On The Mechanism Of Asset - Backed Securitization Risks Isolation In The Law

As a major financial instrument and invention as of 1970s, asset securitization takes itscore on the risk-remote mechanism. Whether the asset-backed securitization willsuccessfully achieve the expected goals depends mainly on the establishment andeffectively performance of such a mechanism.This paper will discuss the relevant legal matters on the risk-remote mechanism underasset securitization, and will further explore from legal perspective the establishment andimprovement of the risk-remote mechanism of asset securitization and the protectionagainst risks in the operation of securitization, attempting to create a new angle for studyand thereby provide a cut-in point for the entire study on asset securitization.In the context of law, the accomplishment of the risk-remote mechanism shall be achievedthrough such two steps: one is to set up qualified SPV(special purpose vehicle) as arisk-remote carrier;the other is that the originator assigns the assets expected to besecuritized to SPV in some way, thereby to avoid them from the bankruptcy risk of theoriginator and some other related participants.The newly issuance of the Measures for Pilot Supervision and Administration Of theSecuritization of Credit Assets of Financial Institutions has established the trust modeas the legal operation mode for asset securitization. Under the mode of trust, therisk-remote carrier shall be trustee institution rather than corporation. Accordingly, theasset's transfer takes in the same way, that is ,the promoter institution entrusts the subjectassets pool to the trustee institution, by whom the asset-backed securities will be issued tothe investors.From the above two aspects, and on the basis of comparison of many western countries'practices ,the writer tries to investigate the legal environment and a couple of problemsexisted for the establishment and operation of such risk-remote mechanism, and find somesolutions to them. Finally, the paper concluded that the trust mode is the only way to assetsecuritization in China's legal environment and an effective way to avoid risks as well,however, as a newly implemented rule, there must be some problems in the operationprocess which will escalate to serious obstacles if we do not pay high attention to.