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    EBA Consults on Risk Retention Requirements Under Securitization Rule

    June 30, 2021

    EBA launched a consultation on draft regulatory technical standards specifying the requirements for originators, sponsors, original lenders, and servicers related to risk retention, in line with the Securitization Regulation. The regulatory standards aim to clarify requirements related to risk retention, thus reducing the risk of moral hazard and aligning interests. The regulatory standards also provide clarity on new topics, including risk retention in traditional securitization of nonperforming exposures. The feedback period on this consultation ends on September 30, 2021.

    The Securitization Regulation, as amended by Regulation 2021/557, sets out requirements on the retention of a material net economic interest in securitization and mandates EBA to prepare, in close cooperation with other ESAs, the draft regulatory standards in this area. The Securitization Regulation requires EBA to submit these draft regulatory technical standards to EC by October 10, 2021. The draft regulatory standards specify in greater detail the risk retention requirements and, in particular:

    • Requirements on the modalities of retaining risk
    • Measurement of the level of retention
    • Prohibition of hedging or selling the retained interest
    • Conditions for retention on a consolidated basis
    • Conditions for exempting transactions based on a clear, transparent, and accessible index
    • Modalities of retaining risk in case of traditional securitizations of nonperforming exposures
    • Impact of fees paid to the retainer on the effective material net economic interest

    The draft regulatory standards carry over a substantial part of the provisions on risk retention, as set out in the previous standards on risk retention adopted by EBA in 2018 under the Securitization Regulation, with some modifications. Several additional provisions have been included in the draft regulatory technical standards to address the extended risk retention mandate for EBA, following amendments to the Securitization Regulation under Regulation 2021/557, as well as to address specific issues related to risk retention. These specific issues include modalities of risk retention in traditional nonperforming exposure securitizations, impact of fees payable to retainers on the risk retention requirement, expertise of the servicer in nonperforming exposure securitizations, clarification on synthetic excess spread, retention in re-securitizations, and own issued debt instruments. Additionally, several modifications have been made to existing provisions under the Securitization Regulation, for the sake of ensuring consistency with the mandate and providing further clarity on specific aspects. After this consultation, the final draft regulatory standards will be submitted to EC for adoption. Following the submission to EC, the regulatory standards will be subject to scrutiny by the European Parliament and the Council before being published in the Official Journal of the European Union.

     

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    Comment Due Date: September 30, 2021

    Keywords: Europe, EU, Banking, Securitization Regulation, Securitization Framework, NPE, Risk Retention, Capital Market Recovery Package, EBA, EC

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