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AIF Club Securitization

9 February 2017

Agenda

AIF Club Securitization - 9 February 2017

► IntroductionOliver Cloess, Directeur Associé, Securitization Leader, EY Luxembourg

► Luxembourg Market UpdateJaffer Ahsan, Senior Manager, Assurance, EY Luxembourg

► Tax (BEPS and VAT)Jurjan Wouda Kuipers, Partner, International Tax Services, EY New YorkOlivier Lambert, Directeur Associé, Tax Advisory Services, EY Luxembourg

► Securitization Trends in the UKVivek Kavdikar, Director, Assurance, EY London

► Accounting and Corporate GovernanceCaroline Nicoletti, Senior Manager, Assurance, EY Luxembourg Cedric Goergen, Manager, Assurance, EY Luxembourg

► Wrap up and OutlookOliver Cloess

9:00 – 9:05 am

9:05 – 9:15 am

9:15 – 9:35 am

9:35 – 10:00 am

10:00 – 10:25 am

10:25 – 10:30 am

Voting question

What is your average annual growth rate (AAGR) estimate regarding the creation of new Luxembourg securitization companies for the period from 2017 to 2019 compared to the AAGR in the period from 2009 to 2016?

AIF Club Securitization - 9 February 20171 2 3

66%

4%

30%

1. AAGR 17-19 more than 25% higher

2. AAGR 17-19 stable

3. AAGR 17-19 more than 25% lower


Luxembourg Market Update

The Luxembourg securitization country market share in the Euro zoneA comparison


-

200,00

400,00

600,00

800,00

1 000,00

1 200,00

2009 2010 2011 2012 2013 2014 2015 2016

Luxembourg Ireland Italy

The evolution in the Eurozone

Luxembourg has shown continuous growth throughout the

past few years, and has outperformed any other location in

the Euro zone

Ireland, the major competition market with 20% less

securitization companies than Luxembourg, faced a four

year down turn and is slowly recovering since 2014

Italy has grown by 89% since 2009. It has has roughly half

the size of the Luxembourg market

Other markets like Netherlands and France have shown

positive growth rates

Spain has a smaller number of securitization companies that

reduced by 36% from 499 to 322 entities

Other four Euro zone countries have a combined market

share falling from 4% in 2009 to 3% today

The Luxembourg securitization country market share in the Euro ZoneThe evolution and status quo in Luxembourg


-

500,00

1 000,00

1 500,00

2 000,00

2 500,00

3 000,00

3 500,00

4 000,00

2009 2010 2011 2012 2013 2014 2015 2016

Luxembourg Other Countries

28%

23%16%

12%

9%

9%

3%

2016

Luxembourg Ireland Italy

Netherlands Spain France

Other Countries

2009 - 2016

The Luxembourg securitization market development


,0

200,0

400,0

600,0

800,0

1000,0

1200,0

1400,0

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

unregulated authorized not reported

The Luxembourg authorized securitization market development (Issuance and authorized entities)


2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Issuance 3,0 11,0 13,9 15,3 16,5 12,0 12,7 14,4 15,9 18,6 23,8 28,3 31,0

Number 2,0 6,0 11,0 17,0 20,0 23,0 26,0 27,0 32,0 31,0 32,0 32,0 34,0

0,0

5,0

10,0

15,0

20,0

25,0

30,0

35,0

The Luxembourg securitization market developmentTransaction review


Number of Securitization Undertakings (SU) and Transactions

SU Change

in SUs

Transactions Change

in transactions

Transactions

per SU

Authorized

2016

2015

2014

2013

34 (3.3 %)

32 (3.3 %)

32 (4.9 %)

31 (4.8 %)

2 (6.3 %)

0 (0.0 %)

1 (3.2 %)

1,681 (36.6 %)

1,538 (38.5 %)

1,563 (40.7 %)

1,113 (36.1 %)

143 (9.3 %)

-25 (-1.6 %)

450 (40.4 %)

49.4

48.1

48.8

35.9

Unregulated

2016

2015

2014

2013

1,012 (96.7 %)

930 (96.7 %)

619 (95.1 %)

616 (95.0 %)

82 (8.8 %)

311 (50.2 %)

3 (0.5 %)

2,907 (63.4 %)

2,460 (61.5 %)

2,278 (59.3 %)

1,970 (63.9 %)

447 (18.2 %)

182 ( 8.0 %)

