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December 28, 2017

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,

 

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Effective Date: January 17, 2018

Keywords: Europe, EU, Banking, Regulation 2017/2401, STS Securitization, CRR, Regulatory Capital, EC

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