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Page 1
Agenda
AIF Club Securitization - 9 February 2017
► IntroductionOliver Cloess, Directeur Associé, Securitization Leader, EY Luxembourg
► Luxembourg Market UpdateJaffer Ahsan, Senior Manager, Assurance, EY Luxembourg
► Tax (BEPS and VAT)Jurjan Wouda Kuipers, Partner, International Tax Services, EY New YorkOlivier Lambert, Directeur Associé, Tax Advisory Services, EY Luxembourg
► Securitization Trends in the UKVivek Kavdikar, Director, Assurance, EY London
► Accounting and Corporate GovernanceCaroline Nicoletti, Senior Manager, Assurance, EY Luxembourg Cedric Goergen, Manager, Assurance, EY Luxembourg
► Wrap up and OutlookOliver Cloess
9:00 – 9:05 am
9:05 – 9:15 am
9:15 – 9:35 am
9:35 – 10:00 am
10:00 – 10:25 am
10:25 – 10:30 am
Page 2
Voting question
What is your average annual growth rate (AAGR) estimate regarding the creation of new Luxembourg securitization companies for the period from 2017 to 2019 compared to the AAGR in the period from 2009 to 2016?
AIF Club Securitization - 9 February 20171 2 3
66%
4%
30%
1. AAGR 17-19 more than 25% higher
2. AAGR 17-19 stable
3. AAGR 17-19 more than 25% lower
Page 4
The Luxembourg securitization country market share in the Euro zoneA comparison
AIF Club Securitization - 9 February 2017
-
200,00
400,00
600,00
800,00
1 000,00
1 200,00
2009 2010 2011 2012 2013 2014 2015 2016
Luxembourg Ireland Italy
The evolution in the Eurozone
Luxembourg has shown continuous growth throughout the
past few years, and has outperformed any other location in
the Euro zone
Ireland, the major competition market with 20% less
securitization companies than Luxembourg, faced a four
year down turn and is slowly recovering since 2014
Italy has grown by 89% since 2009. It has has roughly half
the size of the Luxembourg market
Other markets like Netherlands and France have shown
positive growth rates
Spain has a smaller number of securitization companies that
reduced by 36% from 499 to 322 entities
Other four Euro zone countries have a combined market
share falling from 4% in 2009 to 3% today
Page 5
The Luxembourg securitization country market share in the Euro ZoneThe evolution and status quo in Luxembourg
AIF Club Securitization - 9 February 2017
-
500,00
1 000,00
1 500,00
2 000,00
2 500,00
3 000,00
3 500,00
4 000,00
2009 2010 2011 2012 2013 2014 2015 2016
Luxembourg Other Countries
28%
23%16%
12%
9%
9%
3%
2016
Luxembourg Ireland Italy
Netherlands Spain France
Other Countries
2009 - 2016
Page 6
The Luxembourg securitization market development
AIF Club Securitization - 9 February 2017
,0
200,0
400,0
600,0
800,0
1000,0
1200,0
1400,0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
unregulated authorized not reported
Page 7
The Luxembourg authorized securitization market development (Issuance and authorized entities)
AIF Club Securitization - 9 February 2017
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Issuance 3,0 11,0 13,9 15,3 16,5 12,0 12,7 14,4 15,9 18,6 23,8 28,3 31,0
Number 2,0 6,0 11,0 17,0 20,0 23,0 26,0 27,0 32,0 31,0 32,0 32,0 34,0
0,0
5,0
10,0
15,0
20,0
25,0
30,0
35,0
Page 8
The Luxembourg securitization market developmentTransaction review
AIF Club Securitization - 9 February 2017
Number of Securitization Undertakings (SU) and Transactions
SU Change
in SUs
Transactions Change
in transactions
Transactions
per SU
Authorized
2016
2015
2014
2013
34 (3.3 %)
32 (3.3 %)
32 (4.9 %)
31 (4.8 %)
2 (6.3 %)
0 (0.0 %)
1 (3.2 %)
1,681 (36.6 %)
1,538 (38.5 %)
1,563 (40.7 %)
1,113 (36.1 %)
143 (9.3 %)
-25 (-1.6 %)
450 (40.4 %)
49.4
48.1
48.8
35.9
Unregulated
2016
2015
2014
2013
1,012 (96.7 %)
930 (96.7 %)
619 (95.1 %)
616 (95.0 %)
82 (8.8 %)
311 (50.2 %)
3 (0.5 %)
2,907 (63.4 %)
2,460 (61.5 %)
2,278 (59.3 %)
1,970 (63.9 %)
447 (18.2 %)
182 ( 8.0 %)
308 (15.6 %)
2.9
2.6
3.7
3.2
Total
2016
2015
2014
2013
1,046
962
651
647
84 (8.7 %)
311 (47.8 %)
4 (0.6 %)
4,588
3,998
3,841
3,083
590 (14.8 %)
157 ( 4.1 %)
758 (24.6 %)
4.4
4.2
5.9
4.8
Page 9
Luxembourg Corporate Service Provider developments
AIF Club Securitization - 9 February 2017
