One of the major initiatives introduced by the Securitisation Regulation (“SR”) is that relating to “simple, transparent and standardised” (“STS”) securitisations.
Transactions falling within that category are eligible for more favourable regulatory capital treatment. In turn, homogeneity of the underlying exposures is one of the requirements for STS securitisations.
Work has been ongoing for a long time on the necessary regulatory technical standards (“RTS”) concerning homogeneity. A final draft of the RTS was published by the European Banking Authority in July 2018, and the European Commission adopted a Delegated Regulation based on them on 28 May 2019. Finally, Delegated Regulation (EU) 2019/1851 (the “Delegated Regulation”) was published in the Official Journal of the European Union on 6 November 2019, and will enter into force on the twentieth day following publication (being 26 November 2019).
The Delegated Regulation applies to both asset-backed commercial paper (ABCP) and non-ABCP securitisations and sets out four conditions that must be satisfied for the underlying exposures to be considered homogeneous:
(i) they have been underwritten according to standards that apply similar approaches to assessing credit risk;
(ii) they are serviced in accordance with similar procedures for monitoring, collecting and administering cash receivables;
(iii) they fall within the same asset type - most of which are commonly used in the securitisation market including, for example, residential loans, commercial loans, auto loans and leases, credit card receivables and trade receivables; and
(iv) most asset types must satisfy one or more of the homogeneity factors specified in the Delegated Regulation for the applicable asset class. The homogeneity factors differ by asset type and, for example, in the case of auto loans and leases would be:
a. type of obligor, whereby the pool consists of underlying exposures with only one of the following types of obligors:
ii. micro-, small- and medium-sized enterprises;
iii. other types of enterprises and corporates;
iv. public sector entities;
v. financial institutions;
b. jurisdiction, whereby the pool consists of underlying exposures to obligors with residence in the same jurisdiction.