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    EBA Consults on Homogeneity of Underlying Exposures in Securitization

    December 15, 2017

    EBA launched a public consultation on the draft regulatory technical standards specifying a set of criteria for the underlying exposures in securitization to be deemed homogeneous, as part of the requirements under the new EU securitization framework. The consultation runs until March 15, 2018.

    These regulatory standards define a set of criteria, according to which the underlying exposures are deemed homogeneous. These include the need to be underwritten according to similar underwriting standards, methods, and criteria; the need to be serviced according to uniform servicing procedures; the need to fall within the same asset category; and to be further differentiated by the application of relevant risk factors. The regulatory technical standards are applicable to both asset-backed commercial paper (ABCP) and non-ABCP securitizations. To provide more clarity and facilitate the assessment of the homogeneity, the regulatory technical standards provide a non-exhaustive list of asset categories as well as lists of the risk factors to be generally considered for each of these asset categories. The regulatory technical standards require that only the risk factors that are relevant for determining the homogeneity of a specific pool of the underlying exposures, should be effectively applied to that particular pool.

    The regulatory technical standards also include an alternative option to determine homogeneity, according to which the risk factors should be reflected in the underwriting standards, with a view to gather a comprehensive feedback on the most appropriate approach for the interpretation of the homogeneity requirement. The homogeneity requirement aims to facilitate the assessment of underlying risks by investors and to enable them to perform robust due diligence. Its application is, therefore, one of prerequisites for a more risk-sensitive regulatory treatment of the securitization. Homogeneity of the underlying exposures is one of the requirements for simple, transparent, and standardized (STS) securitization, which is eligible for more risk-sensitive risk weights, under the new EU securitization framework. 

     

    Related Link: Press Release and Consultation Paper

    Comment Due Date: March 15, 2018

    Keywords: Europe, EU, Banking, Securitization Framework, Regulatory Technical Standards, Homogeneity of Underlying Exposures, EBA

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