What legislation governs securitisation in your jurisdiction? Has your jurisdiction enacted a specific securitisation law?
On 1 January 2019 the EU Securitisation Regulation (2017/2402/EU) entered into force, along with the amending EU Directives 2009/65/EC and 2011/61/EU and EU Regulations 1060/2009 and 648/2012. Together, these provide a general framework for securitisation and create a specific framework for simple, transparent and standardised (STS) securitisation (amending the EU Undertaking for Collective Investment in Transferable Securities Directive (2009/65/EC), the EU Solvency II Directive (2009/138/EC), the Alternative Investment Fund Managers Directive (2011/61/EU), EU Regulation 1060/2009 and EU Regulation 648/2012)). The EU Securitisation Regulation seeks to harmonise the rules for securitisations within the European Union and has direct effect in EU member states without needing to be transposed into national legislation. Parts of the secondary (Level 2) legislation have yet to be published or formally adopted. The EU Securitisation Regulation alleviates, under certain circumstances, the capital requirements for securitisations which qualify as STS.
The Netherlands does not have a specific national securitisation regime. Several laws and regulations are relevant for securitisation transactions.
The Civil Code covers all areas of private law, including topics that are relevant for securitisations (eg, the ownership and transfer of assets, security rights and mandatory contract law).
The Financial Supervision Act governs the supervision of the financial sector and covers, among other things:
- the licence requirements for financial institutions;
- the supervision of the financial sector and the powers vested in financial regulators; and
- the issuing and trading of securities.
Delegated acts provide further regulation.
The following legislation is also relevant:
- the Bankruptcy Act;
- the EU General Data Protection Regulation (GDPR), which is directly applicable in the Netherlands;
- the Act on the Implementation of the GDPR;
- various tax legislation; and
- legislation preventing money laundering and the financing of terrorism.
Does your jurisdiction define which types of transactions constitute securitisations?
As the Netherlands has no formal securitisation legislation, what constitutes a ‘securitisation transaction’ is not legally defined.
The most common structure is a Dutch orphan special purpose vehicle (SPV) whose sole shareholder is a foundation. Both the SPV and the foundation shareholder will appoint a corporate service provider as managing director. Receivables can be ringfenced by transferring them to the SPV, often using a so-called ‘undisclosed assignment’.
The SPV will then issue notes under a trust agreement or deed. The SPV will create security rights in favour of a security trustee (also in the form of a foundation) that will hold the security rights for the benefit of all creditors of the SPV, including the noteholders.
Master trust structures and issuers with various compartments have also been used for Dutch securitisation transactions, although these are less common than standalone structures.
Such structures generally fall within the broad definition of a ‘securitisation’ under the EU Securitisation Regulation. A traditional securitisation under European law is a transaction in which:
- the credit risk associated with a pool of exposures is tranched into contractually established segments, whereas the risk of credit loss differs per segment;
- the payments in such transaction depend on the performance of the pool of exposures;
- the subordination of tranches determines the loss distribution during the transaction’s lifetime;
- the ownership of economic interest in credit risk exposures is transferred to an SPV; and
- securities issued do not represent payment obligations of the originator.
How large is the market for securitisations in your jurisdiction?
The Netherlands has a traditionally strong residential mortgage loan securitisation market. According to the securitisation statistics of the Dutch Central Bank (DNB), the amount outstanding in Dutch securitisations placed with investors increased in 2018 by €0.7 billion (+1.4%) to €50.1 billion. This increase marked the first growth since the 2007 financial crisis. However, the total volume of outstanding securitisations is still 65% below the pre-crisis level.
The following factors have attributed to the decrease of securitisations since the financial crisis (further information is available here):
- For investors, securitisations are treated more strictly than covered bonds when it comes to regulatory capital.
- Capital markets offer favourable financing conditions, including various central bank financing programmes and relatively low financing costs payable for other funding transactions, such as covered bonds.
- The value of outstanding covered bonds held by external investors quintupled between 2007 and 2018 from €15.1 billion to €79.1 billion.
- Pension funds and insurers have started to fund mortgage loans themselves. These parties have sufficient means to finance mortgage loans and hold them on their balance sheets; therefore, they have no need to securitise them.
Which body has responsibility for the regulation of securitisation?
