12 April 2022
The European Banking Authority (EBA) published today 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). These RTS aim to provide clarity on the risk retention requirements ensuring a better alignment of interests and reducing the risk of moral hazard, thus contributing further to the development of a sound, safe and robust securitisation market in the EU.
The minimum retention requirement of 5% of the material net economic interest in the securitisation is essential to ensure that the sell-side parties have “skin in the game” addressing the fundamental issue of the possible misalignment of interest between the originators, sponsors and original lenders and investors.
Several modifications have been made to the 2018 EBA RTS on risk retention, which were not implemented in a Delegated Regulation by the Commission, to ensure consistency with the new mandate and to provide further clarity on some specific aspects, namely the adverse selection of assets by originators.
The modifications due to the CMRP focus on the modalities of risk retention in non-performing exposure (NPE) securitisations and the impact of fees payable to retainers on the risk retention requirement. These changes aim to facilitate the securitisation of non-performing exposures and are part of EBA’s broader work on supporting the functioning of the secondary markets for NPE. In addition, the RTS provide further clarity on the application of the risk retention requirement to resecuritisations, as well as the treatment of synthetic excess spread as a possible form of compliance.
Finally, while these RTS will replace the existing 2014 Commission Delegated Regulation, the Securitisation Regulation contains transitional provisions regarding the application of the existing Delegated Regulation to those securitisations whose securities were issued before its application date.
The RTS have been developed in accordance with Article 6 (7) of the Securitisation Regulation (EU) 2017/2402 as amended by the Regulation (EU) 2021/557 of 31 March 2021 (as part of the Capital Markets Recovery Package (CMRP), which mandates the EBA, in close cooperation with the ESMA and the European Insurance and Occupation Pensions Authority (EIOPA) to develop the RTS further specifying the risk retention requirements.
Franca Rosa Congiu