Shearman & Sterling LLP | Financial Regulatory Developments Focus | New EU Securitization Framework Published
Financial Regulatory Developments Focus
  • New EU Securitization Framework Published
    Two new EU Regulations introducing the new EU securitization framework for simple, transparent and standardized securitizations have been published in the Official Journal of the European Union - the STS Regulation and a Regulation amending the existing Capital Requirements Regulation. The two Regulations implement the Basel Committee on Banking Supervision's amended Securitization Framework for alternative regulatory capital treatment for simple, transparent and comparable securitizations in 2014 as part of Basel III.

    The STS Regulation 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. Originators and sponsors will be required to notify the European Securities and Markets Authority of any securitization that meets the STS criteria and ESMA will maintain a list of all such securitizations on its website. The STS Regulation allows (but does not require) originators, sponsors and securitization special purpose entities to use third-party firms to assess whether a securitization meets the STS criteria, provided that those firms are authorized by the relevant national regulator.

    In addition, SSPEs, originators and sponsors of a securitization will be required to make certain information available via a securitization repository to holders of a securitization position, to the national regulators and, upon request, to potential investors. Those securitization repositories will be subject to certain operational standards and access to the data held by them is subject to certain conditions being met.

    The STS Regulation requires, among other things, originators, sponsors or original lenders of a securitization to retain on an ongoing basis a material net economic interest in the securitization of at least 5 %. It also includes an exemption, subject to certain criteria being met, from the clearing obligation for OTC derivative contracts entered into by covered bond entities and SSPEs.

    The STS Regulation will apply directly across the EU from January 1, 2019 to securities issued under securitizations on or after January 1, 2019. Securitizations issued before that date may be referred to as STS securitizations provided that they meet certain conditions.
    The Regulation amending the CRR sets out the preferential regulatory treatment of exposures to securitizations for investors, in particular, for bank investors, that are deemed to be STS securitizations. The amending Regulation will apply directly across the EU from January 1, 2019. For securitizations issued before January 1, 2019, the existing CRR provisions will apply until December 31, 2019.

    View the STS Regulation.

    View the CRR Amendment Regulation