Finance Industry Launches 'PCS' Securitisation Label to Revitalise Market
The Association for Financial Markets in Europe (AFME) and the European Financial Services Round Table (EFR) have launched Prime Collateralised Securities (PCS), an industry-led, non-profit project to develop a label for high quality securitisations which meet best practice in terms of quality, transparency, simplicity, and standardisation.
With the first label expected to be granted by the PCS Secretariat towards the end of this year, a number of key milestones have been reached:
Access to securitisation markets for issuers is becoming increasingly important to overcome a real economy funding shortfall in Europe. Asset backed securities can be an important component of the instruments that investors have available to them, especially as they do not use up the same credit line capacity as other investments, such as corporate bonds and covered bonds. Yet, despite the very strong underlying performance of European asset-backed securities since 2007, a smaller investor base and the reduced level of issuance over this period could have knock-on effects for companies reliant on capital markets funding, as well as Europe’s broader economic recovery.
The PCS initiative – developed by a broad group of market professionals comprising issuers, investors arrangers, and other market participants, in collaboration with other European industry associations, as well as observers such as the ECB, European Investment Bank and BoE – will comprise a two-tier governance structure:
The PCS Secretariat will grant the PCS label to securities, certify a transaction and monitor the label after it is issued. PCS is more than just a positive label for eligible securitisations – it provides the basis for a definition of agreed market standards, as well as an enforcement mechanism of these agreed standards, based on a label which can be granted and withdrawn depending on compliance and as verified by the PCS Secretariat.
Rick Watson, head of capital markets at AFME, said: “Investors and regulators need a clear reference point, setting out best practices around which to build investment guidelines and regulations, which, in turn, will encourage issuance as well as investment and support the real economy. Combining the expertise and market coverage of both AFME and EFR members has resulted in the ability to move forward on this very important initiative.
“PCS will bring added quality, transparency and standardisation to the market, which will deepen the securitisation investor base in Europe and, in turn, improve overall liquidity. Europe needs a healthy securitisation market and we are confident that this initiative, alongside regulatory changes, will provide a significant boost to the market.”