BSP Newsletter - January 2014

Mondaq Business BriefingLuxembourg Articles in EnglishFinance and Banking (2014)

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BSP Newsletter - January 2014

BANK LENDING, STRUCTURED FINANCE, SECURITISATION

UPDATED CSSF FAQ ON SECURITISATION AND CLARIFICATION OF POSITION ON THE IMPACT OF THE AIFM LAW ON SECURITISATION VEHICLES

On October 23rd 2013, the Luxembourg Supervisory Authority for the Financial Sector ("CSSF") published an updated version of its "Frequently Asked Questions" on securitisation vehicles ("FAQ") in order to clarify the impact on securitisation of the law dated July 12th 2013 on alternative investment fund managers (the "AIFM Law"), and in particular the CSSF's position in relation to the definition of "securitisation special purpose entities" under the AIFM Law.

The AIFM Law excludes from its scope vehicles carrying out transactions defined as securitisation transactions within the meaning of article 1 (2) of Regulation EC 24/2009 of the European Central Bank ("ECB") of December 19th 2008 (the "ECB Regulation"). Given that the AIFM Law provides for an autonomous definition of securitisation, it was not clear which Luxembourg securitisation vehicles were covered by the relevant legal exclusion, as the definition of securitisation under the Luxembourg law dated March 22nd 2004 on securitisation, as amended (the "Securitisation Law"), is different and somewhat broader than the one of the AIFM Law, which refers to the definition set out in the ECB Regulation.

As a result, each securitisation vehicle needed to assess its activities in light of the AIFM Law, in order to determine whether or not it may fall within its scope.

The CSSF provided useful guidance in its FAQ in order to determine whether Luxembourg securitisation vehicles qualify as alternative investment funds ("AIF") or not. In accordance with said FAQ, the following criteria apply to assess the impact of the AIFM Law on Luxembourg securitisation vehicles governed by the Securitisation Law:

Luxembourg securitisation vehicles qualifying as AIFs

Luxembourg securitisation vehicles primarily acting as "first lenders" and originating new loans themselves, since no assets (and respectively, no credit risks) are transferred to, or purchased by, such securitisation entity, and hence it should not be considered as being engaged in a securitisation transaction within the meaning of the AIFM Law; Luxembourg securitisation vehicles issuing structured products linked to non-credit related underlying assets (i.e. equities, commodities, indices), where the transfer of risk attached to such assets is only accessory to the principal activity of the entity (synthetic exposure to non-credit related underlying assets). Luxembourg securitisation vehicles not qualifying as AIFs

Luxembourg securitisation vehicles, securitising credit risks, including vehicles issuing collateralised loan obligations; Luxembourg securitisation vehicles, issuing only debt instruments, and this irrespective of whether or not such vehicles meet the definition of "ad hoc securitisation stru...

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