27 May 2015 by Cliffe Dekker Hofmeyr

Competition Commission amends practitioner update on asset securitisation schemes

On 10 April 2015, the Competition Commission extended the exemption in Practitioner Update 5 to asset securitisation schemes (Schemes) entered into by non-banking institutions provided the Schemes are in accordance with the regulations issued by the South African Reserve Bank (SARB).

The purpose of the amendment is to align the Commission’s policy approach to the current regulatory framework governing the Schemes with the aim of reducing transaction costs.

Section 79 of the Competition Act, No 89 of 1998 (Act) empowers the Commission to prepare updates that inform its approach on matters falling within its jurisdiction. While the updates are not binding on the competition authorities, the updates outline the approach the Commission is likely to adopt to certain transactions.

An asset securitisation scheme involves the pooling of a portfolio of assets by registered banking institutions followed by the subsequent sale of the assets to a special purpose institution (SPI). The newly established SPI will then issue marketable securities against the portfolio of assets to the market. Under an asset securitisation scheme, the transfer of assets from registered banking institutions to the SPI may trigger a change of control as contemplated in s12(1)(a) of the Act. In other words, the SPI is said to acquire or establish direct or indirect control over the whole or part of the business of another firm. If the financial thresholds are met, notification to and approval from the competition authorities is required.  

The Commission concedes that it could not have been the intention of the legislature to include the Schemes which are frequently entered into by registered banking institutions to fall within the ambit of the merger provisions – that is s12(1)(a) of the Act. These transactions are purely financial in nature in that the SPIs are created solely for the purpose of executing the Schemes, having no assets and the limitations placed on the SPIs ensure that the Schemes do not enjoy a competitive position. Therefore, the Commission does not require the notification of transactions where registered banking institutions to sell, facilitate or sponsor the sale of the portfolio of assets to a SPIs, provided the Schemes are in accordance with the regulations issued by the SARB.

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