The New Rating Regime for Structured Finance Investments in Europe

Abstract

The new European Union Regulation on credit rating agencies introduces a new regime for rating structured finance investments in Europe. A different, tailor-made rating system will substantially change the presentation of the ratings, and the rating process, for structured finance investments. Enhanced disclosure obligations imposed on credit rating agencies as to their rating methodologies, models, and assumptions may help improve market transparency and efficiency. However, prescriptive regulation in other areas may impede market innovation and delay the recovery of the market for structured finance investments, while some market participants have raised concerns as to whether the Regulation can be effectively implemented in practice.

TOPICS: Legal and regulatory issues for structured finance, portfolio theory, portfolio construction