EC published Regulation (EU) 2017/2401 on prudential requirements for credit institutions and investment firms. This Regulation amends the Capital Requirements Regulation (CRR) or Regulation (EU) No 575/2013 and the amendments mainly relate to the regulatory capital treatment for simple, transparent, and standardized (STS) securitizations. The Regulation shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union. It shall apply from January 01, 2019.
EC also recently published Regulation (EU) 2017/2402, which lays down a general framework for securitization, along with a specific framework for STS securitizations. In accordance with the objectives of Regulation (EU) 2017/2402, the regulatory capital requirements laid down in CRR for institutions originating, sponsoring, or investing in securitization needed to be amended to adequately reflect the specific features of STS securitizations when such securitizations also meet the additional requirements laid down in this Regulation. The CRR also needed to be amended to address the shortcomings that became apparent during the financial crisis, namely mechanistic reliance on external ratings, excessively low risk-weights for highly rated securitization tranches and, conversely, excessively high risk-weights for low-rated tranches, and insufficient risk-sensitivity. On December 11, 2014, BCBS published its revisions to the securitization framework (the Revised Basel Framework) setting out various changes to the regulatory capital standards for securitizations to address specifically those shortcomings. Then, on July 11, 2016, BCBS published an updated standard for the regulatory capital treatment of securitization exposures, which includes the regulatory capital treatment for simple, transparent, and comparable securitizations. This July 2016 standard amends the Revised Basel Framework. The amendments to CRR or Regulation (EU) No 575/2013 should take into account the provisions of the Revised Basel Framework as amended.
It is appropriate for the amendments to CRR or Regulation (EU) No 575/2013 provided for in Regulation (EU) 2017/2401 to apply to all securitization positions held by an institution. However, to mitigate transitional costs insofar as possible and to allow for a smooth migration to the new framework, institutions should continue to apply, until December 31, 2019, the previous framework—namely the relevant provisions of CRR that applied prior to the date of application of this Regulation, to all outstanding securitization positions that they hold on the date of application of this Regulation,
Effective Date: January 17, 2018
Keywords: Europe, EU, Banking, Regulation 2017/2401, STS Securitization, CRR, Regulatory Capital, EC
Previous ArticleEC Amends Definition of Systematic Internalisers Under MiFID II
PRA, via the consultation paper CP12/20, proposed changes to its rules, supervisory statements, and statements of policy to implement certain elements of the Capital Requirements Directive (CRD5).
EIOPA published the financial stability report that provides detailed quantitative and qualitative assessment of the key risks identified for the insurance and occupational pensions sectors in the European Economic Area.
EBA published its risk dashboard for the first quarter of 2020 together with the results of the risk assessment questionnaire.
EBA announced that the next stress testing exercise is expected to be launched at the end of January 2021 and its results are to be published at the end of July 2021.
PRA published the consultation paper CP11/20 that sets out its expectations and guidance related to auditors’ work on the matching adjustment under Solvency II.
MAS published a statement guidance on dividend distribution by banks.
APRA updated its capital management guidance for banks, particularly easing restrictions around paying dividends as institutions continue to manage the disruption caused by COVID-19 pandemic.
FSB published a report that reviews the progress on data collection for macro-prudential analysis and the availability and use of macro-prudential tools in Germany.
EBA issued a statement reminding financial institutions that the transition period between EU and UK will expire on December 31, 2020; this will end the possibility for the UK-based financial institutions to offer financial services to EU customers on a cross-border basis via passporting.
SRB published guidance on operational continuity in resolution and financial market infrastructure (FMI) contingency plans.