EU regulators must accelerate plans to slash the Solvency II capital charges on investments in asset-backed securities deemed "safe", Insurance Europe has said.
This comes after the European Commission said in September that it was planning to review the capital treatment of securitisations under the impending regulatory regime, after reaching a political agreement on a framework for identifying simple, transparent and standardised (STS) securitisations is achieved.
The industry trade body has expressed its support for the initiative, but urged the Commission to cut corners in the face of potential delays in discussions about the STS securitisation directive.
In a position paper published on 16 November, Insurance Europe said: "This must not be an excuse to delay the immediate review of the current prudential treatment of securitisations under Solvency II, which, as it stands, is unnecessarily restrictive and punitive."
In its current form, Solvency II already makes a distinction between two types of securitisations – type 1 and type 2 – based on their quality, and imposes different capital charges on those.
Industry representatives said the Commission must build on this framework to ensure that junior tranches and collateralised loans obligations can qualify for reductions in capital charges. Furthermore, the charges imposed on securitisations of residential loans and senior tranches should be capped at the level of the underlying assets, Insurance Europe added.
The Commission has the power to amend the delegated acts – where the charges are set – at any time. The European Parliament and the European Council have an individual right to object to the text over a three-month period.
This means that if the Commission conceded to the industry's demand, the changes could come into force by mid-February, before the first deadline for quarterly reporting under Solvency II.
Insurance Europe also criticised the proposed scope of the planned review of the Solvency II capital charges.
In the explanatory memorandum attached to the directive on STS securitisations, the Commission indicated that the review will be restricted to junior tranches, but the industry is lobbying for additional cuts be made in the charges that apply to senior tranches.
Insurance Europe advised the Commission against creating a cliff effect between the charges that apply to senior and junior tranches.
Regarding the accreditation of STS securitisations, the industry trade body recommended that this be done by a third party to avoid any conflicts of interest and encourage investors to trust in the assessment.
See also If European securitisation grows, it's likely to be despite EC regulation