Term and Definition of Originator
The term “Originator” refers, in a legal context, to the natural or legal person who originally creates, acquires, or establishes a claim, asset, or right. Originators play a central role, especially in the area of structured finance, securitization, and the transfer of claims or rights. In European and international law, the term is often used synonymously with “founder” or “original holder.”
Legal Classification of the Originator
Originator in the Context of Securitization
In the area of securitization, the Originator is the party that generates a pool of assets—usually receivables—and sells them to a special purpose vehicle (SPV) for the purpose of raising capital. The SPV then issues securities that are backed by the future cash flows of the acquired assets. The Originator thus forms the starting point of the chain of claims.
Example: Loan Securitization
In a loan securitization, such as with mortgage loans, the original bank is considered the Originator, provided it grants the loans and subsequently bundles and sells them to a special purpose vehicle.
Originator in Other Legal Contexts
Apart from securitization, the Originator may also play a role in other areas of law, for example in the following scenarios:
- Factoring: The company that sells its receivables acts as the Originator.
- Assignment of Claims (Cession): The assignor, who first establishes a claim against a debtor, is legally classified as the Originator.
- Copyright Law: In a broader sense, the Originator may be regarded as the creator of an intellectual work, provided this is intended under the relevant legal framework.
Originator and Legal Personality
The Originator can be either a natural or a legal person. Common originators include banks, companies, insurance providers, leasing companies, and public institutions. The legal status of the Originator varies depending on the underlying legal transaction and the assigned function.
Duties and Rights of the Originator
The Originator is generally required to comply with applicable legal provisions when transferring assets. This includes, in particular:
- Warranties and Guarantees: In the context of securitization transactions, the Originator may make certain representations concerning credit quality, soundness, or the legal enforceability of the transferred claims.
- Disclosure Obligations: In the course of the sale, there are extensive disclosure and information requirements, in particular towards the special purpose vehicle and investors.
- Liability Issues: In the case of faulty transfers, breaches of contract, or negligent conduct, liability claims may arise against the Originator.
Originator under Applicable Law
European Legal Framework
According to the Securitisation Regulation (Regulation (EU) 2017/2402), the term Originator is defined as follows: “Originator” is a party that either (a) grants or acquires a risk position in its own name and on its own account and subsequently securitises it, or (b) initiates such a transfer for its own account.
The regulation further stipulates that certain requirements must be met regarding disclosure, transparency, risk retention, and control. It should be noted in particular that the Originator must usually retain a portion of the economic interest (at least 5%) in the securitized portfolio to prevent conflicts of interest.
German Law
Under German law, the term Originator is particularly relevant in the context of assignment of claims and securitization. The relevant provisions are found in the German Civil Code (BGB) on the assignment of claims (§§ 398 ff. BGB), supplemented by capital market regulations, in particular the Securities Trading Act (WpHG), the Banking Act (KWG), and data protection laws that may become relevant in the context of data transfer during the assignment of claims.
Insolvency Protection and True Sale
A central issue in connection with the Originator is insolvency protection in the case of claim transfers. Only if the transfer of claims qualifies as a “True Sale,” i.e., a legally effective sale of assets by the Originator to the SPV, are the transferred claims protected from the Originator’s creditors in insolvency proceedings.
Tax and Regulatory Aspects Concerning the Originator
Originators are generally subject to tax provisions (such as real estate transfer tax, value-added tax, or revenue taxation) when transferring assets and must fulfill regulatory requirements. Transfers must be reported, and it should be ensured that all relevant data protection, consumer protection, and anti-money laundering regulations are observed.
International Context and Standardization
In the Anglo-Saxon business world, the term “Originator” is also in use and defined in international standards and standard agreements. Key documents include the European Securitisation Regulation, the US Securities Act, and various industry standards, such as those of the International Capital Market Association (ICMA).
Summary
In a broad sense, the Originator is the legal creator, author, or initial holder of a right, claim, or asset, who originally creates or first acquires it and subsequently transfers it to another party for further use (usually for financing purposes). The legal classification, requirements, and specific obligations depend heavily on the respective business model and applicable law. Originators are responsible for the proper structuring, documentation, and disclosure of a wide range of statutory obligations, especially in the context of securitizations and structured financings.
