If You Thought 5% Risk Retention Was Bad, Try 10% On For Size

December 19, 2016

David Quirolo comments on Creditflux.com about the European Parliament's recent vote to increase risk retention requirements to 10%.

According to David Quirolo, partner at Cadwalader in London, this could have far-reaching consequences for CLOs. “While there will likely be some equivalency provisions in the proposals, the default position is that non-EU firms will find it much harder to participate in the European CLO market,” he says.

Finally, the amendments propose potentially onerous transparency requirements for CLO investors trading in the secondary market. Investors will be required to disclose every trade made in the secondary market to a "competent authority”. 

“The transparency requirement is designed to determine where the risk is in the system,” says Quirolo.“However, it will likely just deter investors from investing in European CLOs.”

The proposals are yet to become law, and will now head for ‘trilogue’ discussions – between the European Commission, European Parliament and Council of Ministers – in January. Quirolo says it is hard to predict the outcome of these talks.