308 (15.6 %)

2.9

2.6

3.7

3.2

Total

2016

2015

2014

2013

1,046

962

651

647

84 (8.7 %)

311 (47.8 %)

4 (0.6 %)

4,588

3,998

3,841

3,083

590 (14.8 %)

157 ( 4.1 %)

758 (24.6 %)

4.4

4.2

5.9

4.8

Luxembourg Corporate Service Provider developments


2010

TOP 10 CSP

Other CSP

2015

TOP 10 CSP

Other CSP

2016

TOP 10 CSP

Other CSP

TOP 10 68 % 10

Other 32 % 62

Total 72

TOP 10 47 % 10

Other 53 % 161

Total 171

TOP 10 44 % 10

Other 56 % 261

Total 271

Entities registered (Other) in % Aggregate

1 64 % 64 %

2 16 % 80 %

3 9 % 89 %

4 4 % 93 %

5 4 % 97 %

5 3 % 100 %

TOP 10 in % Aggregate

1 26 % 26 %

2 16 % 42 %

3 14 % 56 %

4 13 % 69 %

5 8 % 77 %

Largest count 133 SU

TOP 10 (continued) in % Aggregate

6 6 % 83 %

7 5 % 88 %

8 4 % 92 %

9 4 % 96 %

10 4 % 100 %

Smallest count 18 SU

2016


Tax (BEPS and VAT)

General overview


Flexible from legal and regulatory perspective but has limitations in type of activity:

Securitization activity

No active management

Fully subject to Luxembourg corporate tax (27.08%), but:

Commitments towards investors and creditors qualify as tax deductible expenses even if they are not

actually paid out in the given year

Typically very low resulting effective tax rate

No withholding tax

No net worth tax

Access to a wide network of double tax treaties (DTTs) signed by Luxembourg to be determined

on a case-by-case basis

Securitization vehicle (SV) is mandatorily subject to audit

Tax treatment based on income tax law

No need for approval by Luxembourg tax authorities

Lux SV

(Luxembourg)

A CB

Fund

Underlying assets

► Timeline key EU developments

Summary of EU legislative developments


Voting question

Have you considered the impact of the 2019 EU changes on your EU fund structuring?

AIF Club Securitization - 9 February 20171 2

79%

21%

1. Yes

2. No

Main Trends – OECD and EU Developments


OECD Base Erosion and Profit Shifting (BEPS) Project:

Focus on restricting access to tax treaties, EU Directives

Introduction of General Anti Avoidance Rule (GAAR)

Multilateral instrument (MLI) introducing Principle Purpose Test (PPT) starting probably 1/1/2019

Focus on appropriate functionality, substance

Focus on transparency:

Exchange of ruling information

Country-by-country reports, local file/master file reporting

FATCA, CRS

Restrict interest deductions under the EU Anti-Tax Directive Avoidance Directive (ATAD)

EU-wide 30% EBITDA interest deduction limitation, effective 1/1/2019

Introduction of anti-hybrid rules under ATAD and ATAD 2

Anti-hybrid entity, hybrid instrument, hybrid branch

Main Trends – Use of Luxembourg Securitization Vehicles


No need to use hybrid instruments

Commitments / distributions of income to investors are not subject to Luxembourg dividend withholding tax

Upcoming 30% EBITDA interest deduction limitation:

Deductible commitments towards investors and creditors not caught by the 30 EBITDA limitation?

Transparency: no need to request a ruling

Access to tax treaties

OECD issued draft guidance (January 2017) on treaty access through practical examples (one example is on a securitization vehicle)

OECD lists various relevant factors

Luxembourg securitization vehicles are able to point at many of these factors (Further details in next slide)

BEPS Treaty Eligibility – Draft GuidanceNon-CIV examples


Bank

(State T)

RCo

(State R)

Loan Notes / Interest

3rd Party Note Holders

Interest Payments

Sale of loans

+

-

-

++

OECD Factors driving the decision to establish RCo in State R: Factors driving the decision to establish SV in Luxembourg:

RCo is a securitization company resident in State R, established by a bank

which sold to RCo a portfolio of loans and other receivables owed by debtors

located in a number of jurisdictions. RCo is fully debt funded. RCo has issued

a single share which is held in trust and has no economic value. RCo’s debt is

widely held by third-party investors. The notes are listed on a recognized

stock exchange. Investors’ decision to invest in RCo are not driven by any

particular investment made by RCo and RCo’s investment strategy is not

driven by the tax position of the investors.