A precise definition of the term and careful observance of all legal frameworks are key elements of any legally secure and risk-appropriate structuring of transfer and securitization transactions.
Frequently Asked Questions
Who is legally qualified as the Originator when multiple parties are involved in loan origination?
Legally, qualification as the Originator depends primarily on who originally creates the legal claim. This is typically the party that enters into the loan agreement with the borrower and thus establishes the original claim against the borrower. Complexities often arise in the context of syndicated loans, in which several lenders participate as a consortium: In such cases, each lender participating in the issuance of the loan qualifies as the Originator of its own share of the receivable, provided it independently maintains a lending relationship with the debtor. It should further be noted that, even where intermediaries, agents, or service providers are involved, only the party bearing the economic and legal risk of the original transaction and whose name appears in the relevant contract or assignment register is legally regarded as the Originator. Key legal bases are national lending rules, civil provisions on the creation and transfer of claims, and in particular, for securitization, specific regulatory definitions, such as those found in the EU Securitisation Regulation (2017/2402).
What legal obligations does the Originator have in securitization transactions?
In securitization transactions, the Originator—the party bringing the original receivables—must comply with extensive legal obligations. Key duties include transparency and disclosure requirements towards investors, issuers, and regulatory authorities. The Originator must provide detailed information about the underlying assets, the retention of risk (retention requirement under Article 6 of the EU Securitisation Regulation), the credit origination history, and any potential conflicts of interest. In addition, there are comprehensive documentation and record-keeping obligations, particularly with respect to the traceability of claim origination and potential “True Sale” assignments. The Originator is also responsible for complying with data protection laws concerning customer data and for tax filing requirements in the case of cross-border transactions. Breaches of these obligations can lead to significant civil liability risks as well as regulatory and criminal sanctions.
How does the Originator differ from an Assignor in the context of assignment of claims?
Legally, the Originator is the party that originally (i.e., initially) creates a claim, typically through entering into a contract (e.g., loan agreement). The Assignor, by contrast, is the party that transfers an existing claim, which could be the Originator itself or an interim assignee who previously acquired the claim. The nature and extent of rights to assign and obligations to transfer are determined by the respective national civil law provisions, especially those governing the transfer of claims (e.g., §§ 398 ff. BGB in Germany). Importantly, only the Originator can fully guarantee the legal quality of the original claim based on the initial contract. Any subsequent assignors usually only warrant the existence of the claim, not its enforceability.
What role does the Originator play regarding anti-money laundering and due diligence requirements?
The Originator is subject to strict legal obligations regarding the identification and monitoring of potential money laundering activities under the respective national and, where applicable, EU anti-money laundering laws (in particular the EU Anti-Money Laundering Directives and/or the German Money Laundering Act). As a contracting party in the creation of new claims, the Originator is required to identify customers according to the Know Your Customer principle, establish transaction profiles, and report any suspicious activity to the relevant authorities without delay. Violations of these obligations can result in severe regulatory and criminal consequences, including fines, revocation of licenses, and personal liability of responsible executives.
Do originators have to meet specific regulatory licensing requirements?
The licensing requirements for originators depend on the respective market segment as well as the legal and business model. Anyone acting as an originator in loan origination or the issuance of securitized financial instruments is generally required in most jurisdictions to operate as a financial institution, bank, or other appropriately regulated entity. Regulatory authorization usually involves capital requirements, compliance standards, rules on client asset segregation, and special requirements for corporate governance. For publicly placed securitization transactions, capital market supervision rules also apply, such as the EU Securitisation Regulation, including documentation, reporting, and risk retention obligations. Breaching licensing or registration requirements can render the transaction void or result in fines and civil damages.
What are the liability risks for the Originator in the case of faulty assignment of claims?
In the event of a faulty assignment of claims—for instance, if the legal requirements for an effective “True Sale” are not met, or if there is a lack of proper transfer consent from the debtor—the Originator may be liable to acquirers (such as the SPV in securitization) and to end investors. The liability risks range from damages claims for non-performance, reversal and repayment obligations, to criminal sanctions for knowingly providing false information in the transaction documentation process. To mitigate these risks, careful legal review and appropriate contract design (including comprehensive warranties and indemnities) are essential.