The Dutch Central Bank (DNB) is the supervisory authority for the integrity of banks and insurers and aims to ensure financial stability by supervising the financial health of financial enterprises.
The Authority for the Financial Markets (AFM) is the supervisory authority for the conduct of business in the financial markets. The AFM supervises the conduct of financial enterprises and approves the contents of the prospectuses for public securitisation.
Both the AFM’s and the DNB’s powers are set out in the Financial Supervision Act (FSA) and the relevant implementing decrees. The AFM and the DNB also publish policies and guidelines to provide guidance to market participants.
Both the AFM and the DNB have been designated a national competent authority (each for certain aspects) under the EU Securitisation Regulation (2017/2402/EU).Licensing and authorisation requirements
Must originators, servicers or issuers be licensed?
In principle, no licence obligations for originators, servicers and issuers arise solely on the basis of such entities taking part in a securitisation transaction and carrying out such a transaction does not, in itself, require a licence. However, when consumer loans are securitised, the entities involved may have to apply for a licence from the AFM since providing consumer loans is a regulated activity under the FSA.
OriginatorsOriginators that lend to consumers must meet licensing requirements, unless an exception or exemption applies. Exceptions are available for:
- banks and insurers that are already competent to advance consumer loans under their respective licences; and
- banks and insurers with their corporate seat in another EU member state that are competent to advance consumer loans on a cross-border basis under their licence in such state.
ServicersIn the Netherlands, servicers of consumer loans are subject to similar licence requirements as originators of such loans.
IssuersIf an issuing special purpose vehicle (SPV) is located in the Netherlands and the receivables that it acquires arise from loans granted to Dutch consumers, the SPV must have a licence. An exemption is available for securitisation vehicles that have delegated the servicing of such loans to a licensed loan servicer.
What will the regulator consider before granting, refusing or withdrawing authorisation?
A licence to originate or service consumer loans can be obtained from the AFM if the requirements set out in the FSA are met. The AFM supervises these requirements on an ongoing basis. The AFM has the power to withdraw such licences whenever an entity no longer complies with its licence obligations. A licence will be granted if the entity demonstrates that:
- the persons responsible for its day-to-day policy meet fitness and propriety standards as set out in the FSA;
- policy and sound operational practice standards are met; and
- its actual control structure is transparent to enable adequate supervision.
What sanctions can the regulator impose?
In addition to the power to revoke or change a licence granted to originate or service consumer loans, the DNB and the AFM can impose the following administrative penalties:
- an administrative fine of up to €5 million for breaching national law and with a maximum of €20 million for breaches of EU regulations or implemented EU directives;
- an order subject to a penalty of non-compliance; or
- an instruction to follow a specified course of action.
Public disclosure requirements
What are the public disclosure requirements for issuance of a securitisation?
For a public issuance, a prospectus is required, which is approved by the Dutch regulator, the AFM or another regulator if the prospectus is passported. A listing must be applied for with Euronext Amsterdam, which means that the Euronext rules must also be followed. Foreign exchanges, such as the Luxembourg and Irish stock exchanges, are not preferable but regularly used. Opting for a foreign exchange is often considered due to cost and timing considerations.
In addition, with regard to all securitisation transactions that fall within the scope of the EU Securitisation Regulation, the originator, sponsor and SPV must designate among themselves one entity to make certain that information regarding the securitisation transaction is made available via a securitisation repository.
Information that must be disclosed includes:
- details on the underlying assets;
- a summary of the transaction documentation;
- the prospectus or, in case of a private offering, an overview of the main characteristics of the transaction;
- investor reports; and
- any inside information.
Details on these information requirements are set out in secondary (Level 2) legislation, which has yet to be published.
What are the ongoing public disclosure requirements following a securitisation issuance?
Reporting requirements that are imposed under the FSA after the offering of notes include the following:
- During the time in which notes are publicly offered, the issuer must update the relevant prospectus with regard to any developments and to correct material inaccuracies.
- Most issuers of notes that are admitted to trading in the Netherlands must publish annual and semi-annual financial statements. An exemption is available for notes with a denomination value that exceeds €100,000.
- Any price-sensitive information regarding securities admitted to trading in the Netherlands must be published.
- If securities are admitted to Euronext Amsterdam, the issuer must also comply with the reporting obligations included in the Euronext Rules.
