Securitisation structures are typically legally remote from the entity in relation to which the risks and rewards of the structure are associated. Typically, a securitisation structure will include an issuing entity, funding entity, seller, mortgage trustee and often counterparties.
The common principles as to whether an entity meets the definition of a financial institution should be applied to all entities within a securitisation structure. More specifically, the expectation would be that issuing entities are likely to be classified as investment entities by their activities, trusts should be considered in accordance with the guidance at AEIM100800 and holding and funding entities will likely be treated as financial institutions in their own right.
A securitisation vehicle that is a financial institution will need to consider if it has any financial accounts that may be reportable.
For FATCA, there is a specific treatment of certain limited securitisation vehicles established before 17 January 2013. Details can be found at.
Example of a securitisation programme.
- Mortgage customer makes their regular monthly mortgage payment to bank A plc.
- Bank A plc identifies the appropriate SPV that the cash belongs to and pays the cash to that entity, say, a trust.
- Once a month on the distribution date the trust pays cash to the funding company.
- The funding company pays cash on payment date to Bank B.
- Bank B passes the cash to Euroclear or Clear Stream, the exchanges on which the bonds are held.
- Euroclear and Clear Stream pass the cash to the custodian bank who then credits the bondholders’ accounts. Bondholders then draw on their cash at the custodian bank.
The above scenario provides the following reporting obligations:
- Mortgages are not within the financial account definition so there is no financial account with Bank A Plc and, therefore, no reporting requirement in relation to them.
- Steps 3 – 5 involve payments made between financial institutions and as such there is no need for any of these payments to be reported unless a Financial Institution that receives a payment is a Non-Participating Financial Institution for FATCA purposes. The trust though may have reporting requirements if any of its Account Holders are Reportable Persons.
- In step 6 the custodian will have financial accounts in which the bonds are held and as such the custodian will need to identify if it has any Reportable Accounts. Where it does, it must perform the necessary reporting.