Publication: Working Paper Series No. 154

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“Securitisation in the era of Blockchain: Credit funds, CLOs, Tokenisation, and the question of investor protection and financial stability” by Promitheas Peridis (European Banking Institute and European University Institute) was published on 13 September 2023 in the EBI Working Paper Series No. 154.

The paper deals with the increasingly popular product of credit funds and their interaction with the securitisation mechanism while adding the complexity that the use of Blockchain technology can cause. First, the paper identifies the reasons behind the rise of credit funds and explains securitisation, also covering the debate on the differences between a credit fund and a Securitisation Special Purpose Vehicle. Lending products such as Collateralised Loan Obligations (CLOs), Schuldscheine, and Corporate Bonds are discussed as well.

Then, the author adds the dimension of blockchain technology and tokenisation, arguing that the biggest threat to financial stability stems from the risk that if tokenisation is adopted more broadly, it might create the presumption that there might be liquidity in inherently illiquid assets (like loans or real estate). This risk might affect the financial stability due to the liquidity mismatches between the token and the underlying assets, or where investors have limited information and understanding of the underlying products used for the token launch.

Afterwards, the paper analyses the main regulatory tools, such as the AIFMD, the EU Securitisation Regulation, the MiCAR, the Regulation on Distributed Ledger Technology (DLT), the Prospectus Regulation and MiFID II. Although AIFMD, the EU Securitisation Regulation and the Prospectus Regulation/MiFID II can apply to the tokenisation of CLOs, this does not appear to be the case for MiCAR and the DLT Regulation.

Finally, the paper assesses the regulatory provisions of the applicable legislation and identifies some inefficiencies, and offers some suggestions and proposals on how the regulation of tokenised CLOs and tokenised securities could be more efficient.

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