Is Synthetic Securitisation About To Be Brought In From The Cold?

Securitisations of the (previously) hopeless type

In response to what they divined to be the role of securitisation in causing and deepening the global financial crisis (GFC) a dozen years ago, in common with their counterparts elsewhere, European regulators imposed penalties and restrictions for originators of and investors in asset-backed securities (ABS). The central pillar of this new oversight was Regulation (EU) 2017/2402 (the Securitisation Regulation). Very broadly, the Securitisation Regulation imposes heavy regulatory capital charges on all EEA regulated investors in ABS, from banks to hedge funds, unless the securities concerned are the product of an elevated class of simple, transparent and standardised, or STS, securitisation. Remarkably, synthetic securitisations, where the originator of assets such as mortgage loans uses financial derivatives or similar arrangements to transfer the risks and returns of those assets to a third party, were considered