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European Banking Authority Reports on Supervisory Best Practices for Securitization
04/12/2016The European Banking Authority published a report on supervisory measures taken by national regulators in 2014 on compliance by credit institutions and investments firms with securitization risk retention, due diligence and disclosure requirements under the Capital Requirements Regulation. The EBA is required to assess regulators' measures to ensure compliance. The report notes that firms are generally undertaking actions to comply with the requirements. Since the introduction of the requirements under the Capital Requirements Directive II in 2011, ten firms have been deemed non-compliant, with one firm receiving a sanction of an additional risk weight. The report provides analysis of how the EBA's recommendations on regulation of risk retention rules, due diligence and disclosure in the EU, as specified in a 2014 EBA report, have been taken on board in the legislative proposals for the new securitization framework issued by the European Commission as part of its Capital Markets Union initiative.
In 2014, the EBA recommended, amongst others, the implementation of a complementary direct approach to risk retention by putting the onus on originators, sponsors and original lenders and removing the indirect approach, which placed the onus on investors to check that a transaction complies with risk retention and reporting rules. The EBA also recommended that other than the five forms of risk retention already available (vertical slice, first loss tranche, seller's share, on balance sheet/randomly selected exposures and first loss exposure in each asset) no other forms should be considered. The EBA found that all of the measures recommended were largely taken on board by regulators. The EBA concludes that best practices should be applied in a proportionate way to ensure proper supervision of firms and adequate assessment of compliance with current securitization, risk retention, due diligence and disclosure rules.
View the report.
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