Article 248(1), sentence 3, stipulates that any such transaction, regardless of whether it provides support, should be notified to the competent authorities. We are of the opinion that the guidelines should define certain exceptional cases that are not subject to notification – for example, activities conducted by the originator concerning the continuation or liquidation of a transaction or the respective SPV that are not explicitly contractually agreed but are also not intended to protect investors from any losses or improve the performance of the securitised assets or securitisation positions. These practical needs will not result in implicit support and should be excluded from the notification requirement. Another example is the repurchase of ABCP. This must be done at market prices and is typically subject to a market conformity check. A requirement to additionally notify such transactions would impose a heavy administrative burden on institutions that would not be offset by any significant supervisory benefit.
Paragraph 2 of the Background and rationale section of the consultation paper sets out examples of implicit support, in particular the sale of discounted credit risk exposures. We recommend clarifying that implicit support in this case means the sale of discounted credit risk exposures after the initiation of a transaction. Our understanding is that anything agreed during the initiation process is not a case of implicit support. To avoid any doubt, we recommend clarifying that the sale of discounted credit risk exposures into the pool of securitised credit risk exposures at the inception of a transaction and as contractually agreed does not constitute implicit support.
Paragraph 16(b) of the draft guidelines stipulates that a transaction should, among other things, be deemed to invalidate the conditions for significant risk transfer if the capital or liquidity position of the originator institution is, directly or indirectly, materially affected by the transaction. We propose adding “adversely” in this sentence (“… is, directly or indirectly, materially adversely affected by the transaction”.) In our view, a transaction that positively affects the capital or liquidity position of the originator institution, leading to reduced capital requirements or improved liquidity, is not a threat to fulfilment of the conditions for significant risk transfer. For this reason, only transactions where the capital or liquidity position may deteriorate should be deemed to invalidate the conditions for significant risk transfer.
Article 248(1) (a) stipulates that an institution should, when assessing whether a transaction is not structured to provide support, adequately consider at least the price of the repurchase. Paragraph 20 of the draft guidelines states that the amounts payable or receivable by the originator institution should also be considered. Competent authorities should then consider that a transaction is not executed at arm’s length conditions if the amounts are materially higher or lower than the relevant market value. We kindly request amendment of the guidelines to include specific use cases relating to Article 248(1) (a).
In our view, assessing whether a transaction is not structured to provide support is a very complex task. We consider paragraph 20 of the draft guidelines to be too imprecise with regard to transactions carried out by originators, particularly given the complexity and heterogeneity of different asset classes and the absence of market prices and external ratings for various transactions. The guidelines do not explain what is meant by amounts receivable that are materially lower or amounts payable that are materially higher. Specific examples would simplify the assessment process and would be helpful for identifying permissible as well as non-permissible situations. Furthermore, this would reduce regulatory risk for originators and improve the basis for dialogue between regulators and supervised institutions.