| From the legal point of view, cross-border asset securitization refers to a credit-right finance method which restructures credit-right asset with stable future cash flows, such as receivables, by using securitization packing technique, spliting credit-right asset into standardized and unitized securities for sale and circulation in financial market and finally, obtaining funds. The operation of asset securitization and legal framework originated in the U.S.. As a structure finance instrument, it holds complicated transaction structure. During the cross-border operation of securitization, there are many legal divergences in different legal jurisdictions, from regulation, function to value issues. The typical divergence is embodied in establishment and operation of special purpose vehicle(SPV), assignment of underlying asset, risk isolation, issuance and trading of securities, guarantees in securitization process and issue associated with currency conversion and so on. Focusing on legal issues and challenge, this dissertation aims to explore systematic research and develop a sensible legal solution for conflict of laws encountered in cross-border operation of asset securitization.The whole dissertation contains six chapters. Based on an elaborated discussion on basic theory of cross-border asset securitization in the first chapter, the rest chapters analyze, from simple to complex, cross-border asset securitization transaction structure, main legal conflict, relevant application of law, exploration of uniform substantive private law in this issue, legal issues on carrying out cross-border asset securitization in China.As the doctrinal foundation of the dissertation, the first chapter introduces the concept and connotation of cross-border asset securitization principles. Two core characteristics of cross-border asset securitization are described. The first one is its functionality of relying on asset credit to arrange structured financing. The second one is the objective existence of legal conflict and the insuperable path to seek private international law solution for the conflict of laws. On this basis, three main driving factors of cross-border asset securitization are summed up:the development and change in financial globalization, the international regulatory capital arbitrage driving factor, financial and legal system divergence of different jurisdictions. Taking into account that the cross-border asset securitization grew out of traditional asset securitization, the author then sorts through asset securitization practice in major international capital markets, analyses the commonness and individuality of asset securitization in U.S., Britain, France, Japan, South Korea and other developed countries. From its development in the real course of economic life and change in legal environment, the author abstracts out historical heritage and legal regulation trajectory of cross-border asset securitization’s. Comparing with other traditional way of financing, the author demonstrates the financial innovation and legal system of cross-border asset securitization, and shows international community’s legislative effort to adapt to its innovation and to move it forward positively. All of the background description makes good theoretical groundwork for subsequent chapters of this dissertation.Having discussed the function and characteristics of cross-border asset securitization, analysis of its legal framework, legal conflict and resolution mechanism constitute the core content of subsequent chapters. The second chapter deals with transaction structure of cross-border asset securitization. In legal sense,"cross-border" factor of asset securitization is composed of three aspects, including foreign subject, foreign object and foreign contents. In Chapter Ⅱ, above-mentioned compositions of securitization financing transaction and their legal relationship are elaborated. Firstly, Section I analyzes the concept of major participants such as promoter, SPV, initial debtor and securities investors involved in cross-border asset securitization transactions. In operation of cross-border asset securitization, due to divergence of continental law and common law, the participants not only shows unique characteristic, but also have different legal status, rights and obligations. All of that will have significant impact on the success of cross-border operation. Accordingly, it’s necessary to understand and interpret legal issues like:i) types of promoter such as originator and sponsor; ii) different forms of SPV such as special purpose trust and special purpose company; iii) discharged condition of original debtor’s settlement obligation and its interest protection mechanism; and iv) specific credit enhancement for investors. Section II discusses legal issues of underlying assets. In special environment of cross-border operation, there is considerable controversy regarding qualified underlying assets in different countries and regions. Starting with characteristics of underlying assets like transferability, certain homogeneity, expectable and stable cash flow and decentralization of source,etc., the author analyzes methods and merits of underlying assets classification in various jurisdictions, then points out that screening standard for underlying assets will be more cautious in terms of cross-border securitization than that of general securitization. This is influenced by the exist of "cross-border" factors and divergence in different legal systems. Then a step forward, the author explores two common categories of underlying assets-the first one is credit assets from commercial banks, the other one is receivables of