Risk Retention Requirements for Securitisations
EBA published its final draft Regulatory Technical Standards (RTS)
The European Banking Authority (EBA) published its final draft Regulatory Technical Standards (RTS) specifying the requirements for originators, sponsors and original lenders related to risk retention as laid down in the Securitisation Regulation and as amended by the Capital Markets Recovery Package (CMRP).
The principal positive development in the New RTS is the greater flexibility afforded to securitisations fully or partially backed by non-performing exposures (NPEs). In particular, the ability of the servicer to act as the risk retainer on an NPE securitisation, and the calculation of the 5% risk retention on the basis of the "net", rather than "nominal" value of the underlying NPEs. These changes aim to facilitate the securitisation of NPEs and are part of the EBA's broader work on supporting the functioning of the secondary markets for NPE.
Regulation (EU) 2017/2402 (the Securitisation Regulation), as amended by Regulation (EU) 2021/557, sets out requirements concerning the retention of a material net economic interest in securitisation and mandates the EBA to prepare, in close cooperation with the European Securities and Market Authority (ESMA) and the European Insurance and Occupational Pensions Authority (EIOPA), draft Regulatory Technical Standards (RTS) in this area.
These draft RTS, in accordance with Article 6(7) of the Securitisation Regulation, specify in greater detail the risk retention requirements and, in particular: i) requirements on the modalities of retaining risk, ii) the measurement of the level of retention, iii) the prohibition of hedging or selling the retained interest, iv) the conditions for retention on a consolidated basis, v) the conditions for exempting transactions based on a clear, transparent and accessible index, vi) the modalities of retaining risk in case of traditional securitisations of non-performing exposures, and vii) the impact of fees paid to the retainer on the effective material net economic interest.
These draft RTS have been drafted in such a way as to ensure the alignment of interest (risks) between the securitisation sponsors, originators, original lenders, and, in the case of traditional NPE securitisations, servicers, on the one hand, and the investors buying the securitisation positions or providing the credit protection in synthetic securitisations, on the other. Furthermore, they are intended to facilitate the implementation of the risk retention requirements by the sponsor, originator, original lender and servicer.
These draft RTS carry over a substantial part of the provisions on risk retention set out in the previous RTS on risk retention adopted by the EBA in 2018 under the original Article 6(7) of the Securitisation Regulation, prior to the amendment made as part of the co-legislators response to the COVID-19 crisis under Regulation (EU) 2021/557, with some modifications.
Firstly, several additional provisions have been included in the draft RTS, addressing the extended mandate for the EBA on the risk retention under Article 6(7) following amendments to the Securitisation Regulation under Regulation (EU) 2021/557 and addressing specific issues relating to risk retention (modalities of risk retention in traditional NPE securitisations, impact of fees payable to retainers on the risk retention requirement, expertise of the servicer in NPE securitisations, clarification of the synthetic excess spread, retention in resecuritisations and own issued debt instruments). Secondly, several modifications have been made to existing provisions for the sake of ensuring consistency with the mandate and providing further clarity on some specific aspects.