On 27 May 2024, the EBA has published its long-awaited Final Report in relation to the “Guidelines on the STS criteria for on-balance-sheet securitisation”. At the same time and in the same Final Report, EBA has published certain amendments to the existing EBA Guidelines on the STS criteria for ABCP and non-ABCP securitisation. The publication of the Final Report follows a 3 months consultation period held between EBA and market participants which concluded in July 2023 (see TSI kompakt news from 7 July 2023).
New EBA Guidelines were long awaited
Like the existing EBA Guidelines for true sale securitisations which had become effective in May 2019 shortly after the Securitisation Regulation came into force in January 2019, the EBA Guidelines for on-balance-sheet securitisation as such offer to market participants valuable guidance in the interpretation of the various STS criteria for synthetic securitisations. Hence, the publication of the Final Report is highly welcomed by market participants and securitisation practitioners.
Most noteworthy clarifications
Noteworthy clarifications and recommendations for synthetic on-balance-sheet securitisations include the following:
- Use of underlying exposures in the reference portfolio also as collateral for secured funding purposes does not constitute double hedging (at the same time, the treatment of state guarantees, e.g. through export credit agencies, will be further clarified under a separate mandate for EBA)
- The ‘at least one payment made’ requirement is also fulfilled for any other kind of ordinary payment if specified in the contractual agreement related to the exposure
- The requirements for the scope of the asset audit have been expanded to also include a check that the occurrence of a credit event would trigger a credit protection payment by the investor (although it remains to be seen how this additional requirement will be implemented in practice)
- Clarifications have been made in relation to the credit quality steps and rating mapping tables relevant for credit institutions holding collateral in the form of cash on deposit
At the same time, EBA has been reluctant to include several recommendations suggested by market participants on practical matters such as clarifications on the requirements for the historical performance data or the eligible type of collateral for funded transactions.
Grandfathering and next steps
The inclusion of a grandfathering for existing synthetic STS transactions is highly welcomed. It avoids that the over 100 synthetic securitisations that have been notified as STS compliant over the last 3 years would be at risk of loosing STS compliance – only because they fall short in minor technical or formal aspects of the finalised EBA Guidelines for on-balance-sheet securitisation.
The EBA guidelines for on-balance-sheet securitisation will become effective 2 months after they have been translated into the official EU languages and published on the EBA website.
To the final report on EBA Guidelines for on-balance-sheet securitisation