Anderson Mori & Tomotsune (“AMT”) and Milbank have been discussing the ramifications of the recent proposal by the Japanese Financial Services Agency (the “JFSA”) to introduce a risk retention rule as part of the regulatory capital regulation of certain categories of Japanese investors seeking to invest in securitisation transactions (the “JRR Proposal”). The JRR Proposal bears a number of similarities to existing risk retention legislation in the US and Europe and may result in some Japanese investors being disincentivised from purchasing securitisation positions where an appropriate entity has not committed to hold a 5% retention piece in the transaction.
The discussion is of general application to the global securitisation industry; however, mindful that Japanese investors make an important and valuable contribution to the US and European CLO markets and with one source estimating that Japanese banks may be buying between 50-75% of AAA-rated CLO tranches, any regulatory change that impacts Japanese investment in CLOs could have a dramatic effect on the market. Accordingly, this Q&A concentrates on the CLO sector in particular.
