The growing number of calculation errors related to European structured finance transactions is becoming a concern, says Fitch Ratings says in a special report issued today.

“As deals have become more complex and numerous, greater reliance is placed upon those behind the scenes, often a number of years post issuance, to ensure the intricacies of the transaction documentation are applied correctly and in accordance with the priority of payments,” Fitch noted.

Examples of the type of problems have been the incorrect amortization of junior notes and reserve funds as well as accounting for losses flowing though the cash-flow.

Fitch noted that while none of the errors highlighted have ultimately threatened ratings, they appear to be increasing in frequency. On two occasions originators have had to post cash to transactions to recoup lost revenues resulting from these errors, it reports. Had the originators been unwilling or unable to provide such support, these revenues would have been permanently lost and noteholders may have been exposed to potential losses, Fitch warned.

Responsibility for these errors lies with the cash bond administrator, often also referred to as agent bank or computation agent, the rating agency says. “All industry participants should ensure well-defined CBA policies and procedures are in place to mitigate risk,” said Andy Brewer, senior director in Fitch’s Structured Finance team. “Diligent quality control and verification processes with respect to transaction calculations reduce the risk of errors arising in the future. This provides more comfort to investors that the potential for losses through inaccurate bond calculations is minimized.”