2010
TOP 10 CSP
Other CSP
2015
TOP 10 CSP
Other CSP
2016
TOP 10 CSP
Other CSP
TOP 10 68 % 10
Other 32 % 62
Total 72
TOP 10 47 % 10
Other 53 % 161
Total 171
TOP 10 44 % 10
Other 56 % 261
Total 271
Entities registered (Other) in % Aggregate
1 64 % 64 %
2 16 % 80 %
3 9 % 89 %
4 4 % 93 %
5 4 % 97 %
5 3 % 100 %
TOP 10 in % Aggregate
1 26 % 26 %
2 16 % 42 %
3 14 % 56 %
4 13 % 69 %
5 8 % 77 %
Largest count 133 SU
TOP 10 (continued) in % Aggregate
6 6 % 83 %
7 5 % 88 %
8 4 % 92 %
9 4 % 96 %
10 4 % 100 %
Smallest count 18 SU
2016
Page 11
General overview
AIF Club Securitization - 9 February 2017
Flexible from legal and regulatory perspective but has limitations in type of activity:
Securitization activity
No active management
Fully subject to Luxembourg corporate tax (27.08%), but:
Commitments towards investors and creditors qualify as tax deductible expenses even if they are not
actually paid out in the given year
Typically very low resulting effective tax rate
No withholding tax
No net worth tax
Access to a wide network of double tax treaties (DTTs) signed by Luxembourg to be determined
on a case-by-case basis
Securitization vehicle (SV) is mandatorily subject to audit
Tax treatment based on income tax law
No need for approval by Luxembourg tax authorities
Lux SV
(Luxembourg)
A CB
Fund
Underlying assets
Page 12
► Timeline key EU developments
Summary of EU legislative developments
AIF Club Securitization - 9 February 2017
Page 13
Voting question
Have you considered the impact of the 2019 EU changes on your EU fund structuring?
AIF Club Securitization - 9 February 20171 2
79%
21%
1. Yes
2. No
Page 14
Main Trends – OECD and EU Developments
AIF Club Securitization - 9 February 2017
OECD Base Erosion and Profit Shifting (BEPS) Project:
Focus on restricting access to tax treaties, EU Directives
Introduction of General Anti Avoidance Rule (GAAR)
Multilateral instrument (MLI) introducing Principle Purpose Test (PPT) starting probably 1/1/2019
Focus on appropriate functionality, substance
Focus on transparency:
Exchange of ruling information
Country-by-country reports, local file/master file reporting
FATCA, CRS
Restrict interest deductions under the EU Anti-Tax Directive Avoidance Directive (ATAD)
EU-wide 30% EBITDA interest deduction limitation, effective 1/1/2019
Introduction of anti-hybrid rules under ATAD and ATAD 2
Anti-hybrid entity, hybrid instrument, hybrid branch
Page 15
Main Trends – Use of Luxembourg Securitization Vehicles
AIF Club Securitization - 9 February 2017
No need to use hybrid instruments
Commitments / distributions of income to investors are not subject to Luxembourg dividend withholding tax
Upcoming 30% EBITDA interest deduction limitation:
Deductible commitments towards investors and creditors not caught by the 30 EBITDA limitation?
Transparency: no need to request a ruling
Access to tax treaties
OECD issued draft guidance (January 2017) on treaty access through practical examples (one example is on a securitization vehicle)
OECD lists various relevant factors
Luxembourg securitization vehicles are able to point at many of these factors (Further details in next slide)
Page 16
BEPS Treaty Eligibility – Draft GuidanceNon-CIV examples
AIF Club Securitization - 9 February 2017
Bank
(State T)
RCo
(State R)
Loan Notes / Interest
3rd Party Note Holders
Interest Payments
Sale of loans
+
-
-
++
OECD Factors driving the decision to establish RCo in State R: Factors driving the decision to establish SV in Luxembourg:
RCo is a securitization company resident in State R, established by a bank
which sold to RCo a portfolio of loans and other receivables owed by debtors
located in a number of jurisdictions. RCo is fully debt funded. RCo has issued
a single share which is held in trust and has no economic value. RCo’s debt is
widely held by third-party investors. The notes are listed on a recognized
stock exchange. Investors’ decision to invest in RCo are not driven by any
particular investment made by RCo and RCo’s investment strategy is not
driven by the tax position of the investors.
