The U.K. Parliament’s amendment to its Banking Act 2009 that now restricts the power to modify trust arrangements involved in failing banks sheds some clarity that proves beneficial to structured finance, said analysts at Moody’s Investors Service.
Prior to the Amending Order, Section 34(7) of the Act was interpreted by some market participants as giving the U.K. authorities broad power to modify the terms of trust arrangements, including the power to modify the beneficial interests of third parties.
“The Amending Order has restricted the scope of Section 34(7) so that, in relation to structured finance trust arrangements, it can only be used to the extent necessary to transfer the bank’s interest in trust property,” explained Edward Manchester, Senior Vice President at Moody’s. “Although the restriction does not apply to full property transfers under the Act, it strongly indicates that Section 34(7) will not be used to negatively affect the beneficial ownership rights of structured finance vehicles.”
Manchester said that their still remain issues under the act that could adversely affect structured finance vehicles but all with less serious implications than Section 34(7). However, by clarifying this major issue the U.K. government has signaled that it regards the structured finance markets as crucial for the financial stability of the U.K. “We have now concluded that the Act, as a whole, does not have a negative rating impact for structured finance transactions,” he said.