Outside licensing considerations, are there any restrictions on which entities can be originators?
There are no restrictions on the entities that can be originators in securitisation transactions in the Netherlands. Typical originators are financial institutions (eg, banks, mortgage lenders, car lease companies and lenders that are active via mortgage loan platforms).Receivables
What types of receivables or other assets can be securitised?
In principle, the re-securitisation of securitised positions is forbidden under the EU Securitisation Regulation (2017/2402/EU).
Dutch law imposes no other limitations on the eligibility of receivables or other assets in securitisation transactions.
The following assets are typically securitised:
- residential mortgage loan receivables;
- commercial mortgage loan receivables;
- buy-to-let mortgage loan receivables;
- car lease receivables;
- consumer loan receivables;
- trade receivables; and
- small and medium-sized enterprise loan receivables.
Residential mortgage loan, car lease, trade and consumer loan receivables are the most common asset classes for securitisation transactions in the Dutch market.Investors
Are there any limitations on the classes of investors that can participate in an offering in a securitisation transaction?
Dutch law does not limit the types of investor allowed to participate in publicly issued notes. However, under the EU Markets in Financial Instruments Directive (2004/39/EC) (as implemented in the Financial Supervision Act (FSA)) and the Regulation on Markets in Financial Instruments (600/2014), manufacturers (ie, entities that develop or prepare financial instruments) and distributors (ie, sellers of financial instruments) of such instruments must determine whether the instruments are suitable for a certain investor class during development and before offering the instrument to an investor. Such an assessment is generally based on presumed knowledge, experience and the ability to absorb losses of a certain investor class. Given that securitisation notes are generally deemed complex products, it is less likely that manufacturers and distributors will qualify retail investors as a suitable target market for this type of instrument.
In addition, private issuances are also conducted on a regular basis in the Netherlands to mitigate timing constraints since they are not subject to specific rules or regulations provided that:
- the potential investor base consists of qualified investors as defined in the FSA (eg, institutional investors such as banks, pension funds and investment firms); and
- the debt securities have a denomination value of at least €100,000.
Who may act as custodian, account bank and portfolio administrator or servicer for the securitised assets and the securities?
There are no restrictions on the entities that may act as servicer or portfolio manager of securitised assets, although in the event that the assets concerned are consumer loans and the special purpose vehicle (SPV) is not licensed, the servicer may need to have a licence. It is not unusual in the Netherlands for a seller (ie, the originator) to retain control over transferred assets in its capacity as a servicer appointed by the buyer (ie, the SPV). In principle, the account bank can be any bank with a banking licence granted by the relevant regulator.Public-sector involvement
Are there any special considerations for securitisations involving receivables with a public-sector element?
There are no specific requirements for securitising public-sector receivables under Dutch law, other than the typical analysis in respect of transferability of the underlying receivables and the immunity of contract parties.
Transactional issuesSPV forms
Which forms can special purpose vehicles take in a securitisation transaction?
A securitisation special purpose vehicle (SPV) is usually established as a private company with limited liability for the sole purpose of the securitisation. The articles of association should reflect this in the objects clause.SPV formation process
What is involved in forming the different types of SPVs in your jurisdiction?
There are limited specific formal or procedural requirements to establish a securitisation SPV. In general, the rules of Dutch corporate law (mainly Book 2 of the Civil Code) apply when establishing a securitisation structure.
The involvement of a Dutch civil law notary is required to incorporate a private company with limited liability and any amendments to its articles of association. In addition, the SPV must be registered with the Chamber of Commerce.
A private limited liability company in the Netherlands has no minimum capital requirements and the costs of establishment are limited. Incorporation can usually be concluded within days or a few weeks.Governing law
Is it possible to stipulate which jurisdiction’s law applies to the assignment of receivables to the SPV?
Choice-of-law clauses in contracts are recognised and enforced in the European Union on the basis of EU Regulation 593/2008 (Rome I). Pursuant to Rome I, the contractual aspects of the assignment of receivables are governed by the law applicable to the assignment agreement.
The Supreme Court has ruled that Rome I also applies to property law aspects of the assignment of a receivable under Dutch law, such as the ability to invoke the transfer against debtors. As a result, a choice-of-law clause under Dutch law can stipulate the applicable law on an agreement of assignment as well as on the assignment itself.