• LuxCo may operate as a securitization vehicle, provided a number of
requirements are met. √• Unlike some other countries’ requirements, its shares do not need to be
held in trust, and its notes do not need to be held on a stock exchange to
obtain an interest withholding tax exemption. √
State R’s robust securitization framework. • Luxembourg has a robust securitization legal framework (since 2004)
which ensures enhanced investor protection, enables the creation of
compartments and qualifies a wide range of asset classes for SV. å Over 1,000 SVs representing more than 4,000 compartments are
established in Luxembourg. √
State R’s securitization and other relevant legislation. • SV in Luxembourg may be formed as a corporation or as a fund without
legal personality (management company required). å Securitization may establish an infinite number of segregated cells and the
assets/liabilities contained within one cell are independent of the
assets/liabilities in all other cells. å Possibility to use multi-level structures in case local legislation of
originator does not allow to sell assets to investors located in a country
different from the originating country. √
The availability of skilled and experienced personnel and support services in
State R.
• Luxembourg has extensive availability of directors and personnel with
securitization and regulatory knowledge. å Extensive expertise of local Luxembourg service providers. Existence of a
skilled, multi-lingual work force. √
The existence of benefits provided under State R’s extensive tax treaty
network. • Luxembourg has an extensive tax treaty network. √
Receivables Portfolio (State S)
60%
Page 17
BEPS Treaty Eligibility – Draft GuidanceNon-CIV examples
AIF Club Securitization - 9 February 2017
Additional non-tax reasons also defined as “positive PPT factors” in recently issued OECD Draft Guidance:
OECD’s Positive PPT factors under the OECD draft guidance: Benefits of a Luxembourg establishment in light of the OECD draft
guidance:
Existence of a skilled, multi-lingual work force Luxembourg has attracted thousands of investment firms and service providers over
the decades who collectively contribute unique knowledge and expertise to the global
investment industry players. With more than 150 nationalities represented, many
people in Luxembourg speak three or four languages. √
Located in a member jurisdiction of a regional grouping Luxembourg is a member of the European Economic Area (EEA). √
Use of the regional grouping’s common currency EURO currency, or other functional currency. √
Good reputation / known by investors Luxembourg is the largest investment fund center in Europe (over €2,400 b in net
assets under management) and the second largest in the world after the US. √
A good legal system and regulatory environment Luxembourg is continuously creating/updating specific regulatory frameworks for
different financial sectors (e.g., RAIF Law) focusing on investors protection alongside
with rigorous anti-money laundering policies. √
Politically stable Luxembourg is a founding member of the EU and strategically positioned at the heart
of Europe with a confirmed AAA rating by the three main rating agencies. √
Page 18
Voting question
Do you expect to increase your operational substance in Luxembourg in the near future?
AIF Club Securitization - 9 February 20171 2
18%
82%1. Yes
2. No
Page 19
Tax – VAT
► Taxable Status of SV
► Circular 723 dated 29 December 2006
► Article 44, §1, d) of the Luxembourg VAT Law
► … and similar entities performing securitization transactions as per art.1, point 2 of BCE Regulation
► Management of SV
► Article 44, §1, d) of the Luxembourg VAT Law
► Circular 723 dated 29 December 2006
► ABBL list of services and Appendix II of UCITS Directive
► Article 44, §1, c) of the Luxembourg VAT Law
► … but excluding debt collection
AIF Club Securitization - 9 February 2017
Page 20
Tax – VAT (cont’d)
► Input VAT deduction right
► Loans portfolio outside the EU
► Debts portfolio outside the EU
► Luxembourg VAT rates - Attractiveness
► Standard VAT rate (17%) remains the lowest in Europe
► Brexit: Impact in Luxembourg and in the UK
► Credit Management activity – exempt but deduction right?
