On 28 July, the European Banking Authority (EBA) published a new consultation paper. It deals with the amendment of the regulatory technical standard (RTS) on homogeneity of exposures in simple, transparent and standardised (STS) securitisations.
With the amendment of the Securitisation Regulation, the conditions were created to also make synthetic securitisations (“on-balance-sheet securitisations”) STS-compliant. The supervisory authorities are in the process of developing new RTS in this regard or supplementing the existing RTS with specifications regarding on-balance-sheet securitisations. On the subject of homogeneity, the EBA has now opted for the latter. This creates uniform rules for the application of homogeneity factors for all transaction types (ABCP, non-ABCP, on-balance-sheet securitisations), which is to be welcomed.
The most important changes to the regulatory standard
In addition, the following planned adjustments to the RTS are worth mentioning:
- The homogeneity factors for corporate loans have so far distinguished between micro, small and medium-sized (SME) and other corporates. Now it is planned to draw the line between large corporates and non-large corporates. This means that this distinction, which is viewed critically by the market, will be adjusted. However, it is still not possible to securitise reference portfolios with borrowers from more than one jurisdiction and consisting of SMEs and large corporates in a STS-compliant manner.
- In addition, the asset class of consumer loans is supplemented by companies for which the originator applies the same risk management methodology as for private persons. In practice, these could be self-employed persons or family businesses, for example. This extension is also introduced for the homogeneity factor “type of obligor” for the asset classes auto loans and leases and credit card receivables, so that now three obligor types are distinguished (private individuals and self-employed persons, etc., non-large corporates, large corporates). However, these amendments are likely to be less relevant in practice, as the securitised portfolios of the corresponding asset classes usually contain debtors from the same jurisdiction and are therefore to be classified as homogeneous anyway.
In principle, the EBA holds out the prospect of grandfathering for existing non-ABCP and ABCP transactions and possibly for existing synthetic on-balance-sheet securitisations.
Conclusion
The EBA plans to create a uniform set of rules for homogeneous exposures and has taken up essential topics discussed by the market in the draft RTS. However, in the current draft version the new regulatory standard probably does not represent an efficient solution.
Further procedure
The EBA invites comments, in particular in response to the 9 questions in the consultation. Market participants have time to respond until 28 October. We will actively accompany the consultation and prepare a corresponding statement.