EBA Sets Out Views on Developing Sustainable Securitization Framework
The European Banking Authority (EBA) published a report that explores the need for development of a framework for sustainable securitization. In the report, EBA recommends amendment of the Securitization Regulation as well as adjustments, in context of the securitization transactions, to the proposed European Union Green Bond Standard. However, the analysis shows that it would be premature to establish a dedicated framework for sustainable securitizations. EBA also recommends that mandatory principal adverse impact disclosures should be considered in the medium term once more experience has been gained on the implementation of sustainability-related disclosures for securitization.
The report offers an overview of the recent developments and challenges of introducing sustainability to the securitization market. It explores how the Green Bond Standard in European Union could be implemented for securitization and whether a potential dedicated framework for sustainable securitization should be introduced. The report includes policy recommendations addressed to the European Commission, with a focus on these three areas:
- Application of the European Union Green Bond Standard standard to securitization;
- Relevance, policy implications, and possible design of a dedicated framework for sustainable securitization products
- Nature and content of sustainability-related disclosures for securitization products
In the report, EBA recommends that requirements of the Green Bond Standard should apply at the originator level, instead of at the issuer or securitization special purpose entity (SSPE) level. This would allow a securitization that is not backed by a portfolio of green assets to meet the Green Bond Standard's requirements, provided that the originator commits to using all the proceeds from the green bond to generate new green assets. The proposed adjustments will allow the sustainable securitization market to develop and play a role in financing the transition toward a greener economy, in addition to ensuring that the treatment of securitizations is consistent with that of the other types of asset-backed securities. Further EBA work on green synthetic securitizations and social securitizations is also called for.
EBA also recommends amendment of the Securitization Regulation to extend voluntary "principal adverse impact disclosures" to non-STS (simple, transparent and standardized) securitizations. Improved availability of more standardized data on the principal adverse impact, or PAI, of securitization investments on environmental, social, and governance (ESG) factors would be key to supporting the transition of the European Union securitization market toward sustainability. Mandatory principal adverse impact disclosures should also be considered in the medium term once the European Union sustainable securitization market has further matured and more experience has been gained on the implementation of sustainability-related disclosures for securitization. This report was developed in accordance with Article 45a(1) of the Securitization Regulation. Based on the outcome of this report, the European Commission could submit a report to the European Parliament and the Council on the creation of a sustainable securitization framework, along with a legislative proposal, if deemed appropriate.
Related Links
Keywords: Europe, EU, Banking, Securitization Framework, STS Securitization, Sustainable Finance, Disclosures, EBA, Green Bonds, ESG, Green Bond Standard, Securitization Regulation, Basel, EC, Headline
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Hasan Cerhozi
Hasan leads Moody’s Analytics ESG methodology development. He is expert on carbon transition, nature related risks and is a guest lecturer at ESSEC Business school on sustainable finance.
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Previous Article
APRA to Launch Climate Risk Survey, Review Basel Liquidity ReformsRelated Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.
