IEIM400900 - Financial Institution: Securitisation Vehicles

Securitisation Vehicles

Securitisation structures are typically legally remote from the entity in relation to which the risks and rewards of the structure are associated. Typically, a securitisation structure will include an issuing entity, funding entity, seller, mortgage trustee and often counterparties.

Each entity within the structure must be considered to see whether it meets the definition of a Financial Institution [see IEIM400600]. A securitisation vehicle that is a Financial Institution will need to consider if it has any financial accounts [see IEIM401500] that may be reportable.

For FATCA there is a specific treatment of certain limited securitisation vehicles established prior to 17 January 2013. To mirror the categories in the U.S. Regulations certain term limited securitisation vehicles using ‘Special Purpose Vehicles’, created to hold debt until maturity or until liquidation of the vehicle will be regarded as Certified Deemed Compliant Financial Institutions. To qualify for this relief the securitisation vehicle must have been established prior to 17 January 2013 and meet both the definition of a securitisation company in CTA10/S623 and the specified conditions set out in The Taxation of Securitisation Companies Regulations 2006 (SI2006/3296).

Example of a securitisation programme.

Cash Flows:

1. Mortgage customer makes their regular monthly mortgage payment to Bank A plc.

2. Bank A plc identifies the appropriate special purpose vehicle (SPV) that the cash belongs to and pays the cash to that entity, say, a trust.

3. Once a month on the distribution date the trust pays cash to the funding company.

4. The funding company pays cash on payment date to Bank B.

5. Bank B passes the cash to Euroclear or Clear Stream, the exchanges on which the bonds are held.

6. Euroclear and Clear Stream pass the cash to the custodian bank who then credits the bondholders’ accounts. Bondholders then draw on their cash at the custodian bank.

The above scenario provides the following reporting obligations:

• Mortgages are not within the financial account definition so there is no financial account with Bank A Plc and therefore no reporting requirement in relation to them.

• Steps 3 to 5 involve payments made between Financial Institutions and as such there is no need for any of these payments to be reported. The trust though may have reporting requirements if any of its Controlling Persons are Reportable Persons.

• In step 6 the custodian will have financial accounts in which the bonds are held and as such the custodian will need to identify if it has any Reportable Accounts. Where it does, it must perform the necessary reporting [see IEIM402520].