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EU Securitisation Regulation Roundup – July 2023

This update summarises a number of recent developments in relation to Regulation (EU) 2017/2402 (the "Securitisation Regulation"), namely:

  • the publication of the final text of regulatory technical standards on the risk retention requirements under Article 6 of the Securitisation Regulation (the "Risk Retention RTS");
  • the end of a consultation by the European Banking Authority (the "EBA") on its guidelines on the simple, transparent and standardised ("STS") criteria for on-balance-sheet securitisations (the "Guidelines"); and
  • the publication by the European Securities and Markets Authority ("ESMA") of an updated version of its questions and answers on the Securitisation Regulation (the "Q&A").

Final Risk Retention RTS published

On 7 July 2023, the European Commission adopted and published the final text of the Risk Retention RTS.  The text must now be reviewed by the European Parliament and Council.  If approved without amendment by those institutions, the Risk Retention RTS could come into force as early as September 2023. 

The publication of the Risk Retention RTS has been awaited for some time.  Draft regulatory technical standards were originally published in 2018 but their finalisation was repeatedly delayed.  A revised draft text was published in April 2022 (the "2022 Draft RTS").  The Risk Retention RTS will replace the existing regulatory technical standards published in 2014 (the "2014 RTS"), which currently apply under the transitional provisions set out in the Securitisation Regulation.

Some of the more notable changes or clarifications introduced by the Risk Retention RTS include:

  • Sole purpose test: The final text of the Risk Retention RTS provides that, in order for an entity to be considered not to have the "sole purpose" of securitising exposures, an entity must meet the following two criteria: (a) it must have a broader business model and capacity to meet payment obligations from income other than the securitised exposures; and (b) its management must have the experience necessary to pursue this strategy.  This is arguably more prescriptive than the 2022 Draft RTS, which merely stated that (a) and (b) were factors "to be taken into account". 
  • NPE securitisations:  The Risk Retention RTS contain certain provisions specific to securitisations of non-performing exposures ("NPEs").  For example, they clarify that the 5% minimum risk retention should be calculated by reference to the net value of the underlying NPEs, rather than their nominal amount.  The Risk Retention RTS further provide that a servicer may act as the risk retainer in respect of an NPE securitisation provided it meets the relevant expertise requirements.
  • Hedging:  The Risk Retention RTS clarify that a retention holder may hedge the retained net economic interest where the hedge is not against the credit risk of either the retained securitisation positions or the retained exposures.
  • Change of retainer:  The Risk Retention RTS set out a limited number of circumstances in which the entity retaining the risk of a securitisation may be changed.  These are (a) the insolvency of the retainer; (b) the retainer becoming unable to continue to act in that capacity (for reasons beyond the control of the retainer or its shareholders); and (c) where retention is on a consolidated basis.
  • Own-issued debt instruments:  Where a securitisation comprises exclusively own-issued covered bonds or debt instruments, the securitising entity is not obliged to take any further action to comply with the risk retention requirement.

EBA consultation on STS guidelines for synthetic securitisations

On 24 April 2023, the EBA published a consultation paper on the Guidelines.  That consultation closed on 7 July 2023.  The EBA will now consider the feedback received from industry associations and market participants during the consultation period, with a view to publishing final draft Guidelines towards the end of 2023 or early 2024.  The publication of the final Guidelines will be eagerly anticipated by those involved in the establishment of synthetic securitisations, which only became eligible for STS status following amendments to the Securitisation Regulation in April 2021.

Updated ESMA Q&A

ESMA published an updated version of the Q&A on 13 July 2023.  Broadly speaking, the changes are not substantial.  As well as a number of new questions and answers addressing how the reporting templates should be completed, the Q&A include the following new clarifications:

  • Conversion of transparency data:  If a securitisation repository receives Article 7 transparency data in a form that is not compliance with the XML templates published by ESMA, it should reject the file.  A reporting entity may appoint a third party to convert data in a non-XML format to the appropriate XML format, but the Q&A appear to suggest that the it is not possible to appoint the securitisation repository itself for this purpose.
  • Amended transaction documents:  Where amendments are made to a transaction document that is required to be made available pursuant to Article 7 of the Securitisation Regulation, the amended version must be made available without delay and the original version must continue to be made available.
  • Transparency for "self-securitisations":  The obligation to make available information on the underlying exposures contained in Article 7(1)(a) of the Securitisation Regulation applies even where the subscriber for the notes is the originator itself.

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