Featured Product

    ECB Publishes Opinion on Proposals to Amend Securitization Framework

    September 24, 2020

    ECB published an opinion (CON/2020/22) on proposals for regulations amending the securitization framework of EU, in response to the COVID-19 pandemic. In its opinion, ECB welcomes the proposed regulations, which contain targeted amendments to EU securitization framework with the aim of facilitating the use of securitization in EU's recovery. However, ECB makes certain recommendations to enhance the proposed regulations. For the amendments that ECB recommends, specific drafting proposals have been set out in a separate technical working document accompanied by an explanatory text to this effect.

    This opinion has been published in response to the August 2020 request of EU Council to ECB for an opinion on two proposals (referred to as proposed regulations). The first proposal is for a regulation amending Regulation 2017/2402 on a general framework for securitization and creating a specific framework for simple, transparent, and standardized (STS) securitization to help the recovery from the COVID-19 pandemic (the proposed securitization regulation. The second proposal is for a regulation amending the Capital Requirements Regulation (CRR or Regulation 575/2013) regarding adjustments to the securitization framework to support the economic recovery in response to the COVID-19 pandemic (proposed regulation amending the CRR). This second proposed measure involves the removal of regulatory obstacles to the securitization of non-performing exposures (NPEs), to maintain the lending capacity of credit institutions, given that an increase in NPEs caused by COVID-19 can be expected. It is based on the draft standards proposed by BCBS and published for consultation in June 2020.  

    The following are the key highlights of the opinion and recommendations of ECB with respect to the two proposed regulations:

    • ECB welcomes the proposal to standardize the synthetic securitization market through the introduction of STS criteria, which are likely to have a positive steering effect. However, as EBA recognizes in one of its reports, there are limitations in the data and transactions used in this analysis. Nevertheless, ECB recommends that a thorough monitoring of the STS synthetic securitization market is put in place, also highlighting that the preferential risk-weight treatment could be an incentive for credit institutions to increase their reliance on synthetic securitization for capital management.
    • ECB supports the EC proposal to adjust the prudential treatment of NPE securitizations, in line with the recent consultation by BCBS, and recommends that the draft BCBS standards are reflected faithfully, unless there is a strong reason to deviate. In that respect, ECB recommends that the EC proposal should be adjusted, if necessary, to reflect the final BCBS standards. The draft BCBS standards strike a good compromise between risk-sensitivity and simplicity by defining a fixed 100% risk-weight for senior tranches of qualifying NPE securitizations. ECB also proposes to amend Article 249(3) of the CRR to be fully aligned with the BCBS standards, meaning that no minimum rating requirements are imposed on most of the unfunded credit protection providers, while requirements are imposed on unfunded credit protection provided by unregulated private entities in line with the BCBS standards.
    • The definition of NPE securitizations in the proposed securitization regulation deviates from the definition proposed in the draft BCBS standards. However, ECB supports the approach proposed by EC. This is because credit institutions established in EU apply the NPE definition as set out in Article 47a(3) of the CRR for regulatory reporting and risk management purposes; the definition in Article 47a(3) of the CRR is more closely aligned with associated economic risks and bank practice than the parameter W. In addition, the definition of NPEs in Article 47a(3) of the CRR captures unlikely-to-pay exposures, in contrast to the definition proposed in the draft BCBS standards; some EU credit institutions have significant stocks of unlikely-to-pay exposures and would benefit from the proposals.
    • ECB recommends an amendment to the proposed definition of non-refundable purchase price discount (NRPPD). ECB further recommends expressly excluding refundable purchase price discounts, which can undermine the risk transfer as the originator is still exposed to the performance of the NPEs.
    • ECB recommends clarifying, for the avoidance of doubt, that the 100% risk-weight floor for NPE securitizations overrides the so-called "look-through approach" risk-weight cap for senior securitization positions pursuant to Article 267 of the CRR (if the cap results in a risk-weight below 100%), as expressly stated in the draft BCBS standards (see CRE 45.5).

     

    Related Link: Opinion (PDF)

     

    Keywords: Europe, EU, Banking, Securities, Securitization Framework, COVID-19, CRR, NPE, Credit Risk, STS Securitization, Regulatory Capital, Basel, BCBS, ECB

    Featured Experts
    Related Articles
    News

    APRA Publishes Results of Climate Risk Self-Assessment Survey

    The Australian Prudential Regulation Authority (APRA) has published the findings of its latest climate risk self-assessment survey conducted across the banking, insurance, and superannuation industries.

    August 04, 2022 WebPage Regulatory News
    News

    ACPR Publishes Updates Related to CRD IV and Covered Bonds

    The French Prudential Supervisory Authority (ACPR) published a notice related to the methods for calculating and publishing prudential ratios under the Capital Requirements Directive (CRD IV) and the minimum requirement for own funds and eligible liabilities (MREL).

    August 03, 2022 WebPage Regulatory News
    News

    BIS Paper Contributes to Debate on Regulating NBFIs and Big Techs

    The Financial Stability Institute (FSI) of the Bank for International Settlements recently published a paper proposing a framework for classifying financial stability regulation as either entity-based or activity-based.

    August 03, 2022 WebPage Regulatory News
    News

    EIOPA Publishes Guidance on Climate Change Scenarios in ORSA

    The European Insurance and Occupational Pension Authority (EIOPA) published the risk dashboard based on Solvency II data and the final version of the application guidance on climate change materiality assessments and climate change scenarios in the Own Risk and Solvency Assessment (ORSA).

    August 02, 2022 WebPage Regulatory News
    News

    EBA and ECB Respond to Proposals on Sustainability Disclosures

    The European Banking Authority (EBA) and the European Central Bank (ECB) published their responses to the consultations of the International Sustainability Standards Board (ISSB) and the European Financial Reporting Advisory Group (EFRAG) on sustainability-related disclosure standards.

    August 01, 2022 WebPage Regulatory News
    News

    BIS Report Notes Existing Gaps in Climate Risk Data at Central Banks

    A Consultative Group on Risk Management (CGRM) at the Bank for International Settlements (BIS) published a report that examines incorporation of climate risks into the international reserve management framework.

    July 29, 2022 WebPage Regulatory News
    News

    EBA Publishes Multiple Regulatory Updates for Regulated Entities

    The European Banking Authority (EBA) published the final guidelines on liquidity requirements exemption for investment firms, updated version of its 5.2 filing rules document for supervisory reporting, and Single Rulebook Question and Answer (Q&A) updates in July 2022.

    July 29, 2022 WebPage Regulatory News
    News

    EIOPA Issues SII Taxonomy and Guide on Sustainability Preferences

    The European Insurance and Occupational Pensions Authority (EIOPA) published Version 2.8.0 of the Solvency II data point model (DPM) and XBRL taxonomy.

    July 29, 2022 WebPage Regulatory News
    News

    EESC Opines on Proposals on CRR and European Single Access Point

    The European Union published, in the Official Journal of the European Union, an opinion from the European Economic and Social Committee (EESC); the opinion is on the proposal for a regulation to amend the Capital Requirements Regulation (CRR).

    July 29, 2022 WebPage Regulatory News
    News

    HM Treasury Publishes Multiple Regulatory Updates in July 2022

    HM Treasury published a draft statutory instrument titled “The Financial Services (Miscellaneous Amendments) (EU Exit) Regulations 2022,” along with the related explanatory memorandum and impact assessment.

    July 29, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8424