• LuxCo may operate as a securitization vehicle, provided a number of

requirements are met. √• Unlike some other countries’ requirements, its shares do not need to be

held in trust, and its notes do not need to be held on a stock exchange to

obtain an interest withholding tax exemption. √

State R’s robust securitization framework. • Luxembourg has a robust securitization legal framework (since 2004)

which ensures enhanced investor protection, enables the creation of

compartments and qualifies a wide range of asset classes for SV. √• Over 1,000 SVs representing more than 4,000 compartments are

established in Luxembourg. √

State R’s securitization and other relevant legislation. • SV in Luxembourg may be formed as a corporation or as a fund without

legal personality (management company required). √• Securitization may establish an infinite number of segregated cells and the

assets/liabilities contained within one cell are independent of the

assets/liabilities in all other cells. √• Possibility to use multi-level structures in case local legislation of

originator does not allow to sell assets to investors located in a country

different from the originating country. √

The availability of skilled and experienced personnel and support services in

State R.

• Luxembourg has extensive availability of directors and personnel with

securitization and regulatory knowledge. √• Extensive expertise of local Luxembourg service providers. Existence of a

skilled, multi-lingual work force. √

The existence of benefits provided under State R’s extensive tax treaty

network. • Luxembourg has an extensive tax treaty network. √

Receivables Portfolio (State S)

60%

BEPS Treaty Eligibility – Draft GuidanceNon-CIV examples


Additional non-tax reasons also defined as “positive PPT factors” in recently issued OECD Draft Guidance:

OECD’s Positive PPT factors under the OECD draft guidance: Benefits of a Luxembourg establishment in light of the OECD draft

guidance:

Existence of a skilled, multi-lingual work force Luxembourg has attracted thousands of investment firms and service providers over

the decades who collectively contribute unique knowledge and expertise to the global

investment industry players. With more than 150 nationalities represented, many

people in Luxembourg speak three or four languages. √

Located in a member jurisdiction of a regional grouping Luxembourg is a member of the European Economic Area (EEA). √

Use of the regional grouping’s common currency EURO currency, or other functional currency. √

Good reputation / known by investors Luxembourg is the largest investment fund center in Europe (over €2,400 b in net

assets under management) and the second largest in the world after the US. √

A good legal system and regulatory environment Luxembourg is continuously creating/updating specific regulatory frameworks for

different financial sectors (e.g., RAIF Law) focusing on investors protection alongside

with rigorous anti-money laundering policies. √

Politically stable Luxembourg is a founding member of the EU and strategically positioned at the heart

of Europe with a confirmed AAA rating by the three main rating agencies. √

Voting question

Do you expect to increase your operational substance in Luxembourg in the near future?

AIF Club Securitization - 9 February 20171 2

18%

82%1. Yes

2. No

Tax – VAT

► Taxable Status of SV

► Circular 723 dated 29 December 2006

► Article 44, §1, d) of the Luxembourg VAT Law

► … and similar entities performing securitization transactions as per art.1, point 2 of BCE Regulation

► Management of SV

► Article 44, §1, d) of the Luxembourg VAT Law

► Circular 723 dated 29 December 2006

► ABBL list of services and Appendix II of UCITS Directive

► Article 44, §1, c) of the Luxembourg VAT Law

► … but excluding debt collection


Tax – VAT (cont’d)

► Input VAT deduction right

► Loans portfolio outside the EU

► Debts portfolio outside the EU

► Luxembourg VAT rates - Attractiveness

► Standard VAT rate (17%) remains the lowest in Europe

► Brexit: Impact in Luxembourg and in the UK

► Credit Management activity – exempt but deduction right?

► Deduction right: most likely no immediate application

► No ESL



Securitization Trends in the UK

UK securitization market – 2016 at a glance

► Issue of securitized products in UK market in 2016

► Issue of securitized products by category


Source: Bloomberg, AFME, EY Analysis

2,14 2,96 3,07

8,66

5,85

1,18 0,77

2,25

1,06

4,03

6,82

1,71

0123456789

10

Mo

nth

ly is

sua

nce

in

GB

P (

bn

)

RMBS84%

ABS16%

CMBS0%

CDO0%

86%

12%

2%

0%

75%

80%

85%

90%

95%

100%

To

tal A

BS

of G

BP

6.3

8 b

n

Asset

Consumer

Card

Auto

► The securitization market in England and Wales

continues to be one of the largest and most developed

securitization markets in Europe. As at the end of Q4

2016, it had become the most active jurisdiction in

Europe (by jurisdiction of collateral securitized)

reflecting an estimated £40.5 b of €140 b total new

asset backed securities (ABS) issuance in Europe.

