Financial Asset Securitization Legal Issues Studied

Financial-asset securitization is a legal process whereby banks as originators sell illiquid financial assets to SPV (Special purpose vehicle), SPV enhance the credit of asset by repackaging the cash flow from a pool of asset into various asset-baked securities. Securitizations enable originators to transfer some of risk of ownership to parties more willing or able to manage them, enable financial institutions covert illiquid debt into tradable securities. By doing so, relations between certain dealers are converted into relations between uncertain dealers.Converting illiquid financial asset into liquid tradable securities, while at the same time allowing for changing the underlying asset in risk, cash flow and other terms, are primary legal natures behind the asset-securitization vehicle. "Risk remoteness" and "true sale" is regarded as the unique features of securitization.Devising a watertight legal structure is a great challenge, particularly in china where the legal/regulatory framework is evolving. The legal issues include bankruptcy-remoteness, guarantee, and asset transfer. Other legal issues include the legal, accounting and fiscal status of the asset transfer (is it a true sale?)and the form of the SPV(trust. unit trust, corporation?)The reasons to these legal issues are the traditional Civil Law and Finance Law is unfit to securitization.Under the exciting legal systems, operating SPV in the form of trust is better than other forms. With respect of "true sale" and "tax reduction", operating SPV in the form of trust is flaxier than in the form of corporation.The conclusions are: the legal issues relating to securituzation touch on almost every legal area—banking and bankruptcy, securities regulation and contract, property and fiduciary law. The law governing the process should be amended to be fully compatible with the model securitization. The double-fiduciary model is the effective hedging of legal risks through securitization. We can now practice financial-asset securotization in china.About legal mode of securitisation of our country, we should practice various legal reforms aimed at promoting asset securitization, and should choose the special legislative mode. National People's Congress should make the special law of the asset-securitisation. As for as relevant laws, the easier way is to add a exclusive clause in the law. the ones that get rid of various kinds of legal obstacles mentioned above to securitisation of the assets. Secondly, considering the tedious procedure that National People's Congress issues "special law ", one alterative choose is passed the reform in the form of especially determining by National People's Congress. The legal result is the same too.We should take more time to research following questions: how to amend Company Law and other relevant rules to allow banks to engage in backup service and management of SPV operation; How to inspect some corporations misuse securitization vehicle for illegal purpose, and so on.