Dutch law is generally supportive of the parties’ choice of a foreign law, provided that it does not conflict with mandatory principles of Dutch law.Asset acquisition and transfer
May an SPV acquire new assets or transfer its assets after issuance of its securities? Under what conditions?
Dutch law does not prevent an SPV from acquiring new receivables after the issuance of its securities. However, the transaction documentation will generally impose such limitations or subjects acquiring new assets to certain conditions.Registration
What are the registration requirements for a securitisation?
There are no registration requirements for securitisations.Obligor notification
Must obligors be informed of the securitisation? How is notification effected?
An assignment of receivables need not be notified, as Dutch law allows for a transfer by way of an undisclosed assignment. This requires either a simple deed and registration with the Dutch tax authorities or a deed in notarial form executed in front of a Dutch civil law notary. However, the transfer of a receivable is effective against the relevant debtor only after notice thereof to that debtor. This means that before notification, a debtor can validly pay and be discharged of its payment obligations only if it makes a payment to the assignor (ie, the originator).
In a securitisation transaction, the relevant debtors are not usually notified until the occurrence of an assignment notification event. Before such an event, the originator undertakes to transfer the collections on a regular basis to the SPV.
The assignment notification events are set out in the transaction documentation and usually include:
- insolvency events;
- rating downgrades; and
- payment defaults.
What confidentiality and data protection measures are required to protect obligors in a securitisation? Is waiver of confidentiality possible?
The EU General Data Protection Regulation (GDPR) and the Dutch GDPR Implementation Bill apply to the processing of personal data. Therefore, the general principles and requirements of the GDPR apply.
Additional specific requirements may apply pursuant to the GDPR Implementation Bill. These requirements predominantly relate to restrictions on the use of social security numbers.
For the securitisation of residential mortgage loans, personal data typically remains with the originator and the servicer of the mortgage loans (or even an independent third party, such as a civil law notary) and is shared with the SPV and security trustee only in the case of an assignment notification event.
The GDPR does not prevent individuals from contractually waiving their rights under this regulation.Credit rating agencies
Are there any rules regulating the relationship between credit rating agencies and issuers? What factors do ratings agencies focus on when rating securitised issuances?
Credit rating agencies are regulated by the EU Credit Rating Agencies Regulation (462/2013) amending EU Regulation 1060/2009. The regulation also provides certain requirements for issuers of structured finance instruments (eg, securitisation SPVs).
If a prospectus is prepared in connection with the issue of a securitisation transaction and reference is made to a credit rating, the SPV must ensure that the prospectus also includes clear and prominent information stating whether such credit ratings are issued by a credit rating agency established in the European Union and whether such an agency is registered under the EU Credit Rating Agencies Regulation. In addition, for a structured finance instrument, the SPV must solicit a credit rating of at least two credit rating agencies, which cannot belong to the same group of companies or be otherwise connected. One of these credit rating agencies should have a market share of no more than 10%; otherwise, the SPV must document that its credit rating agencies hold a larger market share.
Although each credit rating agency has its own risk models, methodology and procedures, in general the credit rating assigned by credit rating agencies reflects the issuer’s ability to meet its payment obligations of interest and principal in a timely manner, pursuant to the terms and conditions of the notes.
Typically, the relevant credit rating agency assesses whether the losses for investors are expected on the basis of the historical payment performance of the assets.Directors’ and officers’ duties
What are the chief duties of directors and officers of SPVs? Must they be independent of the originator and owner of the SPV?
Usually a corporate service provider is appointed as managing director of an SPV. Such service provider will contractually undertake, in the various business agreements with respect to the transaction, to restrict the SPV’s business activities in order to shelter it from exposure to unnecessary risks. The corporate service provider is often also the director of the founding shareholder. However, since off-balance sheet treatment of securitised assets is usually envisaged by the originator, the SPV’s directors are usually fully independent from the originator. However, this is typically a condition imposed by rating agencies and not a regulatory requirement under Dutch law.Risk exposure
Are there regulations requiring originators and arrangers to retain some exposure to risk in a securitisation?
Yes – pursuant to the EU Securitisation Regulation (2017/2402/EU), the originator, the sponsor or the original lender must retain an economic interest in the securitised assets of at least 5% on an ongoing basis. If these entities do not agree between them who will retain the interest, the obligation rests on the originator. There is no such obligation on arrangers, unless they are an originator, sponsor or original lender.
