EBA publishes final draft technical standards on the determination of the exposure value of synthetic excess spread in synthetic securitisations

25 April 2023

The European Banking Authority (EBA) published today its final draft Regulatory Technical Standards (RTS) specifying the determination by originator institutions of the exposure value of synthetic excess spread (SES). These draft RTS clarify the calculation of the components that should be included in this exposure value taking into account the relevant losses expected to be covered by SES.

The extension of the Simple, Transparent and Standardised label to on-balance-sheet securitisations, as part of the Capital Markets Recovery Package, was accompanied by a capital charge addressing prudential concerns related to the use of SES in synthetic securitisations. The SES designated by originator institutions to cover for the losses of the securitised exposures shall be considered a securitisation position by originator institutions.

These draft RTS specify the calculation of the components of the exposure value of this position which should include the SES designated for past and current periods that is still available to absorb losses and any SES contractually designated for future periods. A derogation is included from that exposure value in the specific case of the SES designated for future periods that does not encumber the originator institution’s income statement in a manner similar to an unfunded guarantee, subject to certain conditions. This derogation aims at aligning the treatment of the excess spread generated in synthetic and traditional securitisation, where this does not pose prudential concerns.

Finally, in order to ensure a continuation of existing securitisation transactions, a grandfathering provision has been introduced for synthetic transactions featuring SES, where the originating institution fulfilled the requirements of Article 248(1)(e) of CRR in accordance with the supervisory practice adopted by the relevant competent authority.

Legal basis and background

These draft regulatory technical standards have been developed in accordance with Article 248(4) of Regulation (EU) No 575/2013 (the Capital Requirements Regulation - CRR) as amended by the Regulation (EU) 2021/558 of 31 March 2021 (as part of the Capital Markets Recovery Package). Article 248(4) mandated the EBA to develop draft regulatory technical standards to specify how originator institutions are to determine the exposure value referred to in Article 248(1)(e) of the CRR, taking into account the relevant losses expected to be covered by the SES.

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Franca Rosa Congiu

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