While the securitization market throughout continental Europe benefited in its early stages from relatively few regulatory guidelines, countries such as Italy have since developed laws addressing specific areas of securitization. In the UK, the problem is not with the ABS-specific legislation itself, but rather the issues that float around these laws.

"If you look at what is coming out in the UK, the structures are much less innovative," said one market source. "The government is deemed as frowning upon innovation. In other countries there is a stronger lobbying effort; the problem here is Whom do you lobby?' There is a long range of political bodies that must be considered, all of which might have conflicting interests. But ABS is one of the few markets that is really opened at the moment, particularly when it comes to infrastructure. It's one of the huge things that is going on aside from workouts."

The take-charge legislative changes that threaten to complicate securitization, especially in the UK, might be interpreted as a display of anti-securitization sentiment. Market sources, however, say that the changes are likely better explained by misunderstandings about the securitization market and virtually no representation from the securitization industry within the governing committees that contribute to the oversight. Members of the Clifford Chance securitization team in London met earlier this month to discuss these politically charged changes, which have developed over the past twelve months, that affect securitization both in private and public policy levels.

In an effort to support small business activity in the UK, the Enterprise Bill proposes changes to the way companies with difficulties will be treated. Under current laws, if a company declares bankruptcy, creditors of that entity reserve the right to appoint administrative receivers to distribute the company's assets. The new bill would ensure companies' protection from creditors.

However, UK securitization structures are based on the measure of control the creditor has over bankruptcy proceedings, and the new proposals under the bill would be damaging to the industry because of the restrictions they place on administrative receiverships. The bill, however, was not intended to affect the securitization industry - and after opposition voiced from members of the securitization market, the UK exchequer responded by providing certain exemptions for securitizations.

"Now the industry is being treated as an exception or a carve-out, which is making what should have been a straightforward issue much more complicated," said one commentator. At the end of the day, said industry sources, the response to industry revisions is not achieving the expected results. A thick book of the proposed amendments that is currently circulating among the UK securitization industry is evidence to many of the hastily produced proposals contained in the Enterprise Bill.

The initial move to modify existing laws was a politically motivated one that did not take into account the full extent of the impact it would have from a real financial and commercial perspective. Securitization needed a carve-out in order to protect SPVs, and the industry decided there needed to be an exemption for whole business deals in particular. But the conditions under which a transaction would qualify for a carve-out under the amended bill are still not clear in wording, said market sources.

"Securitizations can differ from structure to structure, and there is no guarantee what type of deals we will be doing in five years," said one source. "It's really an awkward compromise - some deals are clearly exempt while others are not. It forces us to create artificial structures in order to enable us to continue lending to corporations."

UK Stamp Duty

Stamp duty is one of the biggest revenue earners in the UK Trade receivable transactions, for example, have been driven by the need to avoid the extra tax. There is an initiative on the way that proposes to widen the scope of dutiable transactions, specifically targeting transactions that involve land and the exemption from duty in respect to transfers of assets other than land.

"Non-land transfers are very common in securitizations - most obviously non-mortgage receivables - so exemptions will be welcome to the industry," explained one commentator. "Equally, however, dealings in land are also common in securitizations so there has to be a concern that certain kinds of such dealings might be brought into the Stamp Duty charge."

Apart from targeting these new areas, the committee is also reviewing whether the trade of bonds on the secondary market involving land will also be subject to this charge. Here again, among the three committees appointed to review the issue, none include representatives from the financial industry or the legal community, sources said.

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