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Marco Masotto

Director of Product, Software and Platforms

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AIMA secures regulatory changes for the UK securitization’s industry: Why transparency should go beyond regulatory compliance

The Alternative Investment Management Association recently announced that they have secured significant regulatory changes that benefit their members and the wider investment industry in the UK. In this article, we will review the regulatory updates and discuss what they will mean for the main actors inside the securitization market.

As AIMA members, we wish to highlight that “the UK has confirmed it will press ahead with changes to the securitizations framework”:

  • The UK will narrow the scope of the institutional investor definition to exclude non-UK AIFMs, removing an important area of uncertainty for non-UK AIFMs seeking UK investors.
  • The FCA will also be empowered to tailor new rules for due diligence, retention, reporting and many other key requirements to improve the ability of UK managers and their clients to invest in global securitization products.

Driving efficiency and confidence in the securitizations market

The UK government is moving faster than Europe in addressing some of the concerns on Article 5 of the securitization Regulation that have been recently expressed also by the AFME. Long story short, it is a common opinion in the industry that due-diligence requirements under Article 5 (currently applicable in both the EU and UK) are likely to be interpreted conservatively therefore implying disproportionately high costs to the business. Also the regulation “substantially reduces agility and flexibility in the investment process, thereby materially reducing investment opportunities for new investors”.

As a leading provider of technology solutions for securitization operations, we welcome any improvement that can support the market and increase its efficiency and liquidity, streamlining the process of connecting originators with investors, and providing a more conducive environment for securitization products.

Considering the professional nature of the hedge fund industry, we firmly believe in the critical importance of keeping very high standards for due diligence and reporting to maintain the integrity and efficiency of the securitization process. 

Independently from the precepts of the regulation, these aspects remain fundamental to ensuring transparency, risk management, and investor confidence.

The role of transparency, retention requirements, and reporting standards in securitizations

Due diligence is a cornerstone of any investment decision, providing a comprehensive understanding of the risks and rewards associated with a particular securitization product. Similarly, retention requirements play a crucial role in aligning the interests of originators and investors, while robust reporting standards ensure transparency and accountability.

Not only can transparency boost the assessment of a single transaction, but it can help build a solid foundation for future data-driven decisions, allowing investors to better understand new opportunities and manage their risks. At the same time, industry-wide standards can guide originators and issuers on the type of disclosure they have to provide, thereby removing ad hoc requests and processes that hamper the origination of new transactions. 

Embracing change: Cardo AI’s technology solutions for a thriving securitization’s industry

At Cardo AI, we are committed to upholding the highest standards, irrespective of regulatory changes. We provide advanced technology solutions that support rigorous due diligence processes, automate and streamline reporting, and ensure accurate and timely retention calculations. Our tools are designed to enhance transparency, reduce operational risks, and facilitate informed decision-making. We aim to define a new concept of transparency that comes from the industry, not from the regulators, and which goes above and beyond regulatory uncertainty and the difference in national/regional regulations. 

For this reason, we are further expanding our footprint with an enhanced presence in the UK and the launch of the Singapore office. 

Detailed insights and scenario analysis

Moreover, our advanced analytical and monitoring tools allow for ongoing oversight and scenario analysis, enabling our clients to proactively manage their securitization portfolios and respond to market changes effectively. Our technology not only automates processes but also generates insights that can drive strategic decision-making.

Flexibility and adaptability

In light of the potential regulatory changes, our solutions can provide even more value. As the rules evolve, our flexible and adaptable technology can help clients navigate the new landscape, ensuring they remain compliant while also benefiting from the increased efficiency and flexibility the changes may bring.

Conclusion

In conclusion, while we welcome the proposed changes to the securitization framework that can help remove uncertainties, we remain steadfast in our commitment to supporting the key pillars of due diligence, retention, and reporting. We believe that our technology solutions can play a vital role in this new era, helping our clients to thrive amidst change and continue to contribute to a robust and dynamic securitization industry.
If you want to learn more about how our solutions can help your business, explore our platform here.