► Deduction right: most likely no immediate application
► No ESL
AIF Club Securitization - 9 February 2017
Page 22
UK securitization market – 2016 at a glance
► Issue of securitized products in UK market in 2016
► Issue of securitized products by category
AIF Club Securitization - 9 February 2017
Source: Bloomberg, AFME, EY Analysis
2,14 2,96 3,07
8,66
5,85
1,18 0,77
2,25
1,06
4,03
6,82
1,71
0123456789
10
Mo
nth
ly is
sua
nce
in
GB
P (
bn
)
RMBS84%
ABS16%
CMBS0%
CDO0%
86%
12%
2%
0%
75%
80%
85%
90%
95%
100%
To
tal A
BS
of G
BP
6.3
8 b
n
Asset
Consumer
Card
Auto
► The securitization market in England and Wales
continues to be one of the largest and most developed
securitization markets in Europe. As at the end of Q4
2016, it had become the most active jurisdiction in
Europe (by jurisdiction of collateral securitized)
reflecting an estimated £40.5 b of €140 b total new
asset backed securities (ABS) issuance in Europe.
► Issuances in the public market in 2016 continued to
focus on existing and well-established structures and
asset classes, predominantly auto-loan ABS and
residential mortgage backed securities (RMBS),
although credit cards, collateralised loan obligations
(CLO) and consumer finance loans have been active
asset classes.
► Post Brexit, issuance bounced back from a quiet Q3
with Q4 volume of £12.4 b representing a three fold
increase quarter on quarter but below a strong Q4
2015.
Total securitization: GBP 40.5bn
Total Issuance
£40.5b
Page 23
Trends in UK securitization market
► Securitization in UK market over the period (2000-2016)
► Issuance by collateral type (2000-2016)
AIF Club Securitization - 9 February 2017
► Although the UK securitization market grew significantly in
the run-up to the 2007-08 crisis, it dramatically contracted
thereafter.
► The EBA and ECB reports identify possible factors that could
explain why UK securitization issuance remains subdued.
► The absence of an Agency MBS market
► Alternative funding instruments available to institutions
► Tightening of credit rating agencies' rating methodologies
► Lack of a sufficient investor base
► Potential regulatory uncertainty resulting on issuers and
investors from the numerous regulatory initiatives yet to
be finalized.
► RMBS continued to lead the asset classes consisting of 81%
of all the securitized products. The UKAR issuance in 2015
and 2016 represented a significant portion of the RMBS
issue volume.
► In 2016, the ABS market Autos took a significant portion of
total issuance – though Credit Cards tend to be the most
popular.
Source: Bloomberg, European Parliamentary Research Service, European Commission, EY Analysis
0
10
20
30
40
50
60
70
Month
ly I
ssuance in
GB
P (
bn)
RMBS81%
ABS10%
CMBS6%
CDO3%
65%
23%
8% 2%
1%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%T
ota
l A
BS
of G
BP
109.2
8 b
n
Others
Consumer
Asset
Auto
Card
Others includes Equipment, Student, Healthcare & TradeTotal securitization: GBP 1,067.51bn
Page 24
Trends in the UK securitization market – RMBS
► Shift in product-wise issuance of securitized products (2000-2016)
► UK RMBS Spreads (2007-2016)
AIF Club Securitization - 9 February 2017
Source: JP Morgan International ABS & CB Research, Bloomberg, ECB, EY Analysis
0
200
400
600
800
1 000
1 200
1 400
Spre
ad (
bps)
UK Prime AAA
UK Non-ConformingAAA
► RMBS, the major product category to be
securitized, declined sharply after the financial
crisis of 2007-08.
► There has been markedly less supply of UK RMBS
since the inception of the Bank of England’s
Funding for Lending Scheme, launched in 2012,
the Discount Window and Term Funding Scheme
(TFS) which provided funding to banks for an
extended period.
► RMBS has been supported by the Asset-backed
Securities Guarantee Scheme that was introduced
at the beginning of 2009 and may have contributed
to the decrease in RMBS spreads.
► In terms of spread levels, the RMBS sector
continues to look attractive when compared to
corporates. At the top end of the market, AAA rated
bonds backed by UK prime mortgages offer
c.30bps premium to covered bonds of similar
maturities, even though these are backed by
practically the same collateral.
11,69 7,71 7,73 20,44
46,48
73,50
113,05 122,63
216,39
62,11
107,26
78,72 77,16
20,98 30,36 30,79
40,51
0
50
100
150
200
250
Issuance in
GB
P (
bn)
CDO
CMBS
ABS
RMBS
Page 25
Trends in UK securitization market
► Products securitized by month of issue (2000-2016)
► Issuance with country of collateral being UK vs Rest of Europe
(2000-2016)
AIF Club Securitization - 9 February 2017
47,54 40,06
87,09 74,14
88,26 100,10
82,39
45,09
100,62
175,77
102,21
124,26
0
40
80
120
160
200
Issuance e
ach m
onth
in G
BP
(b
n)
Source: Bloomberg, LexisNexis Blog, EY Analysis
► Historically, the last quarter has been the most
favored period for issuance of securitized products.
