They say, “If you’re a hammer, everything looks like a nail.” And maybe if you are a CLO manager, “every regulation must be about risk retention.” That seems to be the case with respect to the Japan Financial Services Agency’s (“JFSA”) recently published regulatory capital rule (the “Rule”) on securitizations. To be sure, an important part of it touches on risk retention but a deeper dive suggests that the JFSA’s focus extends to the due diligence practices of Japanese banks and the asset quality of the loans in which they are investing through CLOs. Furthermore, the JFSA has structured the Rule in such a way as to give themselves a significant amount of leeway in interpreting and enforcing the Rule. Stated differently, it appears that the uncertainty in the Rule is a feature, not a bug. Let’s take a look.
This week we cover Japanese Risk Retention; Sustainable Lending Trending; Secondary Trading Stats
Will there be Japanese Risk Retention for CLOs? Last Friday, the Japanese Financial Services Agency (JFSA) published its long awaited final rule (the Final Rule) on risk retention/capital costs for investments by Japanese investors in securitizations (including CLOs).
A document that the JFSA published which responsed to the many of the comments they received on their initital draft.
Late last night (US Eastern time) the Japanese Financial Services Agency (JFSA) published its final rule and related FAQs on capital charges relating to investments in securitizations.
This document is a translation of the relevent comments
Related FAQs on capital charges relating to investments in securitizations.
Japanese Risk Retention: JFSA Favors Diligence Over Disruption. This helpful memo written by Dechert discussed the bottom line for US CLOs
Exemptive conditions of Japanese risk-retention rules are credit positive for US CLOs. You will need to create a profile.
Early this week, the LSTA submitted a comment letter to the Japanese Financial Services Agency (“JFSA”) responding to its recent proposal to impose significantly higher capital charges on Japanese investors who purchase interests in certain securitizations that are not risk retention compliant. (For the Japanese language version of the comment letter click here and for the English language version click here).
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