► Issuances in the public market in 2016 continued to

focus on existing and well-established structures and

asset classes, predominantly auto-loan ABS and

residential mortgage backed securities (RMBS),

although credit cards, collateralised loan obligations

(CLO) and consumer finance loans have been active

asset classes.

► Post Brexit, issuance bounced back from a quiet Q3

with Q4 volume of £12.4 b representing a three fold

increase quarter on quarter but below a strong Q4

2015.

Total securitization: GBP 40.5bn

Total Issuance

£40.5b

Trends in UK securitization market

► Securitization in UK market over the period (2000-2016)

► Issuance by collateral type (2000-2016)


► Although the UK securitization market grew significantly in

the run-up to the 2007-08 crisis, it dramatically contracted

thereafter.

► The EBA and ECB reports identify possible factors that could

explain why UK securitization issuance remains subdued.

► The absence of an Agency MBS market

► Alternative funding instruments available to institutions

► Tightening of credit rating agencies' rating methodologies

► Lack of a sufficient investor base

► Potential regulatory uncertainty resulting on issuers and

investors from the numerous regulatory initiatives yet to

be finalized.

► RMBS continued to lead the asset classes consisting of 81%

of all the securitized products. The UKAR issuance in 2015

and 2016 represented a significant portion of the RMBS

issue volume.

► In 2016, the ABS market Autos took a significant portion of

total issuance – though Credit Cards tend to be the most

popular.

Source: Bloomberg, European Parliamentary Research Service, European Commission, EY Analysis

0

10

20

30

40

50

60

70

Month

ly I

ssuance in

GB

P (

bn)

RMBS81%

ABS10%

CMBS6%

CDO3%

65%

23%

8% 2%

1%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%T

ota

l A

BS

of G

BP

109.2

8 b

n

Others

Consumer

Asset

Auto

Card

Others includes Equipment, Student, Healthcare & TradeTotal securitization: GBP 1,067.51bn

Trends in the UK securitization market – RMBS

► Shift in product-wise issuance of securitized products (2000-2016)

► UK RMBS Spreads (2007-2016)


Source: JP Morgan International ABS & CB Research, Bloomberg, ECB, EY Analysis

0

200

400

600

800

1 000

1 200

1 400

Spre

ad (

bps)

UK Prime AAA

UK Non-ConformingAAA

► RMBS, the major product category to be

securitized, declined sharply after the financial

crisis of 2007-08.

► There has been markedly less supply of UK RMBS

since the inception of the Bank of England’s

Funding for Lending Scheme, launched in 2012,

the Discount Window and Term Funding Scheme

(TFS) which provided funding to banks for an

extended period.

► RMBS has been supported by the Asset-backed

Securities Guarantee Scheme that was introduced

at the beginning of 2009 and may have contributed

to the decrease in RMBS spreads.

► In terms of spread levels, the RMBS sector

continues to look attractive when compared to

corporates. At the top end of the market, AAA rated

bonds backed by UK prime mortgages offer

c.30bps premium to covered bonds of similar

maturities, even though these are backed by

practically the same collateral.

11,69 7,71 7,73 20,44

46,48

73,50

113,05 122,63

216,39

62,11

107,26

78,72 77,16

20,98 30,36 30,79

40,51

0

50

100

150

200

250

Issuance in

GB

P (

bn)

CDO

CMBS

ABS

RMBS

Trends in UK securitization market

► Products securitized by month of issue (2000-2016)

► Issuance with country of collateral being UK vs Rest of Europe

(2000-2016)


47,54 40,06

87,09 74,14

88,26 100,10

82,39

45,09

100,62

175,77

102,21

124,26

0

40

80

120

160

200

Issuance e

ach m

onth

in G

BP

(b

n)

Source: Bloomberg, LexisNexis Blog, EY Analysis

► Historically, the last quarter has been the most

favored period for issuance of securitized products.

► Seasonal reason for high issues in December and

then a fall in January is that issuers prefer to close

deals ahead of Christmas break.