► Seasonal reason for high issues in December and
then a fall in January is that issuers prefer to close
deals ahead of Christmas break.
► Share of securitizations with the UK as the country
of collateral in comparison to the whole of Europe
has reduced significantly. While it was 43% in 2005,
it dipped to 16% in 2013 and recovering slightly to
24% in 2016.
► The appetite for structured finance in UK will not be
diminished by the Brexit vote.
► It is estimated that any potential changes in the
legal and regulatory landscape as a result of Brexit
would affect investors planning to invest in
securitizations in the short term only since it will
take a number of years for the terms of the UK’s
exit to be negotiated.29,62 43,83 58,79 87,46
112,80
169,89
290,73
345,31
597,02
307,64 339,17
315,47
213,72
134,73 157,05 143,74
170,00
0
100
200
300
400
500
600
Issuance in
GB
P (
bn)
Page 26
Key market players – 2016
Rank Entity
Value of
transactions
(in GBP bn)
Number of
transactions
1 BAML 21.33 18
2 Lloyds 17.52 14
3 Citi 14.85 14
4 Morgan Stanley 10.77 7
5 Credit Suisse 9.47 6
6 Deutsche Bank 7.22 8
7 Natixis 6.96 3
8 HSBC 6.77 11
9 Lloyds Bank 6.09 5
10 Barclays 5.75 5
11 Wells Fargo 3.88 6
12 Banco de Sabadell 3.39 1
13 BNP Paribas 2.46 3
14 Santander 2.12 3
15 RBC Capital Markets 1.93 4
16 JP Morgan 1.64 2
17 Rand Merchant Bank 0.98 2
18 MUFG Securities 0.82 1
19 RBS 0.59 3
20 Credit Agricole 0.39 1
21 One Savings Bank 0.38 1
22 RBC 0.25 1
23 Societe General 0.25 1
24 Bedford Row Capital Advisers 0.07 3
AIF Club Securitization - 9 February 2017
Source: Bloomberg, Debtwire
As Lead Managers As Co-Arrangers
Rank Entity
Value of
transactions
(in GBP bn)
Number of
transactions
1 Lloyds 10.79 11
2 Morgan Stanley 8.62 5
3 Citi 7.36 7
4 BAML 6.21 6
5 HSBC 3.98 6
6 Barclays 3.81 3
7 Credit Suisse 2.35 3
8 Volkswagen Financial Services 1.95 5
9 Santander 1.87 2
10 Deutsche Bank 1.45 3
11 RBC Capital Markets 0.88 2
12 Nationwide Building Society 0.88 1
13 Natixis 0.70 2
14 BNP Paribas 0.59 1
15 Credit Agricole 0.39 1
16 One Savings Bank 0.38 1
17 RBS 0.32 1
18 Landesbank Baden-Württemberg 0.28 1
19 UniCredit Bank AG 0.28 1
20 NewDay Cards Ltd. 0.25 1
21 Detail not available 1.39 9
Page 27
Key market players – 2016
Rank Entity
Value of
transactions
(in GBP bn)
Number of
transactions
1 Cerberus 7.82 4
2 Bank of Scotland 4.32 2
3 Junglinster 3.42 2
4 TSB Bank Plc 3.39 1
5 Virgin Money 2.95 2
6 Accord Mortgages Ltd. 2.51 1
7 Volkswagen Financial Services 2.15 7
8 Santander (UK) 1.87 2
9 Kensington Mortgage Company 1.53 3
10 Capital Home Loans 1.24 1
11 GMAC 1.01 3
12 FirstRand Bank 0.98 2
13 Nationwide Building Society 0.88 1
14 Bawag PSK Bank 0.78 1
15 Clydesdale Bank Plc 0.75 1
16 FCE Bank 0.54 1
AIF Club Securitization - 9 February 2017
Source: Bloomberg, Debtwire
By Issuer
Rank Entity
Value of
transactions
(in GBP bn)
Number of
transactions
17 Principality Building Society 0.52 1
18 Lloyds Banking Group 0.50 1
19 Skipton Building Society 0.49 1
20 Coventry Building Society 0.47 1
21 Close Brothers Limited 0.44 1
22 One Savings Bank 0.38 1
23 CarVal 0.32 1
24 TwentyFour Asset Management 0.31 1
25 Newday Group Ltd 0.25 1
26 London Wall Capital Investments 0.25 1
27 P2P Global Investments plc 0.15 1
28 Dorset Rise 0.13 1
29 Escher Marwick plc 0.07 3
30 Credit Suisse 0.07 1
31 Optimum One 0.03 1
Page 28
Impact of Brexit on the UK securitization market
► The uncertainty in the run-up to the Brexit vote on 23 June 2016 did not seem to hold the securitization market back. According to the
AFME, the volume of securitized products issued in Europe in Q2 2016 (€74.5b) was almost 50%. This was higher than in the
comparable period in 2015, the single most popular asset class being UK residential mortgage-backed securities (RMBS)
► Immediately post the Brexit vote, in Q3 2016 there was a lull in the market and it was a combination of Banks and Investors taking stock
and the general summer slowdown in European capital markets
► In Q4 2016, the issuance volume accelerated with clients and others, and investors’ appetite for structured finance undiminished by the
Brexit vote
► As a result, issuance in 2016 at £40.5 b represented a 33% increase in 2015
► It is estimated that any potential changes in the legal and regulatory landscape as a result of Brexit would affect investors planning to
invest in securitizations in the short term only since it will take a number of years for the terms of the UK’s exit to be negotiated
► Rating agencies’ views are that Ratings for UK securitizations would be largely unaffected by the economic impacts of Brexit
