EC Regulation on Capital Requirement Calculations for Securitizations

By Regulatory News

September 10, 2018

EC published the Commission Delegated Regulation (EU) 2018/1221 on the calculation of regulatory capital requirements for securitizations and simple, transparent, and standardized (STS) securitizations held by insurance and reinsurance undertakings. For the purpose of this regulation, the existing provisions of Delegated Regulation (EU) 2015/35 on calibration for “type 1 securitization" are being replaced by a more risk-sensitive calibration for STS securitization, covering all possible tranches that also meet additional requirements to minimize risks. Regulation (EU) 2018/1221 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.

To ensure a sound recovery of the EU securitization market, a new regulatory framework for securitization was laid down, based on lessons learned during the financial crisis. Regulation (EU) 2017/2402 lays down the substantive elements of an overarching securitisation framework, with criteria to identify STS securitizations and a system of supervision to monitor the correct application of those criteria by originators, sponsors, issuers, and institutional investors. Furthermore, that Regulation provides for a set of common requirements in relation to risk retention, due diligence, and disclosure for all financial services sectors. In addition, Regulation (EU) 2017/2401 amends, with effect from January 01, 2019, the Capital Requirements Regulation (Regulation No 575/2013) to provide for revised prudential requirements for credit institutions and investment firms originating, sponsoring, or investing in securitizations, particularly revised capital requirements for investments in STS securitization.

In light of the application dates of Regulation (EU) 2017/2402 and Regulation (EU) 2017/2401 as well as the transitional provisions contained in those pieces of legislation, it is important to ensure that Regulation (EU) 2018/1221 becomes applicable on the same date—that is, on January 01, 2019. To the extent that the revised legislative framework for securitization overlaps with the scope of provisions laid down in Commission Delegated Regulation (EU) 2015/35, it is necessary, in order to avoid double regulation and for reasons of clarity and consistency, to adapt the prudential framework applicable to insurance and reinsurance undertakings.

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Effective Date: September 30, 2018

Keywords: Europe, EU, Insurance, Securitization Regulation, STS Securitization, CRR, Regulation 2018/1221, EC

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