What types of collateral/security are typically granted to investors in a securitisation in your jurisdiction?
All material assets of a securitisation special purpose vehicle (SPV) usually serve as collateral for its payment obligations. These assets include securitised receivables, bank accounts and rights under the transaction documents. The security is created by a (disclosed or undisclosed) right of pledge over the assets of the SPV.
Security rights are typically vested in favour of the security trustee for the benefit of the noteholders securing the obligations of the SPV under a parallel debt agreement. The noteholders cannot enforce their rights directly, but usually have the right to direct the security trustee to take certain enforcement actions.
A disclosed right of pledge is typically created over bank accounts and the rights under the transaction documents.Perfection
How is the interest of investors in a securitisation in the underlying security perfected in your jurisdiction?
This requires a simple deed between the pledgor and the pledgee and notification of the right of pledge to the relevant counterparty. The securitised receivables are typically pledged by way of an undisclosed right of pledge, which requires a simple deed between the pledgor and the pledgee and registration thereof with the Dutch tax authorities or a deed in notarial form executed in front of a Dutch civil law notary.Enforcement
How do investors enforce their security interest?
The rights of pledge over the assets of a securitisation SPV (ie, receivables, bank accounts and rights under the transaction documents) can be enforced in case of a default by the SPV in its payment obligations. The security trustee will notify the relevant debtors in case of an undisclosed right of pledge or will terminate the SPV’s authority to collect payments in case of a disclosed right of pledge and will then be authorised to collect payments in respect of the receivables.
In case of a default by the SPV, the receivables can be sold or the collections can be used to satisfy the secured obligations.Commingling risk
Is commingling risk relating to collections an issue in your jurisdiction?
In most cases, receivables are assigned to the SPV using a so-called ‘undisclosed assignment’, which allows the debtors to validly discharge their debt by making payments to the originator. The originator then undertakes to forward the collections to the SPV. If the originator goes bankrupt before it has forwarded such amounts, they will remain in the insolvency estate of the originator.
The transaction documentation typically provides for assignment notification events, which allow the SPV (or the security trustee) to notify debtors of the relevant receivables. After notification, the debtors can no longer validly discharge their debt by paying the originator.
To prevent any collection amounts being trapped in the bankrupt estate of the originator, a collection foundation can be used. A collection foundation is established for the sole purpose of collecting payments and distributing these to the relevant beneficiaries (ie, the relevant SPV or the originator). As payments are made to the collection foundation instead of the originator, a bankruptcy of the originator will cause no commingling risk.
If a collection foundation structure cannot be used, an alternative option is to pledge the collection account held by the originator. However, this option:
- is not available if the originator is bound by negative pledge clauses in its other financing arrangements; and
- will have only limited effect if the originator becomes insolvent, as amounts paid into the account after insolvency will not be validly pledged.
What are the primary tax considerations for originators in your jurisdiction?
The transfer of assets by a Dutch originator to a (Dutch or non-Dutch) securitisation special purpose vehicle (SPV) does not generally trigger any Dutch taxation. An exception may apply if the fair market value or the purchase price of the transferred assets exceeds the tax book value of those assets.
In general, no value added tax (VAT) is payable in connection with the transfer of an asset by the originator to an SPV. If the originator performs services to the SPV in respect of the transferred assets, the income derived by performing these services may be subject to VAT.
Finally, in general, no transfer taxes, stamp duties or other similar duties or taxes are payable in respect of a transfer of assets by an originator to an SPV.Issuers
What are the primary tax considerations for issuers in your jurisdiction? What structures are used to avoid entity-level taxation of issuers?
Dutch securitisation SPVs are subject to corporate income tax (20% to 25% in 2019). The taxable base of the SPV should be at arm’s length and is generally low.Investors
What are the primary tax considerations for investors?
Corporate and individual investors that are tax resident in the Netherlands are generally liable to taxation on their income, including interest income (and any capital gains) derived from their investment in asset-backed securities. In general, non-Dutch investors are not liable for tax in respect of their investment in asset-backed securities.