► However, the UK will need to maintain a regime that is largely harmonized with the EU regime in order for UK securitization debt to
continue to be attractive to, and eligible for, EU investors, who have traditionally been a significant source of liquidity for UK covered
bonds, RMBS and other UK ABS
AIF Club Securitization - 9 February 2017
Page 29
Impact of Brexit on the UK securitization market
► As of January 2017, the UK as a member of the EU, is subject to the EU CRR which sets out the regulations governing the regulatory treatment for
Securitizations
► Article 50 trigger is expected by the end of March 2017. The leaving process will take two years and so all things being equal, it is expected that the UK will no
longer be a member of the EU from March 2019
► Implications for Prudential Regulation:
► Equivalence – Need to maintain EU equivalence and Basel adherence
► Future compliance of UK securitizations with the STS criteria under the proposed Securitization Regulation
► Ongoing regulation of securitization by the EU and risk retention requirements
► Increase the risk retention requirement from 5% to 20% and limiting eligible risk retainers to EU-regulated entities
► Could prevent UK manager-originator structures as well as UK securitizations involving a single originator acting as a risk retainer (including most UK
RMBS, credit card, auto and corporate securitizations) from complying with the EU risk retention rules following the Brexit, which would prevent EU-based
investors from investing in UK securitizations
► Requirements for issuers of covered bonds under the UCITS IV Directive
► The UK has a well developed Covered Bond market. To benefit from the provisions of the UCITS IV Directive which is beneficial for investors and
therefore less expensive for the issuing bank and building society. The EU Directive requires the issuer of the covered bonds to have its registered office
in the EU
► Eligibility of ABS as collateral for Eurosystem monetary policy initiatives and inclusion in the liquidity coverage ratio (LCR)
► Impact on EU Credit Institutions
AIF Club Securitization - 9 February 2017
Page 31
The Accounting and Corporate Governance Agenda
► The Law and the Grand Ducal Regulation of 18 December 2015
concerning annual accounts and consolidated financial statements
► The Grand Ducal Regulation of 15 December 2016
► The Law of 10 August 2016 on the modernization of the commercial
law
► The Law of 23 July 2016 on the audit profession
AIF Club Securitization - 9 February 2017
Page 32
The Law and the Grand Ducal Regulation of 18 December 2015 concerning
annual accounts and consolidated accounts
► In December 2015, the European Directive 2013/34/EU on the annual and consolidated financial statements was transposed to
Luxembourg’s corporate law
► The new law is effective for financial periods beginning on or after 1 January 2016
► It modifies:
a. The law of 10 August 1915 on commercial companies
b. The law of 19 December 2002 on annual accounts
AIF Club Securitization - 9 February 2017
Page 33
Materiality concept
► In Luxembourg, to prevent both the difficulties in the application and the risk of abuse, it has been decided to limit the application of the
materiality concept to the completeness of the disclosures of notes in the financial statements
AIF Club Securitization - 9 February 2017
Material means the status of information where its omission or misstatement could
reasonably be expected to influence decisions that users make on the basis of the
financial statements of the undertaking
Page 34
Presentation of the balance sheet and profit and loss account for annual
accounts
► The form and content of the balance sheet and profit and loss account (both in full and abridged format) have been removed from the
law and are now defined by the new Grand Ducal Regulation 18 December 2015
► New layouts already available on the Luxembourg eCDF platform
► Vertical presentation for the profit and loss accounts (by nature)
AIF Club Securitization - 9 February 2017
Page 35
Extraordinary items
► Extraordinary expenses or income do not appear on the face of the profit and loss account anymore
► However the provision to disclose in the notes to the accounts, the amount and nature of individual items of income or expenditure
which are of exceptional size or incidence, remains in force
AIF Club Securitization - 9 February 2017
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Selected main changes for disclosure
