Consultation paper on Draft Regulatory Technical Standards on the concept of Gain on Sale associated with future margin income in a securitisation context

The objective of these draft RTS is to specify further the concept and the treatment of a gain on sale, meaning any increase (or part of the increase) in equity under the applicable accounting standard arising from future margin income in the context of a securitisation transaction.

The draft Capital Requirements Regulation (CRR), article 29, establishes, as a general principle, that institutions shall exclude from their own funds increases in equity resulting from the sale of the assets being transferred in a securitisation transaction. This includes increases associated with future margin income that result in a gain on sale for an institution. This principle was already included in the Directive 2006/48, the so called CRD II.

The concept of gain on sale is mainly relevant for financial institutions using the US GAAP as accounting standard.

Next steps

The proposed consultation paper is based on the draft Capital Requirements Regulation (CRR) as proposed by the European Commission on 20 July 2011. As the text is still being discussed by the EU legislator (European Parliament and Council), the proposed RTS may be amended after the consultation to take into account the final CRR text.

These RTS, together with all the standards related to own funds requirements, have to be submitted to the EU Commission by 1 January 2013.

Separate consultations on some remaining RTS on Own Funds will follow in the second half of 2012.

Consultation process

Comments on this paper can be sent to the EBA by e-mail to CP-2012-7@eba.europa.eu by 12 August 2012, indicating the reference EBA/CP/2012/07.

All contributions received will be published unless you request otherwise.

A public hearing will take place at the EBA premises on 28th June from 9.30 to 11.30. To register for the public hearing, click here.

Notes to editors

1. The CRR/CRD IV proposals (the so-called Capital Requirements Regulation - ‘CRR'- and the so-called Capital Requirements Directive – ‘CRD') set out prudential requirements which are expected to be applicable as of 1 January 2013. The CRR proposals related to own funds translate the proposals from the Basel Committee on Banking Supervision into EU law. Both reforms intend to raise the quality and quantity of the regulatory capital base.
2. Draft RTS are produced in accordance with Article 10 of the EBA regulation and must be subsequently endorsed by the European Commission (EC). They shall be adopted by the EC by means of regulations or decisions. According to EU law, EU regulations are binding in their entirety and directly applicable in all Member States. This means that, on the date of their entry into force, they become part of the national law of the Member States and their implementation into national law is not only unnecessary but also prohibited by EU law, except in so far as this is expressly required by them.