As part of a reform of securitisation vehicles, the French regulator has introduced UK-style securitisation companies into its national law. Securitisation companies will stand as an alternative to existing mutual funds (FCTs, formerly FCCs), also modernised by the new regulations. However, FCTs are not corporate entities, unlike securitisation companies, which are limited stock companies. The new regulations, which came into force last Friday, specifically allow securitisation vehicles to take on insurance risks.
Securitisation vehicles will also be allowed to create ring-fenced compartments, as was the case with the former FCCs, i.e. compartments can enter into separate risk transfer contracts, and creditors of a compartment have no recourse against the assets held in other compartments. Securitisation vehicles (or the different compartments composing such vehicles) will be able to fund their exposures through issues of debt and equity, but also through synthetic forms of capital, such as swaps or derivatives. Moreover, the vehicles are allowed to write parametric covers or swaps alongside indemnity arrangements, like reinsurance. With a view to accommodate CDOs of Insurance Linked Securities, the regulation also allows securitisation vehicles to cover other ISPVs. From a prudential perspective, risks transferred to securitisation vehicles through either indemnity or parametric arrangements will result in reductions of solvency margin requirements for cedants.