Luxembourg’s securitisation community is up in arms over watching competitor Ireland retain its role of EU leader in financial vehicle corporations and in series, despite optimism just last year over this country’s still-shiny securitisation law updated last year. The Irish implementation included provisions giving companies tax minimisation options that they can’t yet get under Luxembourg law.
This has seen Luxembourg staying in second place, as it has since about 2020, to the evident disappointment of the 100-plus finance professionals attending a securitisation-themed event held by PwC Luxembourg on Wednesday.
“Ireland is ahead,” said Holger von Keutz of PwC, who’s an executive committee member and treasurer of LuxCMA, the Luxembourg capital markets association. “Luxembourg still has a task to solve.”
“In the competition between Luxembourg and Ireland, we’re losing market share,” he added.
According to figures presented by PwC, based on 2022 data, Luxembourg had about 28% of the financial vehicle corporation market in 2022, compared to 31% for Ireland.
Ireland in the lead
Ireland has registered some 1,621 EU financial vehicle corporations or FVCs. By contrast, Luxembourg, who led in this area until 2020, now only has 1,459, with nearly 400 billion in assets. This is well ahead of the 930 reported in Italy. Luxembourg’s authorised securitisation business grew sharply since about 2012 but has stabilised at about 50 billion euros since 2018.
In 2022, Luxembourg had nearly 1,459 financial vehicle corporations, with nearly 400 billion euros in assets. Ireland also leads in the number of series per country, surging to nearly 10,000, versus Luxembourg’s about 6,400.
“Ireland is ahead of Luxembourg now because of ATAD,” von Keutz explained. “Ireland’s interpretation of ATAD allows firms to structure themselves out of ATAD.”
This was accomplished by Ireland’s introduction of a broad definition of ‘a group’.
Implementation freedom
The key is that member states have some liberty in how they choose to implement EU regulations. Von Keutz explained Ireland’s legislation has “a different triggering effect.” He explained that the Irish law’s interpretation of the ATAD rules allows securitised companies registered there to structure themselves out of their application.
“We have the same directive, but they are treating it differently,” he said.
Many in the audience found this situation troubling and hard to explain to clients outside the EU. The solution to this dilemma will require further legal changes.
More flexibility
“We need a change of law to have more flexibility,” said von Keutz, adding that he is “optimistic that we can find a solution with the Luxembourg ministry of finance.”
Luxembourg is in a difficult position in allowing solutions proposed by industry. “They don’t want to be singled out,” explained PwC partner Luc Petit. “If we proposed a solution you need to be ready to show that it’s been implemented in other jurisdictions.”
In the run-up to the long-awaited modernisation of the Grand Duchy’s securitisation law in early 2022, hopes were high in Luxembourg that the Grand Duchy would be able to claim a sizable chunk of the growing European market for Collateralised Loan Obligations or CLOs. CLOs are structured financial products pooling corporate debts.
More competitive
The update to the securitisation regime was to allow Luxembourg’s active management to be more competitive. The explicit hope was that it would seduce CLO managers from other countries, notably Ireland, to move their business here. This hope seems to have fallen at least partially flat.
As Luxembourg’s parliament approved the new package, the parliamentary rapporteur, liberal democrat MP André Bauler, went so far as saying it will give Luxembourg a “first mover advantage, much like with UCITS in the 1980s.”
The sense in the room at PwC was that the package has fallen well short of these hopes.
A strong base
However, it’s clear that Luxembourg’s securitisation offering has plenty to attract firms to set up their vehicle here, exemplified during the event by two German financiers at the event working in the area of trade receivables securitisation who had chosen Luxembourg’s offering.
“It’s a well-developed and mature structure, more straightforward and easy to explain, said Quiron Cunha of Berlin-based startup Mondu GmbH, which is active in trade receivable securitisation. He described Luxembourg as a “known place” and a “stable place. “We can stay here.”