To deepen the securitisation market, Sebi has made it easier for banks and public financial institutions to act as trustees, while a new code of conduct has been put in place to safeguard investors’ interest.
Amending its Securitised Debt Instruments Regulations, Sebi said the move would further develop the securitisation market and also “rationalise and clarify the role and responsibilities of trustee”.
The amendments have been made to allow banks and public financial institutions to act as trustees without obtaining registration, while these changes also provide for terms of appointment and capital requirement for trustee and makes it mandatory for the trustees to provide a summary term sheet.
The term sheet would include disclosures on originators, issuer, trustee, transaction structure, key pool features and credit enhancement and would help enhance the confidence of investors in securitisation transactions.
Securitisation involves creating a financial instrument by pooling together illiquid assets and then selling them to investors as securities.
Under the new norms, a trustee would need to have a net worth of at least Rs 2 crore, at least two employees with minimum five years of experience in securitisation and with required professional qualification, among other conditions.
A trustee will have to supervise the implementation of the covenants regarding creation of security for the securitised debt instruments, resolve the grievances of investors and protect their interest, ensure sufficient funds for payout to investors and conduct regular due diligence on assets, etc.
Under the new norms, the trustee would call for periodic reports, supervise the implementation of conditions regarding creation of security for securitised debt instruments and take steps to ensure protection of investors as well as resolve their grievances.
Besides, they would have to appoint a compliance officer for performing duties, including monitoring compliance of the various rules and redress of investor grievances.
The trustees need to ensure on a continuous basis that the trust property is adequately available at all times to pay the securitised debt instrument holders.
As per a code of conduct for the trustees, they are required to avoid possible conflict of interest.
The new rules also provide for setting up of a special purpose entity for securitisation purposes. Such an entity, along with its trustee, would need to “fulfil its obligations in a prompt, ethical and professional manner”.
Besides, they can not “divulge to anybody either orally or in writing, directly or indirectly, any confidential information about its investors which has come to its knowledge, without taking prior permission of its investors, except where such disclosures are required to be made in compliance with any law for the time being in force”.
“A special purpose distinct entity and its trustee or any of its directors, partners or managers, shall not either through its account or through associates or family members, relatives or friends indulge in any insider trading.
“A special purpose distinct entity and its trustee shall have internal control procedures and financial and operational capabilities which can be reasonably expected to protect its operations, its investors and other registered entities from financial loss arising from theft, fraud, and other dishonest acts, professional misconduct or omissions,” Sebi said.
Besides, they would need to ensure that good corporate policies and corporate governance is in place and shall develop internal code of conduct for governing its internal operations and laying down standards of appropriate conduct for its employees for carrying out their duties.
“A special purpose distinct entity and its trustee shall not be party to creation of false market, price rigging or manipulation,” the regulator further said.