► Share of securitizations with the UK as the country

of collateral in comparison to the whole of Europe

has reduced significantly. While it was 43% in 2005,

it dipped to 16% in 2013 and recovering slightly to

24% in 2016.

► The appetite for structured finance in UK will not be

diminished by the Brexit vote.

► It is estimated that any potential changes in the

legal and regulatory landscape as a result of Brexit

would affect investors planning to invest in

securitizations in the short term only since it will

take a number of years for the terms of the UK’s

exit to be negotiated.29,62 43,83 58,79 87,46

112,80

169,89

290,73

345,31

597,02

307,64 339,17

315,47

213,72

134,73 157,05 143,74

170,00

0

100

200

300

400

500

600

Issuance in

GB

P (

bn)

Key market players – 2016

Rank Entity

Value of

transactions

(in GBP bn)

Number of

transactions

1 BAML 21.33 18

2 Lloyds 17.52 14

3 Citi 14.85 14

4 Morgan Stanley 10.77 7

5 Credit Suisse 9.47 6

6 Deutsche Bank 7.22 8

7 Natixis 6.96 3

8 HSBC 6.77 11

9 Lloyds Bank 6.09 5

10 Barclays 5.75 5

11 Wells Fargo 3.88 6

12 Banco de Sabadell 3.39 1

13 BNP Paribas 2.46 3

14 Santander 2.12 3

15 RBC Capital Markets 1.93 4

16 JP Morgan 1.64 2

17 Rand Merchant Bank 0.98 2

18 MUFG Securities 0.82 1

19 RBS 0.59 3

20 Credit Agricole 0.39 1

21 One Savings Bank 0.38 1

22 RBC 0.25 1

23 Societe General 0.25 1

24 Bedford Row Capital Advisers 0.07 3


Source: Bloomberg, Debtwire

As Lead Managers As Co-Arrangers

Rank Entity

Value of

transactions

(in GBP bn)

Number of

transactions

1 Lloyds 10.79 11

2 Morgan Stanley 8.62 5

3 Citi 7.36 7

4 BAML 6.21 6

5 HSBC 3.98 6

6 Barclays 3.81 3


8 Volkswagen Financial Services 1.95 5

9 Santander 1.87 2

10 Deutsche Bank 1.45 3

11 RBC Capital Markets 0.88 2

12 Nationwide Building Society 0.88 1

13 Natixis 0.70 2

14 BNP Paribas 0.59 1

15 Credit Agricole 0.39 1


17 RBS 0.32 1

18 Landesbank Baden-Württemberg 0.28 1

19 UniCredit Bank AG 0.28 1

20 NewDay Cards Ltd. 0.25 1

21 Detail not available 1.39 9

Key market players – 2016

Rank Entity

Value of

transactions

(in GBP bn)

Number of

transactions

1 Cerberus 7.82 4

2 Bank of Scotland 4.32 2

3 Junglinster 3.42 2

4 TSB Bank Plc 3.39 1

5 Virgin Money 2.95 2

6 Accord Mortgages Ltd. 2.51 1

7 Volkswagen Financial Services 2.15 7

8 Santander (UK) 1.87 2

9 Kensington Mortgage Company 1.53 3

10 Capital Home Loans 1.24 1

11 GMAC 1.01 3

12 FirstRand Bank 0.98 2

13 Nationwide Building Society 0.88 1

14 Bawag PSK Bank 0.78 1

15 Clydesdale Bank Plc 0.75 1

16 FCE Bank 0.54 1


Source: Bloomberg, Debtwire

By Issuer

Rank Entity

Value of

transactions

(in GBP bn)

Number of

transactions

17 Principality Building Society 0.52 1

18 Lloyds Banking Group 0.50 1

19 Skipton Building Society 0.49 1

20 Coventry Building Society 0.47 1

21 Close Brothers Limited 0.44 1


23 CarVal 0.32 1

24 TwentyFour Asset Management 0.31 1

25 Newday Group Ltd 0.25 1

26 London Wall Capital Investments 0.25 1

27 P2P Global Investments plc 0.15 1

28 Dorset Rise 0.13 1

29 Escher Marwick plc 0.07 3


31 Optimum One 0.03 1

Impact of Brexit on the UK securitization market

► The uncertainty in the run-up to the Brexit vote on 23 June 2016 did not seem to hold the securitization market back. According to the

