EU-US Risk Retention Comparison

“In the United States, the Dodd-Frank Wall Street Reform and Consumer Protection Act 2010 (the "Dodd-Frank Act") was signed into law by President Barack Obama on 21 July 2010”

In the United States, the Dodd-Frank Wall Street Reform and Consumer Protection Act 2010 (the "Dodd-Frank Act") was signed into law by President Barack Obama on 21 July 2010. Subtitle D of Title IX of the Dodd-Frank Act sets out broad preliminary parameters for the adoption of risk retention rules that will apply to certain securitization transactions. As is the case with many of the provisions of the Dodd-Frank Act, Congress has taken a high-level approach in Subtitle D of Title IX by only providing a rough sketch of what the risk retention requirements will look like, leaving the regulators with the task of drafting specific regulations to fill in the details.

In Europe, the Member States of the European Union are in the process of implementing the European risk retention rules contained in Article 122a of the Capital Requirements Directive (the "CRD") into national legislation in each Member State with a view to transposing such risk retention rules into binding law. Concurrently, the Committee of European Banking Supervision ("CEBS") has started a consultation process relating to the interpretation of Article 122a of the CRD on the basis of its "Consultation paper on guidelines to Article 122a of the Capital Requirements Directive" dated 1 July 2010. Click here for our briefing focusing in greater detail on various issues raised by the CEBS guidelines. The consultation process is accompanied by a public hearing which began on 22 July 2010 and ends on 1 October 2010. Going forward, the regulatory framework in Europe will likely become more complex as further regulatory changes (including additional risk retention rules based on Article 122a of the CRD) are being developed for hedge funds and insurance companies to ensure consistency among the various sectors.

Given the extraterritorial scope of both the US and European regimes and the cross-border nature of the international securitization market, necessity will require market participants on both sides of the Atlantic to understand the similarities and differences between both sets of rules. This client alert is intended to provide some comparative guidance on the two risk retention regimes as they currently exist, including a short-form summary comparison at the end

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Author - Lynsey Calver

Tags - International law firm, international arbitration, capital markets, white & case, Dodd-Frank

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