Featured Product

    EC Rule on OTC Derivative Treatment in Relation to STS Securitizations

    March 27, 2020

    EC published the Delegated Regulation 2020/448 on the specification of the treatment of over-the-counter (OTC) derivatives in connection with certain simple, transparent, and standardized securitizations for hedging purposes. Regulation 2020/448 amends Regulation 2016/2251 and shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union.

    Article 42(3) of Regulation 2017/2402 amended Article 11(15) of the European Market Infrastructure Regulation or EMIR (648/2012). This amendment was to ensure that, with regard to the margin requirements for non-centrally cleared OTC derivatives, derivatives associated with covered bonds and derivatives associated with securitizations are treated in the same manner. Since Regulation 2016/2251 is based on Article 11(15) of EMIR, this regulation (2016/2251) is also being amended to reflect the amendment made to Article 11(15) of EMIR. Regulation 2016/2251 has been amended to include rules on the risk-mitigation techniques for OTC derivative contracts not cleared by a central counterparty concluded by a securitization special purpose entity in connection with a securitization. This Regulation is based on the draft regulatory technical standards submitted to EC by EBA, EIOPA, and ESMA.

    In Regulation 2016/2251, Article 30a on the treatment of derivatives in connection with securitizations for hedging purposes has been inserted. By way of derogation from Article 2(2) and where the conditions set out in paragraph 2 of Article 30a of Regulation (EU) 2016/2251 are met, counterparties may provide, in their risk management procedures, the following in connection with OTC derivatives contracts that are concluded by a securitization special purpose entity in connection with a securitization as defined in point (1) of Article 2 of Regulation (EU) 2017/2402 and meeting the conditions of Article 4(5) of EMIR:

    • That variation margin is not posted by the securitization special purpose entity but is collected from its counterparty in cash and returned to its counterparty when due
    • That initial margin is not posted or collected

    Paragraph 1 of Article 30a of Regulation (EU) 2016/2251 shall apply where all of the following conditions are met:

    • The counterparty to the OTC derivative concluded with the securitization special purpose entity in connection with the securitization ranks at least pari passu with the holders of the most senior securitization note, provided that counterparty is neither the defaulting nor the affected party
    • The securitization special purpose entity for the securitization to which the OTC derivatives contract is associated is subject to a level of credit enhancement of the most senior securitization note of at least 2% of the outstanding notes on an ongoing basis
    • The netting set does not include OTC derivative contracts unrelated to the securitization

     

    Related Links

    Effective Date: April 16, 2020

    Keywords: Europe, EU, Banking, Securities, Securitization, STS Securitization, OTC Derivatives, Hedging, EMIR, Initial Margin, Regulation 220/448, EC 

    Featured Experts
    Related Articles
    News

    EC Issues Regulation on Adjustments to K-Factor Coefficients Under IFR

    The European Commission (EC) published a report summarizing responses to the targeted consultation on the supervisory convergence and the single rulebook in the European Union (EU).

    January 20, 2022 WebPage Regulatory News
    News

    OSFI Issues Results of Pilot on Climate Risk Scenario Analysis

    The Office of the Superintendent of Financial Institutions (OSFI) published an update on the discussion paper that intended to engage federally regulated financial institutions and other interested stakeholders in a dialog with OSFI, to proactively enhance and align assurance expectations over key regulatory returns.

    January 20, 2022 WebPage Regulatory News
    News

    ECB Issues Opinions on Green Bonds Standard and CRR Proposals

    The European Central Bank (ECB) published its opinion on a proposal for a regulation on European green bonds, following a request from the European Parliament.

    January 19, 2022 WebPage Regulatory News
    News

    ESRB Explores Policy Response to Risks Arising from Digitalization

    The Advisory Scientific Committee (ASC) of the European Systemic Risk Board (ESRB) published a report that explores the expected impact of digitalization on provision of financial and banking services, and proposes policy measures to address the risks stemming from digitalization.

    January 18, 2022 WebPage Regulatory News
    News

    EU Authorities Address COVID-19 Reporting, MCD, and PSD2 Issues

    The European Banking Authority (EBA) announced that the guidelines on the reporting and disclosure of exposures subject to measures COVID-relief measures shall continue to apply until further notice.

    January 17, 2022 WebPage Regulatory News
    News

    FI Publishes Multiple Regulatory and Reporting Updates

    The Swedish Financial Supervisory Authority (FI) announced that the capital adequacy reporting as at December 31, 2021 must be done by February 11, 2022.

    January 17, 2022 WebPage Regulatory News
    News

    BSP Tackles Aspects of Lending and Islamic, Open & Sustainable Finance

    The Central Bank of the Philippines (BSP) issued communications covering developments related to online lending platforms, open finance framework and roadmap, and on the expected regulations in the area sustainable finance.

    January 16, 2022 WebPage Regulatory News
    News

    US Agencies Issue Regulatory Updates, FDIC Launches Tech Sprint

    The Board of Governors of the Federal Reserve System (FED) published the final rule that amends Regulation I to reduce the quarterly reporting burden for member banks by automating the application process for adjusting their subscriptions to the Federal Reserve Bank capital stock, except in the context of mergers.

    January 13, 2022 WebPage Regulatory News
    News

    EBA Issues Guide on Bank Resolvability, Consults on Transferability

    The European Banking Authority (EBA) published its assessment of risks through the quarterly Risk Dashboard and the results of the Autumn edition of the Risk Assessment Questionnaire (RAQ).

    January 13, 2022 WebPage Regulatory News
    News

    MFSA Publishes CRD5 Updates and Supervisory Priorities for 2022

    The Malta Financial Services Authority (MFSA) updated the guidelines on supervisory reporting requirements under the reporting framework 3.0.

    January 13, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 7875