Exceptions may apply if:
- the investor has a permanent establishment in the Netherlands to which the asset-backed securities are attributable;
- the investor is entitled to a share in the profits of an enterprise that is effectively managed in the Netherlands to which the asset-backed securities are attributable;
- the asset-backed securities are issued by a Dutch issuer and the investors have a substantial interest in that Dutch issuer; or
- the investor is an individual who derives benefits from the asset-backed securities that are taxable as benefits from miscellaneous activities in the Netherlands.
No withholding tax is payable if the asset-backed securities are:
- issued by a non-Dutch issuer; or
- issued by a Dutch issuer and do not factually function as equity within the meaning of Article 10(1) of the Corporate Income Tax Act 1969.
This is the case if the asset-backed securities have a maturity of less than 50 years or the interest rate is not linked to the proceeds generated by collateral assets. In general, no transfer taxes, stamp duty or other similar duties or taxes are payable in respect of investment in Dutch asset-backed securities.
How are SPVs made bankruptcy-remote?
The following measures are typically used to ensure that a special purpose vehicle (SPV) is as bankruptcy remote as possible:
- The contracting parties must sign limited recourse clauses, which ensure that the amount of the creditors’ claims against the SPV are limited to its assets.
- The contracting parties must agree not to initiate bankruptcy proceedings in so-called ‘no-petition clauses’.
- Parties that are not bound by limited recourse and no-petition clauses (eg, the Dutch tax authorities) rank senior in the waterfall.
- The SPV should be a newly incorporated entity and have no historic liabilities. Further, its activities should be limited via the objects clause in its articles of association.
- The SPV should be structured as a standalone entity; its shares should be held by a separate foundation and not the originator.
- A corporate service provider should be appointed as managing director of the SPV and the foundation shareholder. The managing director will undertake in the management agreement not to engage in activities that are unrelated to the transaction concerned.
- The SPV should have no employees.
Dutch insolvency law does not recognise the concept of substantive consolidation.True sale
What factors would a court in your jurisdiction consider in making a determination of true sale of the underlying assets to the SPV (eg, absence of recourse for credit losses, arm’s length)?
Under Dutch law, only a transfer of assets for security purposes or a transfer without the intent to actually transfer ownership will be null and void. This is a theoretical risk, as transfers should be documented in such a way that the securitisation SPV will become the unconditional owner.
There is no concept of recharacterisation in Dutch law. As such, provided that the relevant transfer formalities have been complied with, a transfer of assets will in principle be upheld in the case of a Dutch law bankruptcy, other than in case of fraudulent conveyance and certain other third-party defences. In a bankruptcy, the bankruptcy trustee can, on behalf of the bankrupt estate, request the nullification of the transfer if the transfer was detrimental to the rights of other creditors and certain other requirements are met. Typically, in a well-documented and well-structured transaction, this risk is remote.
Contractual repurchase options of, or obligations for, the seller of the assets do not affect the true sale analysis, provided that the repurchase takes place at arm’s length.
External counsel usually provide legal opinions confirming the legal title transfer of assets to an SPV, subject to customary assumptions and qualification.Consolidation of assets and liabilities
What are the factors that a bankruptcy court would consider in deciding to consolidate the assets and liabilities of the originator and the SPV in your jurisdiction?
Under Dutch law, there is no doctrine of substantive consolidation. In a securitisation transaction, in which receivables are acquired, if the sale and transfer was perfected before the originator became insolvent, the buyer will obtain full legal title to the receivables and such receivables will not form part of the insolvent originator's estate.
Updates and trendsRecent developments
Are there any rules governing securitisations pending in your jurisdiction or reforms under way, such as prohibitions on financial firms betting against the securities they package, improved disclosure and oversight of the asset-backed securities market, rules limiting bank compensation structures that incentivise risk, etc?
Level 2 securitisation legislationSome secondary legislation under the EU Securitisation Regulation (2017/2402/EU) still has to be published, such as further details on which information needs to be disclosed in the public securitisation repository.
Prospectus regulationThe EU Prospectus Regulation (2017/1129/EU), repealing EU Directive 2003/71, will enter into force on 21 July 2019. Issuing entities in securitisation transactions will be the most affected by the obligation this regulation imposes on offerors of a security to assess the materiality of a risk (eg, the likelihood of its occurrence). Under Article 16(1) of the regulation, material risks must be presented accordingly in the prospectus.
Law stated dateCorrect on
Give the date on which the information above is accurate.
28 May 2019.