For example, the new prudential regulatory framework might include targeted improvements of its risk sensitivity to further enhance the differentiation between the actual risk profile of underlying asset pools, structural features and model and agency risks stemming from information asymmetries. “A more risk-sensitive prudential treatment would better reflect risks and thus enable better calibration of capital requirements,” the ECB states.

Equally, work should continue on prudent safeguards for robust SRT securitisations to avoid so-called flowback risk. Ensuring that originating banks have a robust capital position requires not only a positive SRT assessment at origination, but also that banks carry out ongoing monitoring of SRTs to track any impact on their capital position, business viability and risk management, according to the ECB.

“The changing nature of structural features in SRT securitisations calls for an enhanced regulatory framework that provides sufficient room for supervisors to review these transactions without being constrained by overly rigid fixed timelines,” it observes. “SRT assessments should not follow a ‘one-size-fits-all’ approach. Supervisors should be able to conduct case-by-case assessments within a general regulatory framework, while also considering both the role of securitisations in the comprehensive bank-level supervisory analysis and all relevant risk information about the securitisation transaction.”

Finally, the ECB says it would welcome an assessment of the track record of market liquidity for STS securitisations and ABCP for the liquidity coverage ratio (LCR). This track record could be analysed with a view to revising the existing criteria for including this type of asset in the LCR buffer in the light of the new European securitisation framework.

DLA debuts
Redwood Trust has priced what it says is the first US non-agency RMBS that leverages the power of blockchain technology. The firm engaged Liquid Mortgage to act as distributed ledger agent (DLA) for the US$449m SEMT 2021-6 transaction.

In this role, Liquid Mortgage will leverage its blockchain-based technology to provide end users with more timely reporting of loan level payments of principal and interest on the underlying residential mortgages. Whereas the traditional reporting cycle for remittance data on a RMBS transaction is monthly, Liquid Mortgage is expected to report this payment data to users of its proprietary platform on a daily basis.

By leveraging the speed and accuracy of distributed ledger technology, the firm believes transparency can be drastically increased and the points of friction reduced in the life of a residential mortgage loan. Additionally, with a permanent digital record of loan data, mortgages should be able to be bought and sold in a much more commoditised manner.

Earlier this year, Redwood announced an investment in Liquid Mortgage as its third investment under the company's RWT Horizons venture investment strategy (SCI 20 April).

EMEA
Channel Capital Advisors has appointed Maarten Ooms as senior business development director, reporting to Hilmar Hauer, head of debt products. Ooms has been tasked with deal origination duties and has over 20 years’ experience in the international structured finance market. He previously covered the Spanish, German and UK markets for Rabobank’s financial advisory and solutions team.

Channel has also hired Georgios Gazetas as a structurer within its debt products team, reporting to Hauer. Gazetas was previously a structurer at Demica, where he led trade receivables securitisations.