The need for a platform to boost adoption of securitization in the EU

20.03.2023, by iconicchain

It is fair to say that securitization “earned” some bad reputation, being perceived as the key instrument behind the financial crisis of 2007-2008. In the aftermath of that crisis, the market basically stopped and only started recovering after a period of 7-8 years. Coupled with the sophistication of the instrument compared to other options, banks have understandable reasons to avoid it altogether.

In the EU, the introduction of the new regulation and especially the STS (Simple, Transparent, Standardized) label helped bootstrap the market again – and indeed the growth has been strong ever since 2017, especially when it comes to the synthetic securitization market. Yet, the vast majority of smaller banks are still staying away from it all: not anymore driven by the trauma of past crisis or lack of investors, but rather by the financial and operational burden of setting up and managing securitization transactions. Finding the right data points, setting up the required monthly processing and reporting, integrating the securitization process into the risk management systems, the cost of legal documentation and regulatory approval are all perceived as hurdles that sometimes seem hard to overcome.

The solution to address these concerns lies in industrializing the process of securitization by creating a legal and operational platform usable by issuers small and large. The key components of such industrialized platform include:

  • de facto, documented data structures
  • standardized legal contracts
  • on-boarded investors committed to the usage of the platform
  • reporting templates
  • an operational software platform for automated, digitized management of the transactions, including portfolio selection, processing and reporting.

Such platform would create an efficient, well understood foundation for issuers without extensive capabilities to set up and operate transactions, in a repeatable manner. It would also benefit investors by providing a well understood and tested transactional setup; it also has the benefit of simplifying regulatory oversight by national and EU level regulators.

Several countries have been working on setting such a platform for several years now. As leader in providing the operational digital platform for efficient management of securitized transactions, iconicchain is committed to supporting such initiatives with concrete, actionable capabilities leveraging our unparalleled experience with helping first-time issuers, ever since STS became the norm.