Short-term securitised products could qualify for preferential capital treatment under Solvency II, Bloomberg has reported.
According to an undisclosed memo, the European Commission is weighing up bringing asset-backed commercial paper (ABCP) into the category of high quality asset-backed securities, which qualify for capital relief.
This proposal is key to the commission's plan to revive the securitisation market, which collapsed in the aftermath of the financial crisis. Commissioner Jonathan Hill has promised to deliver a comprehensive package with updated solvency charges on securitisations in the autumn.
ABCP is a short-term form of commercial paper that is collateralised by other financial assets. The insurance industry emphasised the role of these instruments in financing the real economy, in an effort to get them to qualify for preferential capital treatment.
As Solvency II rules stand, the senior tranches of safe and transparent securitised products are treated in line with investments in the underlying assets, but other securitised instruments attract exorbitant capital charges (IAR, 6 March 2015).
