CREFC: EC failure to accommodate CMBS will hurt finance market

European Commission (EC) plans to unify Europe’s capital markets have been criticised for potentially harming the commercial real estate (CRE) finance market.

The EC will publish its Capital Markets Union (CMU) plan in the autumn which will outline its proposals to bind Europe’s capital markets closer together.

However, as expected, the EC’s proposals for a new “simple and transparent” securitisation classification do not accommodate CMBS transactions because they lack the granularity and homogeneity of many other kinds of asset backed securities, said CREFC Europe .

Failure to accommodate CMBS “will reduce the extent to which the CRE debt market uses securitisation, thereby reducing transparency and liquidity, as well as investor choice, and concentrate risk in different parts of the financial system, especially Europe’s banks,” said CREFC Europe in its response to the European Banking Authority’s (EBA) discussion paper on the CMU.

“If the EC’s proposals for securitisation are to be truly comprehensive, they have to work with the industry to find a way to promote healthy securitisation practices and markets for asset classes like CRE debt and CMBS, which are effectively excluded from the ‘simple and transparent’ framework,” said Peter Cosmetatos, chief executive of CREFC Europe.

“That would support financial stability, as well as the ability of the financial system to do its job of connecting investment capital to real economy businesses seeking credit”.

CREFC Europe said it had failed to persuade EC regulators to design a criteria that could accommodate securitised CRE debt but it was “important that regulators find ways to encourage the growth of a sustainable and responsible securitised CRE debt market, allowing risk to be distributed in a comparatively liquid and transparent form out of the banks and into the hands of non-originating investors”.

European regulators have also recently come under fire from industry groups for proposed regulations affecting slotting and shadow banking rules.

The EBA has been criticised for proposing onerous new rules on banks, possibly making lending more costly, and for plans to classify alternative investment funds, including real estate funds, as shadow banks and subjecting them to lending limits.