AFME, the volume of securitized products issued in Europe in Q2 2016 (€74.5b) was almost 50%. This was higher than in the

comparable period in 2015, the single most popular asset class being UK residential mortgage-backed securities (RMBS)

► Immediately post the Brexit vote, in Q3 2016 there was a lull in the market and it was a combination of Banks and Investors taking stock

and the general summer slowdown in European capital markets

► In Q4 2016, the issuance volume accelerated with clients and others, and investors’ appetite for structured finance undiminished by the

Brexit vote

► As a result, issuance in 2016 at £40.5 b represented a 33% increase in 2015

► It is estimated that any potential changes in the legal and regulatory landscape as a result of Brexit would affect investors planning to

invest in securitizations in the short term only since it will take a number of years for the terms of the UK’s exit to be negotiated

► Rating agencies’ views are that Ratings for UK securitizations would be largely unaffected by the economic impacts of Brexit

► However, the UK will need to maintain a regime that is largely harmonized with the EU regime in order for UK securitization debt to

continue to be attractive to, and eligible for, EU investors, who have traditionally been a significant source of liquidity for UK covered

bonds, RMBS and other UK ABS


Impact of Brexit on the UK securitization market

► As of January 2017, the UK as a member of the EU, is subject to the EU CRR which sets out the regulations governing the regulatory treatment for

Securitizations

► Article 50 trigger is expected by the end of March 2017. The leaving process will take two years and so all things being equal, it is expected that the UK will no

longer be a member of the EU from March 2019

► Implications for Prudential Regulation:

► Equivalence – Need to maintain EU equivalence and Basel adherence

► Future compliance of UK securitizations with the STS criteria under the proposed Securitization Regulation

► Ongoing regulation of securitization by the EU and risk retention requirements

► Increase the risk retention requirement from 5% to 20% and limiting eligible risk retainers to EU-regulated entities

► Could prevent UK manager-originator structures as well as UK securitizations involving a single originator acting as a risk retainer (including most UK

RMBS, credit card, auto and corporate securitizations) from complying with the EU risk retention rules following the Brexit, which would prevent EU-based

investors from investing in UK securitizations

► Requirements for issuers of covered bonds under the UCITS IV Directive

► The UK has a well developed Covered Bond market. To benefit from the provisions of the UCITS IV Directive which is beneficial for investors and

therefore less expensive for the issuing bank and building society. The EU Directive requires the issuer of the covered bonds to have its registered office

in the EU

► Eligibility of ABS as collateral for Eurosystem monetary policy initiatives and inclusion in the liquidity coverage ratio (LCR)

► Impact on EU Credit Institutions



Accounting and Corporate Governance

The Accounting and Corporate Governance Agenda

► The Law and the Grand Ducal Regulation of 18 December 2015

concerning annual accounts and consolidated financial statements

► The Grand Ducal Regulation of 15 December 2016

► The Law of 10 August 2016 on the modernization of the commercial

law

► The Law of 23 July 2016 on the audit profession


The Law and the Grand Ducal Regulation of 18 December 2015 concerning

annual accounts and consolidated accounts

► In December 2015, the European Directive 2013/34/EU on the annual and consolidated financial statements was transposed to

Luxembourg’s corporate law

► The new law is effective for financial periods beginning on or after 1 January 2016

► It modifies:

a. The law of 10 August 1915 on commercial companies

b. The law of 19 December 2002 on annual accounts


Materiality concept

► In Luxembourg, to prevent both the difficulties in the application and the risk of abuse, it has been decided to limit the application of the

materiality concept to the completeness of the disclosures of notes in the financial statements


Material means the status of information where its omission or misstatement could

reasonably be expected to influence decisions that users make on the basis of the

financial statements of the undertaking

Presentation of the balance sheet and profit and loss account for annual

accounts

► The form and content of the balance sheet and profit and loss account (both in full and abridged format) have been removed from the

law and are now defined by the new Grand Ducal Regulation 18 December 2015

► New layouts already available on the Luxembourg eCDF platform

► Vertical presentation for the profit and loss accounts (by nature)


Extraordinary items

► Extraordinary expenses or income do not appear on the face of the profit and loss account anymore

► However the provision to disclose in the notes to the accounts, the amount and nature of individual items of income or expenditure

which are of exceptional size or incidence, remains in force


Selected main changes for disclosure

► Notes shall now be presented in the order in which items are presented in the primary statements

