15 February 2017
These ever changing times for the structured finance industry are shining a light on the importance of client communication and transparency. Given the changes, participants are required to adapt and evolve to address the regulatory and technological changes.
One such regulatory update has been the implementation of money-market fund reform in the U.S., which has necessitated a fundamental change for institutional prime and tax-free funds. Institutional prime money market funds are now required to maintain a “floating” net asset value (FNAV) that is calculated to four decimal points, meaning that the funds no longer offer a stable $1.00 NAV. The NAV will fluctuate, however slightly, based on the value of its underlying securities. Once a core component for a variety of transaction types, the implementation of the FNAV structure precludes these FNAV funds from being an eligible investment going forward.
Another regulatory change that came into effect at the end of 2016, are the risk retention rules for collateralized loan obligations (CLOs). The CLO market, which set an all time record for issuance for a single year in 2014, saw a decrease in deal making in 2015 and 2016 due in part to the looming implementation of risk retention. Although the rules had not come into effect, investors in CLOs were demanding that the asset managers of the CLOs showed how they were going to be in compliance with this rules once they did take effect. In response, the asset managers have been utilizing different compliant structures for their CLOs - the manager-owned affiliate (MOA), the capital manager vehicle (CMV), or the hybrid capitalized manager owned affiliate - to see what works best for them and their investors.
Another factor affecting the structured finance market has been the implementation of enhanced Know Your Customer procedures implemented across the industry, which has slowed the deal formation process for clients and their investors.
These changes, whether money-market fund reform, risk retention rules, or enhanced KYC standards, have required Deutsche Bank’s Corporate Trust business to invest in its technology and infrastructure to insure clear communication and transparency to support clients in these changing times. These themes will be discussed at length when the industry meets in Las Vegas for the SFIG/IMN 2017 ABS Vegas conference.
The key to this ever changing landscape, says Gary Vaughan, Head of Corporate Trust Americas at Deutsche Bank is ensuring the Bank’s clients have the most up to date information they need in order to make their transaction a success. “In our role as trustee and service provider for a variety of structured and un-structured transactions, it is imperative that we provide best in class technology and customer service experiences,” says Vaughan. “This includes pertinent and timely communication around regulatory changes, such as the MMF reforms, and transparency into the portfolios they manage.”
Steven Park, Head of Americas, Structured Products, Debt and Agency Sales, Deutsche Bank adds that “The role of technology in enabling deal transparency has been a theme for a long time. However, given that the bank loan market has not been as technologically advanced as other equity type products, it has traditionally been a struggle for managers to get a real time view of their portfolio. The ownership requirements of the new risk retention rules means that they may struggle even more in the absence of timely and accurate information. To that end, Deutsche Bank has developed Issuer Services Deal Manager, which is already being used by most, if not all of our CLO clients. Via this platform, managers have online access to their transactions and holdings, providing them with the transparency and the risk mitigation requirements which the new rules are driving. The next step is to make it a routine part of our offering to the outside world globally.”
“With all of the regulatory change, industry participants are requiring more transparency and better information to comply with these new requirements,” says Vaughan. “They need multiple access points to the services we provide, and the changes make it important for us to provide that transparency which our clients can use to leverage and to navigate the complexity the regulations impose.”
With regulation constantly evolving, the need for transparency is increasing. As such, Deutsche Bank is investing in its technology and infrastructure in order to address today’s realities and tomorrow’s requirements.
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