infrastructure and exporting commodity which are initiated by large multinational companies. Combining with the increasing trend of non-performing assets securitization, from legal perspective, the author also analyzes the necessity and feasibility of carrying out cross-border non-performing asset securitization by international commercial banks. Section Ⅲ focuses on legal issues relating to cross-border transfer of underlying assets. As countries have different views on legal model of transfer of underlying assets, participants have paid great attention to "true sale" problem involved. Therefore, the conflict of laws in "true sale" has been more prominent. In this section, the author explores legal issues relating to four major modes of transfer of assets in cross-border asset securitization, which are trust transfer, debt novation, sub-participation and credit-right assignment. In section Ⅳ, it is pointed out that, due to the difference in legal systems, accounting standards, financial technology development in cross-border asset securitization practice, there is a big divergence on asset-backed securities recognized. Combining with the securities legislation and related jurisprudence in U.S. and other major countries in continental law, issues regarding whether asset-backed securities fall in the range of traditional securities law, whether they are governed by securities act and information disclosure requirement, and how to judge the nature of the asset-backed securities were analyzed.Chapter three analyzes conflict of laws issues which is faced by cross-border securitization operation, so as to fully display the complex legal status to carry out asset securitization in the context of financial globalization. Section Ⅰ is about the conflict of laws regarding establishment and operation of SPV. Beginning with the comparison of legal norms for the establishment and operation of SPV in different jurisdictions, the authors makes a distinction between special purpose trust and special purpose companies, then explores complex legal issues including acceptability of SPV,"bankruptcy isolation" and "true sale", etc. from perspective of various departments of law such as trust law and corporate law. The author also maintains that, regardless of the use of special purpose trust or special purpose company, SPV of is a legal person with unique identity in cross-border asset securitization. Therefore, it is not a flexible and pragmatic approach to determine the nationality of SPV in traditional way. Section II discusses conflict of laws regarding cross-border transfer of underlying assets. Focusing on credit-right transfer modes which are widely adopted currently, this section discusses legal problems relating to notification of credit-right assignment, legal nature of credit-right assignment, as well as priority under multiple assignment. As regards notification of credit-right assignment, this section analyzes difference in notification form and effectiveness. The difference is embodied in legal provisions of different jurisdiction and based on legal principles of liberalism, notification doctrine and consent doctrine. As regards legal nature of credit-right assignment, distinction of view between common law and continental law countries is analyzes. As far as the priority of multiple assignment is concerned, three modes to determine priority are described respectively, which are transfer priority rule, notification priority rule, and the priority rule in common law. Since the contractual restriction on asset transfer constitutes a great impact on the success of cross-border securitization, the author summarizes three types of practice in domestic law, which stipulate that transfer prohibition clause is invalid, valid and relatively valid. Then, the author points out that, from main-stream legislative and judicial practice in developed countries, it is more inclined to keep transfer restriction rule within bounds in the field of commercial law, so as to facilitate capital circulation and financing operation. Section III is about conflict of laws relating to risk isolation. For the purpose of risk isolation, it is very important to achieve "true sale" in asset transfer link. Beginning with the judgment standards of "true sale", the author discusses the distinction between "true sale" and secured financing according to domestic legislation and jurisprudents. If transaction involved does not meet "true sale" requirement in domestic law, it will be classified as secured financing transaction or transaction with other nature. In other words, it will have a "re-characterization risk". Issues regarding whether a SPV holds security interest on the securitized assets and how to effectively safeguard the security interests, will be dealt with in this section. In order to avoid mistaking "true sale" with "alienation guarantees" existed in continental law countries such as Germany and Japan, the authors also analyzes the difference between ownership composition theory and guarantee composition theory. After that, the author maintains that, to interpret "alienation guarantees" from the perspective of ownership composition theory, is the way to achieve organic integration of two legal systems in cross-border asset securitization. Section IV is about legal conflict of securities issuance and trading. Due to the special financing transaction structure of Cross-border asset securitization, issuance and trading of asset-backed securities are of a significant difference compared with those of normal enterprises. Therefore, from legal conflict perspective, the author explores three aspects of the problem:i) the causes of legal