New regulations for securitization activity: The Financial Regulatory Authority (FRA) has released a circular outlining new regulations for securitization activity, to protect those who invest in securities and ensure the market operates efficiently.

(Tap or click the headline above to read this story with all of the links to our background as well as external sources.)

What do they entail? The new regulations include:

  • Mandatory e-reporting: Securitization companies are now required to submit detailed information about their securitization portfolios electronically to the FRA within a month of the circular’s issuance;
  • Swift transfer of receivables: The company that owns the underlying asset must enter into an agreement with the securitization company that stipulates that the asset-holder will collect payments and transfer them to the securitization company in a timely manner.
  • Single-use portfolios only: A single portfolio of financial assets cannot have been previously securitized and cannot be subject to guarantees for loans or credit facilities.

The FRA also issued a separate circular regarding the transfer of credit portfolios linked to NBFIs to other entities, including licensed financing entities authorized to engage in the same activity, banks, securitization companies, and investment funds. The key points include:

  • Transfers require FRA approval: NBFIs must get the greenlight from the FRA before transferring their credit portfolios to another entity;
  • Credit portfolios must be sound: Portfolios slated for transfer must be composed of debtors who have been regularly making payments;
  • Collateral requirements for consumer finance contracts: For consumer finance contracts in particular, the circular limits the use of one source of collateral to one transfer.

More transparent non-banking finance is the goal: The new regulations come as part of a broader FRA push to create a more investment-friendly environment to attract more investments in NBFIs by simplifying procedures while maintaining the required oversight.

Tags: