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December 1, 2009updated 12 Apr 2017 4:29pm

Levelling the playing field?

Captive lessors to be subject to more EC regulation

By Antonio Fabrizio

Captive lessors to be subject to more EC regulation

With work still very much in progress in Brussels about how to regulate Europe’s financial institutions, a question mark remains over what the EU Commission will propose for automotive captives – which, by their very nature, in terms of their goals and market strategy, differ significantly from banks.

According to Michael Jürgen Werner, a partner in the competition, regulatory and EC practice at Norton Rose, the leasing institutions of commercial vehicle and automotive producers could very likely be an area which EU regulators will look into in the future.

Werner, who heads the law firm’s Brussels office, explained: “If that is the case, the commercial vehicle and automotive industries could be hit because, in the case of the big manufacturers, the structure they operate means that they have a relatively small banking part – and those are leasing and financial institutions which are not run in the same ways as the banks.”

“So manufacturers could have to reshuffle the whole structure, if they are regulated like banking institutions – either they would have to decide to do it properly and have a bank for that, or a bank with a production line aside, or they could give it entirely up, separate it and source it out,” Werner added.

The current uncertainty over this issue has meant that, understandably, even most captives haven’t got a clear idea of how this could affect them.

At Daimler Financial Services, for instance, nobody was able to comment as this, according to a spokesperson, is recognised as being a “political” issue and therefore addressed by a separate department, rather than something that could affect the German captive’s business model.

According to another key player in the captive market, Scania Finance, regulation as such wouldn’t cause any issues, as long as it was done properly.

Alan Rhodes, sales and marketing director at Scania Finance in the UK, said: “We operate our businesses with a very straightforward and prudent approach, so if we had to comply with new banking regulations, I don’t think that would cause us any real concerns.”

However, he added that customers would not benefit from anything which could negatively affect the captive business model, because “manufacturers are able to put in place financing solutions for customers, which banks might not want to do”.

He added: “In today’s environment, there are lots of banks that are much stricter in granting credit, whereas manufacturers might take a different view, because ultimately they have got a different type of relationship with the customer, and a slightly different agenda in providing finance.”

As a consequence, a regulatory regime which dissuades manufacturers from operating captives, would effectively take away a main source of credit for customers to invest in their businesses, Rhodes said.

Therefore, for him it is important that if the EU Commission drafts regulations which include captives, it should provide a “level playing field” for all types of financial institutions, not penalising one sector or country over another.

According to Werner, it could take a while before some of this uncertainty is finally cleared up because, due to the Commission’s timetable, no draft should be expected before the first quarter of next year.

But after all, being a little far-sighted and starting to monitor it wouldn’t be a bad idea.

Antonio Fabrizio

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