conflict in securities issuance and trading; ii) the major links of asset-backed securities issuance and underwriting; and iii) the types and characteristics of legal conflict in asset-backed securities issuance and trading. Conflict of laws regarding guarantee is dealt with in Section V. This section concentrate on two aspects of legal conflict relating to guarantee, which are conflict of laws associated with security interests of liquidity facility provider and that of credit enhancement. As usage of funds raised by cross-border asset securitization is diversified, Section VI analyzes:i) the causes of foreign exchange problems and the means of prevention; ii) the credit and legal risk of financial derivatives; iii) legal characteristic of the legal conflict relating to foreign exchange. Finally, the author points out that, although the use of financial derivative as a means to hedge currency exchange risk will produce a series of conflict of laws, but since financial derivatives is a transaction based on civil and commercial law system, we can still find relevant legal conflict resolution after studying on a series of comprehensive legal phenomena hidden behind the financial derivatives transactions.After in-depth discussion of all kinds of conflict of laws, in Chapter Four, the author maintains that, in determining the scope of applicable law, segmentation approach rather than unified approach should be adopted. Subsequently, six major types of conflict of laws in cross-border securitization, including establishment and operation of SPV, transfer of underlying assets, risk isolation mechanism, securities issuance and trading, guarantee and currency exchange, are explored one by one from the perspective of the applications of law. Firstly, application of laws relating to SPV is discussed. Taking into account that the mode of special purpose trust is not recognized in some countries, the mode of special purpose company may be a good choice to avoid the controversy caused. Therefore, the application of laws regarding qualification of special purpose trust, validity of the special purpose trust and its legal rights and obligations are main issues analyzed in this part. Secondly, application of laws regarding underlying assets is analyzed. In this part, the author focuses on issues including transferability of credit-right assets, notification of asset transfer, the legal relationship between assignor and assignee, the legal relationship between assignee and debtor, priority of credit-right asset transfer and so on. Thirdly, application of laws relating to risk isolation is dealt with. Risk isolation mechanism is one of the most sophisticated design in cross-border asset securitization operation. Given that legal provisions regarding the fundamental element of risk isolation mechanism are different in domestic laws, if the conflict of laws can not be resolved through effective applicable law, it will have significant impact on the success of cross-border securitization operation. Thus, in this part, from accounting law to bankruptcy law perspective, the author analyzes the application of laws regarding "true sale" and criteria to judge it, as well as the application of laws associated with SPV "entity merge", which has a closely link with the discussion of "true sale". Fourthly, application of laws regarding issuance and trading of asset-back securities is dealt with. After detailed analysis of application of laws, which includes lex personalis, autonomy of will, lex rei sitae, lex loci actus and "PRIMA" principle, the author points out that "PRIMA" principle has been accepted in securities law legislation in many countries, thereby,"PRIMA" principle is becoming the common principle for choosing applicable law in conflict of securities laws aspect. Fifthly, application of laws relating to guarantee is discussed. The author pays special attention to three main modes of "re-characterization" and how to determine applicable law if the transaction is "re-characterized" as secured finance. The application of laws which is associated with "re-characterization" will have a significant impact on the interest of investors, the author believes that, under "re-characterization" circumstances, the law which is expressly chosen by participants themselves should be prevailed, so as to provide participants-especially investors-relatively stable expectation of interest protection. This part also discusses application of laws regarding security interest of liquidity facility providers as well as that of credit enhancement. Sixthly, application of laws relating to foreign exchange in cross-border asset securitization is dealt with. The author analyzes legal characteristics of financial derivatives, which is a solution to the foreign exchange problem. After that, application of laws relating to financial derivatives in cross-border asset securitization operation is explored. Finally, relationship between the use of financial derivatives and the "public order" reservation is explored.Chapter Five explores harmonization of substantive private law, which is a possible solution to the conflict of laws of cross-border asset securitization. First of all, the conflict rules is still a essential legal regulation means in dealing with conflict of laws of cross-border asset securitization. However, the conflict rules have insurmountable faultiness. For example, the conflict rules have internal flaws in tackling conflict of laws of cross-border Asset Securitization; there is a lot of inconsistence of legal theory behind the conflict rules in cross-border asset securitization operation; once the applicable law is designated, it