Securitisation in Luxembourg - PwC

1 June 2018www. pwc. lu/securitisationSecuritisation in LuxembourgA comprehensive guideLaunchPwC Luxembourg ( ) is the largest professional services firm in Luxembourg with 2,850 people employed from 77 different countries. PwC Luxembourg provides audit, tax and advisory services including management consulting, transaction, financing and regulatory advice. The firm provides advice to a wide variety of clients from local and middle market entrepreneurs to large multinational companies operating from Luxembourg and the Greater Region.

2 The firm helps its clients create the value they are looking for by contributing to the smooth operation of the capital markets and providing advice through an industry-focused PwC, our purpose is to build trust in society and solve important problems. We re a network of firms in 158 countries with more than 236,000 people who are committed to delivering quality in assurance, advisory and tax services. Find out more and tell us what matters to you by visiting us at and PwC Luxembourg | PrefaceWe are happy to present to you the 2018 update of our brochure Securitisation in Luxembourg - A comprehensive guide , as a part of our series of publications related to Securitisation in Luxembourg .

3 With the Luxembourg Securitisation Law1 being in place for fourteen years now, this represents the seventh edition of our brochure and we are delighted to have received many positive comments. This always motivates us to update and amend it and make it the preferred reference guide for Securitisation in Luxembourg . During the last year, some important developments took place. On 28 December 2017, the EU Securitisation Regulation and the Amendment of the Capital Requirements Regulation were published and will become applicable to EU securitisations whose securities are issued on or after 1 January 2019.

4 This streamlines the legislative framework and combines current sectoral legislations on Securitisation in one single legal reference. The regulation also introduced the specific framework for simple, transparent, and standardised ( STS ) securitisations. More details are presented in chapter are also changes in the Anti-Money-Laundering regulation (see section ) and the IFRS rules on financial instruments have been updated with the new standard IFRS 9 Financial instruments being applicable from this year onwards. This might have an impact on some transactions, especially if the Securitisation vehicle needs to be consolidated or opts to prepare its stand-alone financial statements under IFRS.

5 We present more insights in section 2017, the number of Luxembourg Securitisation vehicles and its compartments increased again and maintained its steady growth. By the end of March 2018, more than 1,200 vehicles representing around 5,000 compartments existed in Luxembourg . Although the number of regulated Securitisation vehicles remained stable at 33, the volume increased by 20% to EUR billion by the end of 2017. We expect that this growth will continue in the next years especially since the European Securitisation Regulation is now defined and the uncertainty about the market has gone (even though the implementation of some rules still needs to be detailed).

6 We also expect an update of the Luxembourg Securitisation Law during the course of 2018, taking into account the EU Securitisation Regulation and becoming even more flexible and reinforcing the well-known legal certainty. This should also help to push the Luxembourg Securitisation market further in the near changes in the regulatory environment have brought us to slightly change the structure of this new edition of our brochure by putting the various legal, accounting, tax, and regulatory aspects into one group and the other aspects separately.

7 We have also updated and amended the statistical part on the entities created under the Luxembourg Securitisation Law, which now finds its place at the very beginning of the for the last years, we have chosen to publish our brochure in an electronic version to facilitate its update and stay in line with our corporate objectives to minimise our carbon footprint. However, if you would like to receive a hardcopy, please let us hope that you will enjoy reading our 2018 edition of this brochure and that it will provide you with valuable insights into the Securitisation market and related best practices in von Keutz1 Law of 22 March 2004 on Securitisation PwC Luxembourg | Table of contentsP r1.

8 Securitisation market overview Recent developments European market overview Luxembourg market overview 42. Securitisation basics 7 What is Securitisation ? Types of transactions Benefits of Securitisation Types of credit enhancements Parties involved in Securitisation transactions Taxation in Securitisation 163. The Luxembourg Securitisation Law Scope of Luxembourg Securitisation vehicles Broad definition of Securitisation Few limits for Securitisation activities Flexible and robust legal environment Several possible legal forms Ability to create compartments Numerous asset classes allowed Different forms of risk transfer and transaction types possible Supervision of Securitisation vehicles Preconditions for authorisation requirement Initial authorisation by the CSSF Continuous supervision by the CSSF

9 Luxembourg as an attractive marketplace Enhanced investor protection Qualified service providers Defined liquidation process 294. Accounting & Tax aspects Accounting LuxGA AP Securitisation company accounting Securitisation fund accounting Multi-compartment vehicles Treatment of (unrealised) gains and losses for the security holders ( equalisation provision ) Legal reserve/subscribed capital for compartments Standard Chart of Accounts and electronic filing PwC Luxembourg | Accounting IFRS Originator Derecognition of financial assets Securitisation vehicle Financial assets and liabilities Investors Look-through approach BCL reporting Tax treatment Tax specificities of Securitisation companies Transfer pricing aspects Tax specificities of Securitisation funds FATCA/CRS Value-added Tax (VAT) BEPS initiative/Anti Tax Avoidance Directive 51 5.

10 Regulatory aspects EU Securitisation Regulation General framework for all securitisations Specific framework for STS securitisations Impact on Luxembourg Capital requirements for banks (CRR) Capital requirements for (re-)insurance companies Packaged Retail and Insurance-based Investment Products (PRIIPs) regulation AIFMD 65 6. Other aspects Quality initiatives Anti-Money Laundering obligations Distribution and listing Listing in Luxembourg Prospectus disclosure obligations Responsibilities and liabilities of the Board of Directors Audit committee Islamic Finance Securitisation and the Luxembourg toolbox 767.