► Accounting policies and valuation methods to be disclosed in more detail

► Assets and liabilities presented net in special cases, shall be disclosed as gross in the notes

► New disclosure requirements for significant events after the balance sheet date, i.e., nature and impact, for medium and large-sized

entities

► New disclosure exemptions for small-sized entities

► Information regarding investments (20% shareholding at least) unless it is not in line with a true and fair view


Other amendments

► Management report

► Subsequent event no longer reported

► Audit report / Other legal matters

► Obligation by the approved statutory auditor

► To verify that the management report is consistent with the annual accounts and prepared in accordance with the applicable legal requirements

► To state whether, in the light of the knowledge and understanding of the undertaking and its environment obtained in the course of the audit, they

have identified material misstatements in the management report, and shall give an indication of the nature of any such misstatements


CNC questions and answers (Q&A) issued in relation to the Law of 18

December 2015

► CNC Q&A PCN 16/008 – the disconnect between the content of the P&L as per RGD 18

December 2015 and the chart of accounts PCN as regards to exceptional

charges/income

► CNC Q&A 16/010 – New balance sheet and profit and loss layouts (2016): practical

consequences

► CNC Q&A 16/011 – Changes in the presentation of financial charges and income (2016):

practical consequences


www.cnc.lu/

RGD 15 December 2016Art. 27 of the law of 19 December 2002 on the optional derogation to the standard layout of the balance sheet and profit and loss account

► In scope entities

► Entities in scope of Art. 34, 35, 46 and 47 of the law of 19 December 2002; and

► Exempted from the obligation to file to the RCS the balance of the accounts in accordance with the standardized chart of account

► A further option to present a balance sheet and profit and loss account

► The vertical presentation as per Annex IV of the Directive

► The presentation by function as per Annex VI of the Directive

► Abridged form

► Effective application:

► Financial year starting on or after 15 December 2016

► Early application permitted for financial year ended 31 December 2016


The law of 10 August 2016 on the modernization of the amended law of

10 August 1915 on commercial companies

► Draft law n° 5730 has been issued in June 2007. First discussions on it already started almost 20 years ago

► The law of 10 August 2016 on the modernization of the amended law of 10 August 1915 on commercial companies (i) was adopted by

the Luxembourg parliament on 13 July 2016 and (ii) was published in the Official legal gazette (the Mémorial) of Luxembourg,

A – N° 167 of 19 August 2016 (the New Law)

► It modifies:

a. The law of 10 August 1915 on commercial companies (the Law)

b. The law of 19 December 2002 on the Luxembourg trade and companies register and on annual accounts and

c. The Luxembourg Civil Code

► The New Law was also nurtured by market practice, but not all the practices were taken over by the New Law



The Law in brief - selected key amendments

► New regime regarding the issue

of bonds and convertible

securities

► Voting arrangements are

recognized

► Suspension / waiver of voting

rights

► General meetings / voting

majorities

► New chapter on the

transformation of the legal form

► Minimum share capital rounded to

€30,000

► Possibility to create an executive

board (comité de direction) and an

appointment of a chief executive

(directeur général)

► Art. 73 documentation to be

available for shareholders eight

days before (versus 15 days in the

previous law)

► Art. 100 report to be prepared by

Management for submission to

shareholders

Common to all types of companies S.A.

► Minimum share capital rounded to

€12,000

► Possibility to issue redeemable shares

and debt securities to the public

► Possibility to proceed to the payment

of interim dividends (same rules as in a

public limited company) by the

managers if authorized by the articles

S.à r.l.

Timeline

► 23 August 2016:

► Entering into effect of the New Law: applicable in practice to all the companies incorporated as from 23 August 2016

► 23 August 2016 to 23 August 2018

► Transitory period of two years for companies incorporated before 23 August 2016:

► Provisions of AoA contradictory to the mandatory provisions of the Law remain applicable until they are amended and

► New Law will apply to all matters not mentioned in the AoA

► 23 August 2018

► New Law will be applicable to all companies


SA: LossesArt. 100 of the Law

► BEFORE: in case of losses equal to half of the share capital

► NOW: in case of losses where the net assets of a company fall below half of the share capital, the shareholders need to decide on the

dissolution / continuity of the business of the company

► What is new is that a specific report issued by the BOD and explaining the causes of that situation and the proposed actions to remedy

to it

► This report can be waived by unanimous consent of all the shareholders


ResourcesEYG publications

For more information,please visit ey.com/lu


The EU Audit reformEntered into force


► The EU Audit Reform consists of a Directive (2014/56/EU) transposed into Luxembourg Law through the Law on the Audit Profession

of 23 July 2016 (the Audit Law) and a Regulation (537/2014) which entered into force on 16 June 2014