will be unreasonable if the corresponding legal system does not have legal norms regulating cross-border asset securitization or disallow the practice. Then a step forward, the author analyzes the feasibility of carrying out international harmonization of substantive private law in cross-border asset securitization. After in-depth study of legislation status and its future development, the author emphasis several views which should be think about carefully in international harmonization process of substantive private law:i) it should be considered in the context of economic and financial globalization; ii) the development of international practice of asset securitization should play an more importance role in the process; iii) the process need to follow changes of international financial markets and business practice of cross-border asset securitization, and, to make consequential amendments to adapt the rapid changes. Finally, as the most important international conventions in adjusting cross-border legal issues relating to asset securitization,"the United Nations International Convention on the Assignment of trade receivables" is described in detail. Specifically, the legislative background, legislative principles, scope of application, main terms of the Convention are analyzed, as well as its impact on the development of cross-border asset securitization. Besides, it is well known that, in U.S. sub-prime debt crisis and subsequent international financial crisis, negative effect of asset securitization bloated and made it the trigger of the financial crisis. After the crisis, international organizations, such as Basel Committee, have carried out discussion on the securitization function, risk characteristics, development trend and constitution of regulatory system. As an important international practice in cross-border asset securitization, Basel Agreement is analyzed in detail. The author maintains that, regulatory capital arbitrage is the driving factor for Basel Committee to concern about supervision of asset securitization. The supervision system was established in the Basel II to extend the objects of supervision, clarify risk exposure type, build securities regulatory framework and define standards of risk transfer of basic asset. In recent years, taking into acount the negative role of asset securitization in international financial crisis, the Basel Committee finished revisions to asset securitization regulation system from six aspects. Although China’s securitization regulatory legislation is in alignment with the recent changes of securitization supervision system in Basel Agreement, it can be further perfected by strengthening the systemic risk prevention, paying more attention to asset securitization innovation risk, and making market principle mechanism play a more important role in securitization supervision. Finally, with the review of document and academic analysis, the authors points out that, although conflict of laws of cross-border asset securitization can be solved either by conflict rules or by international harmonization of substantive private law legislation, from the perspective of future trend and the comparison of two kinds of adjusting methods, international harmonization of substantive private law will prevail.Based on the analysis of domestic legal system, conflict of laws and resolution mechanism of cross-border asset securitization, in Chapter Six, the author focuses on the study of legal system of cross-border asset securitization in China. Back in1980s, China has carried out a number of asset securitization practice with cross-border nature. However, due to the imperfection of supporting legal framework, asset securitization operation (including cross-border asset securitization operation) in China fell into stagnation. With the outbreak of sub-prime crisis, financial regulatory authorities and the public took a more cautious attitude to asset securitization. Since then, cross-border asset securitization in China was stuck in initial stage. As cross-border asset securitization in China is still in exploration stage, there has not yet a separate legislative norm specialized in cross-border asset securitization. The legal environment to support cross-border asset securitization practice is also not satisfactory. After analyzing the status and insufficiency of cross-border asset securitization in China, the authors proposes that, with the acceleration of the internationalization of offshore RMB market and the restart of asset securitization exploration, offshore RMB asset securitization can be the breakthrough point of building legal framework of cross-border asset securitization in China. Specifically speaking, offshore RMB asst securitization is the new product combining characteristic of offshore finance and innovation of asset securitization. With the rapid development of RMB currency internationalization and offshore RMB market, it is not only important and but also possible to launch cross-border RMB asset securitization in offshore RMB market. But the process has to confront obstacle of substantive law, conflict law and procedure law in different levels. Therefore, in substantive law level, legislation specialized for securitization operation need to be stipulated. In conflict law level, guideline for application of laws need to be supplemented. In process law level, innovation to deal with the conflict of laws in securitization should be introduced. All of the revision and perfection will help to optimize the legal framework of offshore RMB Asset Securitization and translate the suggestion into reality. |
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