The Regulatory Technical Standard (“RTS”) on performance-related triggers for synthetic STS securitisations will enter into force on 11 April, following its publication in the official journal of the European Union on 22 March. This finalises the rules regarding the point at which synthetic securitisations must switch from pro-rata to sequential amortisation. These rules serve to protect investors in the senior tranche from losses.
Following the publication of the final draft by the European Banking Authority (“EBA”; see also our TSI Compact article from 28 September 2022), the European Commission’s review took over a year until the final version was published in December 2023. Although the European Commission made adjustments to the structure and form of the RTS, nothing significant was changed in terms of content.
It is to be welcomed that the new RTS now includes a complete grandfathering measure after all. The EBA had not provided for this in its final draft. The risk of some synthetic on-balance-sheet transactions losing STS status as a result of the new RTS is therefore no longer present.