Shearman & Sterling LLP | Financial Regulatory Developments Focus | European Banking Authority Consults on Draft Technical Standards on Risk Retention for Securitization Transactions
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  • European Banking Authority Consults on Draft Technical Standards on Risk Retention for Securitization Transactions
    12/15/2017
    The European Banking Authority has launched a consultation on draft Regulatory Technical Standards on risk retention requirements for originators, sponsors and original lenders under the new EU securitization 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 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 %. The draft RTS specify in greater detail the risk retention requirement, including the modalities of retaining risk, the measurement of the level of retention, the prohibition of hedging or selling the retained interest and the conditions for retention on a consolidated basis.

    The STS Regulation will replace those parts of the Capital Requirements Regulation that relate to risk retention and the draft RTS will replace much of the existing Commission Delegated Regulation under the CRR. The draft RTS differ in scope from the current Commission Delegated Regulation, and introduce various new provisions outside the scope of the Commission Delegated Regulation. However, the current Commission Delegated Regulation will continue to apply in areas where the scope of the RTS under the STS Regulation is narrower. Transitional provisions will also apply to securitizations that pre-date the STS Regulation.

    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.

    View the registration page for the EBA public hearing.

    View the current Commission Delegated Regulation on risk retention ((EU) No 625/2014).