Disclaimer: Views in this blog do not promote, and are not directly connected to any L&G product or service. Views are from a range of L&G investment professionals, may be specific to an author’s particular investment region or desk, and do not necessarily reflect the views of L&G. For investment professionals only.
EU risk retention rules
Do they affect my securitised investment?
There is a common misconception that UK and European-based investors are constrained from holding US securitised bonds due to the EU risk retention rules. This is not the case. EU and UK investors can purchase US securitised bonds as long as the issuers of these bonds comply with the EU risk retention rules. This means that US issuers of securitised bonds need to retain at least 5% of the credit risk to be eligible for European investors.
UK and European investors believe that the 5% retention rule is an onerous directive for issuers of US securitised bonds and that it may significantly reduce the size of the investment universe. However, the reality is that EU securitised rules are similar to the requirements under the Dodd-Frank Act, in which the 5% retention rule is commonplace.
Both regulations collectively (EU risk retention and Dodd-Frank) aim to create a more resilient and trustworthy securitisation market, ultimately contributing to financial stability. While there are additional compliance and disclosure requirements for US issuers, this typically does not present a meaningful challenge for UK and European-based investors to purchase these bonds.
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