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) which are 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 in July, specifically allow securitisation vehicles to take on insurance risks. Securitisation vehicles will also be allowed to create ring-fenced cells, as was the case with the former FCCs. These cells can enter into separate risk transfer contracts, and creditors of a cell have no recourse against the assets held in other cells.
Securitisation vehicles (or the different cells composing such vehicles) will be able to fund their exposures not only 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 cover or swaps alongside indemnity arrangements, such as reinsurance. With a view to accommodating 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, are likely to result in reductions of solvency margin requirements for cedants.