European Banking Authority Consults on Draft Technical Standards on Homogeneity of Underlying Exposures in Securitization
12/15/2017The European Banking Authority has launched a consultation on draft Regulatory Technical Standards on the homogeneity of underlying exposures in securitizations under the new EU framework for simple, transparent and standardized securitizations. The new framework is made up of the STS Regulation and amendments to the existing Capital Requirements Regulation. The STS Regulation, which will come into effect in 2018, provides the criteria for identifying which securitizations will be designated as STS securitizations, a system to monitor the application of those criteria as well as common requirements on risk retention, due diligence and disclosure for all financial services sectors. The amended CRR sets out the regulatory treatment of exposures to securitizations that are deemed to be STS securitizations.
The "simple" criterion provides, among other things, that the securitization must be backed by a pool of underlying exposures that are homogenous in terms of asset type and that the underlying exposures must include obligations that are contractually binding and enforceable, with full recourse to debtors and, where applicable, guarantors. The homogeneity requirement in the STS Regulation is designed to better enable investors to assess risk and conduct robust due diligence.
The EBA must further specify which exposures are deemed homogenous. It has developed the proposed RTS to specify criteria for homogeneity of underlying exposures based on how they are underwritten, how they are serviced, the risk factors they take into account and the asset category into which they fall. The draft RTS include a list of asset categories reflecting the most common types of underlying exposures securitized in the market.
Comments on the draft RTS are invited by March 15, 2018. The draft RTS will then be finalized and submitted to the European Commission for adoption. The EBA will hold a public hearing on the consultation on February 19, 2018.
View the consultation paper (EBA/CP/2017/21).