July 31, 2018

EBA published the final draft regulatory technical standards defining the homogeneity of the underlying exposures in securitization, along with the standards on risk retention for securitization transactions. Both sets of regulatory technical standards have been developed according to the simple, transparent, and standardized (STS) Regulation. These regulations shall enter into force on the twentieth day following that of their publication in the Official Journal of the European Union.

Standards defining homogeneity of the underlying exposures in securitization. The regulatory technical standards set out conditions for securitization to be deemed homogeneous. Homogeneity is one of the crucial requirements for a securitization transaction to be assessed as STS and to be eligible for more risk-sensitive risk-weights under the new EU securitization framework. These standards are part of 28 mandates assigned to EBA within its important role in implementation of the new securitization framework. According to the conditions specified in the standards, homogeneous exposures need to be underwritten according to similar underwriting standards and serviced according to similar servicing procedures. They need to fall within the same asset category. To facilitate the assessment of homogeneity, the standrds specify a non-exhaustive list of the most common asset categories, reflecting the market practice. Finally, for the majority of these asset categories, the underlying exposures need to be homogeneous with reference to at least one of the homogeneity factors, such as type of obligor, ranking of security rights, jurisdiction, or type of immovable property. The standards are applicable to both asset-backed commercial paper (ABCP) and non-ABCP securitizations. 

Standards on risk retention for securitization transactions. The regulatory technical standards specify the requirements for originators, sponsors, and original lenders related to risk retention, as laid down in the new EU securitization framework (STS Regulation). These standards include various new provisions, in particular relating to when an entity shall be deemed not to have been established or to operate for the sole purpose of securitizing exposures, transfers, or hedging of the retained interest, circumstances under which the retainer should be changed and adverse selection of assets. However, due to the narrower mandate on risk retention under the STS Regulation, as opposed to the previous mandate, certain provisions from the existing Delegated Regulation were not included in these final standards, in particular those relating to due diligence requirements, policies for credit granting, and disclosure of materially relevant data.  Finally, given the cross-sectoral nature of its application, the new STS Regulation contains transitional provisions regarding the application of the existing Delegated Regulation to those securitizations whose securities were issued before its application date. From the date of entry into force of this regulation, the Commission Delegated Regulation (EU) No 625/2014 shall be repealed.

 

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Effective Date: OJ + 20 Days

Keywords: Europe, EU, Banking, STS Regulation, Risk Retention, Homogeneity, Securitization, Regulatory Technical Standards, EBA