► It applies to Public Interest Entities domiciled in the EU (EU PIEs) and sets up:

► All companies with EU operations will have to establish whether they are an EU PIE

► EU PIE’s are: i) Credit Institutions, ii) Insurance undertakings, and iii) Entities whose transferable securities are

admitted to trading on a regulated market in the EU

Mandatory audit firm rotation1

Longer list of proscribed non-audit services2

Annual cap on non-audit fees at group level: 70%3

The EU Audit reformSelected items relevant for securitization


Audit Committee

Non Audit Services

Audit TermTender criteria

AuditorDecision

(Re) Appoint-

ment

Audit Committee

• Audit Law article 52 (1) and (5) c): exempted

Non audit services

• Tax compliance: authorized but capped at 70% of audit fees

Audit Term

• Audit Law article 51: maximum 20y, when tender after 10y

Tender criteria

• Regulation article 17 (4) and 16 (2) to (5); but exemption for smallentities and entities with low market capitalization

Auditor Decision

• Regulation article 16 (5): shareholder meeting

(Re) Appointment

• Securitization Law article 48: the Board

EU Audit reformEU PIE’s will need to take action


Audit relationship in place for financial years starting

Prior to 16 June 1994 Rotate for financial year beginning on or after 17 June 2020

Between 17 June 1994 and 16 June 2003 Rotate for financial year beginning on or after 17 June 2023

Between 17 June 2003 and 16 June 2006

Rotate or Re-Tender following completion of the audit of an accounting

period that commenced before 17 June 2016

From 17 June 2006 onwards Rotate or Re-Tender when maximum tenure of 10 years is reached

from the first year of engagement

► Responsibility: The Directors and the Auditors

► Consequence of not performing a tender: the audit firm must not accept to continue the audit mandate. This is

equivalent to external audit firm rotation


Outlook and Wrap Up

The Luxembourg securitization marketOutlook


,0

200,0

400,0

600,0

800,0

1000,0

1200,0

1400,0

1600,0

1800,0

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017e 2018e 2019e

unregulated authorized not reported

+19%

+15%

+10%

AAGR 17 - 19: +14%

AAGR 09 - 16: +9%

The EY Luxembourg securitization homepage


Please visit our EY Luxembourg securitization homepage for more information:

www.ey.com/lu/securitization

Page 50

Contacts

Oliver CloessSecuritization LeaderEY LuxembourgP: +352 42 124 7017E: [email protected]

Jaffer AhsanSenior Manager, AssuranceEY LuxembourgP: +352 42 124 8423E: [email protected]

Olivier LambertDirecteur Associé, Tax Advisory ServicesEY LuxembourgP: +352 42 124 8904E: [email protected]

Jurjan Wouda KuipersPartner, International Tax ServicesEY New YorkP: + 1 212 773 6464E: [email protected]

Vivek KavdikarDirector, AssuranceEY LondonP: +44 20 7951 3617E: [email protected]

Caroline NicolettiSenior Manager, AssuranceEY LuxembourgP: +352 42 124 8174E: [email protected]

Cedric GörgenManager, AssuranceEY LuxembourgP: +352 42 124 8691E: [email protected]

AIF Club Securitization - 9 February 2017Page 51

Presentation title

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About EY

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and advisory services. The insights and quality

services we deliver help build trust and confidence in

the capital markets and in economies the world over.

We develop outstanding leaders who team to deliver

on our promises to all of our stakeholders. In so

doing, we play a critical role in building a better

working world for our people, for our clients and for

our communities.

EY refers to the global organization, and may refer to

one or more, of the member firms of Ernst & Young

Global Limited, each of which is a separate legal

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limited by guarantee, does not provide services to

clients. For more information about our organization,

please visit ey.com.

© 2017 Ernst & Young S.A.

All Rights Reserved.

This material has been prepared for general

informational purposes only and is not intended to

be relied upon as accounting, tax, or other

professional advice. Please refer to your advisors for

specific advice.

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