02.40 – Securitisation Vehicles

The following relates to securitisation vehicles established post 1 December 2012 and includes an example of a securitisation cash flow.

For vehicles set up before 1 December 2012, please see Section 2.21 (Limited Life Debt Investment Entities) for transitional rules.

Securitisationstructures are typically legally remote from the Financial Institution 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 classified following the Trust principles set out in Section 2.37 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. If there are no Financial Accounts, a nil return is still required.

Example of a post 1 January 2012 Securitisation programme

Cash Flows:

  1. Mortgage customer makes their regular monthly mortgage payment to Bank A plc.
  2. Bank A plc identifies appropriate SPV that cash belongs to and pays cash to the Trust.
  3. Once a month on the distribution date the Trust pays cash to the funding company.
  4. Funding company pays cash on payment date to Bank B.
  5. Bank B passes the cash to Euroclear or Clear Stream, the exchanges on which the Bonds are held.
  6. 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. The Trust though may have reporting requirements if any of its controlling persons are Specified US 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 that will include gross amounts of interest paid.