The Central Bank of Ireland (CBI) has revised their guidance notes on the registration of Financial Vehicle Corporations (FVCs), with the effect that several dozen vehicles will be required to re-designate as SPVs for quarterly reporting purposes.
This change will apply retrospectively, meaning that vehicles which are affected will have to refile quarterly CBI returns back to 2014.
FVCs are securitisation vehicles as defined in Regulation ECB/2013/40. Ireland is currently home to around 1,200 FVCs, a population that has grown substantially in recent years.
What is the existing position?
The definition of what constitutes an FVC is laid out in Regulation ECB/2013/40, where it states that an FVC is a vehicle that:
- “intends to carry out, or carries out, one or more securitisation transactions and is insulated from the risk of bankruptcy or any other default of the originator”; and
- “issues, or intends to issue, debt securities, other debt instruments, securitisation fund units, and/or financial derivatives (hereinafter the ‘financing instruments’) and/or legally or economically owns, or may own, assets underlying the issue of financing instruments that are offered for sale to the public or sold on the basis of private placements.”
The European Central Bank (ECB) also provides an explanatory note to clarify the activities that fall within this definition: ECB Guidance Notes
FVCs domiciled in Ireland have been required to file quarterly returns to the CBI since 2009, with the latest reporting form effective from Q1-2014.
In Q3-2015, the CBI extended an identical form to Section 110 vehicles which did not fall within the scope of ECB/2013/40, creating two distinct populations reporting essentially the same form each quarter.
What is the change in definition?
The CBI’s new Registration Form Guidance Notes, dated December 2019, specifies new exemptions that now apply to the FVC definition.
Page 4 of the document states that vehicles which meet the definition of ECB/2013/40, but are fully funded by their sponsor or a related party of their sponsor, are now considered not to be FVCs by the Central Bank.
There are three specified exceptions to this. A vehicle will still be considered an FVC where:
- The entity in question is in a warehousing stage and intends to issue debt securities to entities who are not the sponsor and are unrelated to the sponsor;
- The entity forms part of a multi-vehicle structure where at least one entity is issuing debt securities to entities who are not the sponsor and are unrelated to the sponsor;
- The entity is engaged in retained securitisation i.e. a bank has set up an FVC to securitise a portfolio of their loans, and receives debt securities in return
Which vehicles will be affected?
The most common type of vehicle that will be affected by this change are FVCs which have issued Profit Participating Notes (PPNs) to other entities which are either directly or indirectly managed by the sponsoring entity.
What is now required?
Any FVC which is affected by this change will need to re-designate as an SPV with the CBI. This may involve the creation of a new C-Code for this entity.
Once the changeover is complete on the CBI’s system, back-reporting will be required for each quarter that the FVC was ‘live’ (ie. since the first transaction date).
This will mean copying the data that was previously supplied in the FVC form each quarter and pasting this into the SPV form, before submitting these returns on the CBI Online Reporting System (ONR).
After the back-reporting is complete, the FVC (now considered an SPV) will report the SPV form going forward each quarter.
For information on our outsourced Central Bank SPV/FVC reporting services, click here.
Why is this change happening?
The CBI appears to be trying to limit the scope of the FVC population to only those entities which are engaged in the issuance of public securities or private placements to external investors.
What should I do next?
If you believe that one or more FVCs which you are a service provider of will be affected by this change, the best thing to do is to contact the CBI at [email protected] informing them of this.
They will verify if the FVC falls within the scope of the change in definition, and guide you through the next steps.
If you are unsure about whether you need to contact the CBI regarding this change, you can also email [email protected] and we can conduct an assessment for you and walk you through the changes.