► Notes shall now be presented in the order in which items are presented in the primary statements
► Accounting policies and valuation methods to be disclosed in more detail
► Assets and liabilities presented net in special cases, shall be disclosed as gross in the notes
► New disclosure requirements for significant events after the balance sheet date, i.e., nature and impact, for medium and large-sized
entities
► New disclosure exemptions for small-sized entities
► Information regarding investments (20% shareholding at least) unless it is not in line with a true and fair view
AIF Club Securitization - 9 February 2017
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Other amendments
► Management report
► Subsequent event no longer reported
► Audit report / Other legal matters
► Obligation by the approved statutory auditor
► To verify that the management report is consistent with the annual accounts and prepared in accordance with the applicable legal requirements
► To state whether, in the light of the knowledge and understanding of the undertaking and its environment obtained in the course of the audit, they
have identified material misstatements in the management report, and shall give an indication of the nature of any such misstatements
AIF Club Securitization - 9 February 2017
Page 38
CNC questions and answers (Q&A) issued in relation to the Law of 18
December 2015
► CNC Q&A PCN 16/008 – the disconnect between the content of the P&L as per RGD 18
December 2015 and the chart of accounts PCN as regards to exceptional
charges/income
► CNC Q&A 16/010 – New balance sheet and profit and loss layouts (2016): practical
consequences
► CNC Q&A 16/011 – Changes in the presentation of financial charges and income (2016):
practical consequences
AIF Club Securitization - 9 February 2017
www.cnc.lu/
Page 39
RGD 15 December 2016Art. 27 of the law of 19 December 2002 on the optional derogation to the standard layout of the balance sheet and profit and loss account
► In scope entities
► Entities in scope of Art. 34, 35, 46 and 47 of the law of 19 December 2002; and
► Exempted from the obligation to file to the RCS the balance of the accounts in accordance with the standardized chart of account
► A further option to present a balance sheet and profit and loss account
► The vertical presentation as per Annex IV of the Directive
► The presentation by function as per Annex VI of the Directive
► Abridged form
► Effective application:
► Financial year starting on or after 15 December 2016
► Early application permitted for financial year ended 31 December 2016
AIF Club Securitization - 9 February 2017
Page 40
The law of 10 August 2016 on the modernization of the amended law of
10 August 1915 on commercial companies
► Draft law n° 5730 has been issued in June 2007. First discussions on it already started almost 20 years ago
► The law of 10 August 2016 on the modernization of the amended law of 10 August 1915 on commercial companies (i) was adopted by
the Luxembourg parliament on 13 July 2016 and (ii) was published in the Official legal gazette (the Mémorial) of Luxembourg,
A – N° 167 of 19 August 2016 (the New Law)
► It modifies:
a. The law of 10 August 1915 on commercial companies (the Law)
b. The law of 19 December 2002 on the Luxembourg trade and companies register and on annual accounts and
c. The Luxembourg Civil Code
► The New Law was also nurtured by market practice, but not all the practices were taken over by the New Law
AIF Club Securitization - 9 February 2017
Page 41 AIF Club Securitization - 9 February 2017
The Law in brief - selected key amendments
► New regime regarding the issue
of bonds and convertible
securities
► Voting arrangements are
recognized
► Suspension / waiver of voting
rights
► General meetings / voting
majorities
► New chapter on the
transformation of the legal form
► Minimum share capital rounded to
€30,000
► Possibility to create an executive
board (comité de direction) and an
appointment of a chief executive
(directeur général)
► Art. 73 documentation to be
available for shareholders eight
days before (versus 15 days in the
previous law)
► Art. 100 report to be prepared by
Management for submission to
shareholders
Common to all types of companies S.A.
► Minimum share capital rounded to
€12,000
► Possibility to issue redeemable shares
and debt securities to the public
► Possibility to proceed to the payment
of interim dividends (same rules as in a
public limited company) by the
managers if authorized by the articles
S.à r.l.
Page 42
Timeline
► 23 August 2016:
► Entering into effect of the New Law: applicable in practice to all the companies incorporated as from 23 August 2016
► 23 August 2016 to 23 August 2018
► Transitory period of two years for companies incorporated before 23 August 2016:
► Provisions of AoA contradictory to the mandatory provisions of the Law remain applicable until they are amended and
► New Law will apply to all matters not mentioned in the AoA
► 23 August 2018
► New Law will be applicable to all companies
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Page 43
SA: LossesArt. 100 of the Law
► BEFORE: in case of losses equal to half of the share capital
► NOW: in case of losses where the net assets of a company fall below half of the share capital, the shareholders need to decide on the
dissolution / continuity of the business of the company
► What is new is that a specific report issued by the BOD and explaining the causes of that situation and the proposed actions to remedy
to it
► This report can be waived by unanimous consent of all the shareholders
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Page 44
ResourcesEYG publications
For more information,please visit ey.com/lu
AIF Club Securitization - 9 February 2017
Page 45
The EU Audit reformEntered into force
AIF Club Securitization - 9 February 2017
► The EU Audit Reform consists of a Directive (2014/56/EU) transposed into Luxembourg Law through the Law on the Audit Profession
of 23 July 2016 (the Audit Law) and a Regulation (537/2014) which entered into force on 16 June 2014
► It applies to Public Interest Entities domiciled in the EU (EU PIEs) and sets up:
► All companies with EU operations will have to establish whether they are an EU PIE
► EU PIE’s are: i) Credit Institutions, ii) Insurance undertakings, and iii) Entities whose transferable securities are
admitted to trading on a regulated market in the EU
Mandatory audit firm rotation1
Longer list of proscribed non-audit services2
Annual cap on non-audit fees at group level: 70%3
Page 46
The EU Audit reformSelected items relevant for securitization
AIF Club Securitization - 9 February 2017
Audit Committee
Non Audit Services
Audit TermTender criteria
AuditorDecision
(Re) Appoint-
ment
Audit Committee
• Audit Law article 52 (1) and (5) c): exempted
Non audit services
• Tax compliance: authorized but capped at 70% of audit fees
Audit Term
• Audit Law article 51: maximum 20y, when tender after 10y
Tender criteria
• Regulation article 17 (4) and 16 (2) to (5); but exemption for smallentities and entities with low market capitalization
Auditor Decision
• Regulation article 16 (5): shareholder meeting
(Re) Appointment
• Securitization Law article 48: the Board
Page 47
EU Audit reformEU PIE’s will need to take action
AIF Club Securitization - 9 February 2017
Audit relationship in place for financial years starting
Prior to 16 June 1994 Rotate for financial year beginning on or after 17 June 2020
Between 17 June 1994 and 16 June 2003 Rotate for financial year beginning on or after 17 June 2023
Between 17 June 2003 and 16 June 2006
Rotate or Re-Tender following completion of the audit of an accounting
period that commenced before 17 June 2016
From 17 June 2006 onwards Rotate or Re-Tender when maximum tenure of 10 years is reached
from the first year of engagement
► Responsibility: The Directors and the Auditors
► Consequence of not performing a tender: the audit firm must not accept to continue the audit mandate. This is
equivalent to external audit firm rotation
Page 49
The Luxembourg securitization marketOutlook
AIF Club Securitization - 9 February 2017
,0
200,0
400,0
600,0
800,0
1000,0
1200,0
1400,0
1600,0
1800,0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017e 2018e 2019e
unregulated authorized not reported
+19%
+15%
+10%
AAGR 17 - 19: +14%
AAGR 09 - 16: +9%
The EY Luxembourg securitization homepage
AIF Club Securitization - 9 February 2017
Please visit our EY Luxembourg securitization homepage for more information:
www.ey.com/lu/securitization
Page 50
Contacts
Oliver CloessSecuritization LeaderEY LuxembourgP: +352 42 124 7017E: [email protected]
Jaffer AhsanSenior Manager, AssuranceEY LuxembourgP: +352 42 124 8423E: [email protected]
Olivier LambertDirecteur Associé, Tax Advisory ServicesEY LuxembourgP: +352 42 124 8904E: [email protected]
Jurjan Wouda KuipersPartner, International Tax ServicesEY New YorkP: + 1 212 773 6464E: [email protected]
Vivek KavdikarDirector, AssuranceEY LondonP: +44 20 7951 3617E: [email protected]
Caroline NicolettiSenior Manager, AssuranceEY LuxembourgP: +352 42 124 8174E: [email protected]
Cedric GörgenManager, AssuranceEY LuxembourgP: +352 42 124 8691E: [email protected]
AIF Club Securitization - 9 February 2017Page 51
Presentation title
EY | Assurance | Tax | Transactions | Advisory
About EY
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and advisory services. The insights and quality
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We develop outstanding leaders who team to deliver
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This material has been prepared for general
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