The main reasons an institution wants to use a top-down approach to calculate KIRB is, that it has comprehensive information to calculate KIRB on a portfolio basis, but
(i) is missing information to calculate KIRB on a single receivables basis, or
(ii) the work required to calculate KIRB on a single borrower basis prevents it from purchasing the receivables and providing funding to the originator/seller.
Thus, the lack of information at the level of a single receivables is certainly a reasonable criterion. The RTS assumes that the institution has usually less information on receivables if such receivables are serviced by a third party. Although this assumption is probably correct, it may not be exclusively so. Thus, we prefer focusing on the relevant lack of information rather than on the formal third party servicer scenario. This means that the KIRB calculation under Article 255 (4) CRR should be applicable if the institution has limited access to information about the receivables to calculate KIRB on a single borrower basis, for example in a third party servicer scenario.
If the institution is aware that a certain concentration in the portfolio belongs to a certain obligor identity and the institution has the relevant information in place to calculate KIRB for that entity then it should have the option to calculate a single obligor KIRB and a portfolio KIRB and to combine both under the securitisation transaction. However, this should only be mandatory if the single obligor is identified under the large exposure regulation of Regulation 1187/2014 (“Look-Through-Approach”). We think this is appropriate because concentrations in securitisation transactions are comprehensively addressed by Regulation 1187/2014 and the parameter N in the SEC IRBA calculation (Article 259 (1) CRR).
We believe that the general conditions and in particular the requirements on indirect control and ownership of the securitised exposures, are not applicable to synthetic transactions as they do not provide for an additional value for such transactions. Under a traditional securitisation transaction, the institution provides funding (e.g. the purchase price) to the seller/originator. Upon funding of the seller/originator the institution depends on its ability to recover the cash flows from such receivables to pay down the funding (the purchase price) provided. Under a synthetic securitisation transaction, the institution has not provided any funding to the originator. Therefore, the institutions need to control the cash flows from the receivables is limited. Thus, we are not aware of any relevant reason why the top-down approach should not deliver a prudent portfolio KIRB for synthetic transactions. Therefore, we think that this RTS and the top-down approach should be applied on synthetic transactions.
If our understanding is correct that all IRB-banks (i.e. Advanced and Foundation IRBA Banks) can calculate KIRB based on a sustainable net loss concept (Default less Recovery / PD and LGD models (Article 1 (1) RTS)), then we believe that the draft RTS can successfully be applied on strong performing NPL portfolios.
“SSPE”: The CRR securitisation rules are not limited to “technical” SSPE structures, and the CRR does not even make a direct reference to the SSPE terminology. To properly reflect the broad range intended by the CRR, we think that the RTS should use a more generic term such as “securitising entity”.
Article 4: We understand that Article 4 RTS is supposed to transfer Article 184 CRR into the KIRB RTS. Furthermore, we understand that Article 184 CRR determines the framework for a prudent purchased receivables transaction. We believe that the framework for prudent securitisations is comprehensively determined by several current regulations such as the CRR, the Regulation on common rules on securitisation and other Regulations or Technical Standards. To avoid uncertainty and conflicts between the different regulations, we think that Article 4 RTS should be limited to statements that are not yet addressed in any other regulation, or should make a clear reference to such existing regulations.
In detail, we have the following comments on Article 4:
Article 4 (2) (b) (iv): “…that the institution has effective policies and procedures for monitoring, on an aggregate basis, single-obligor concentrations both within and across pools of securitised exposures…”
The top-down approach is based on the idea that the institution has limited loan-level but proper portfolio information. Considering this, we believe that the institutions capability to make across pool checks is technically very limited. Further we believe that this concept is comprehensively addressed under Regulation 1187/2014. An effective monitoring across pools beyond the level required under Regulation 1187/2014 is technically not possible and would have prohibitive effect on the application of the KIRB RTS.
Art 6 (2): We understand that Article 6 (2) basically transfers the requirements of retail treatment for purchased receivables under Art 154 (5) CRR. We have the following comments on such requirements.
Art 6 (2) (a): “... its exposure to the obligors in the pool of securitised exposures shall not include any exposures that are directly or indirectly originated by the institution calculating KIRB itself...”
The top-down Approach is based on the idea that the institution has limited loan-level but proper portfolio information. Considering this, we believe that the institution will usually not be in a position to ensure that the exposure in a portfolio was directly or indirectly originated by the institution.
Article 6 (2) (b):”... shall exclude [...] receivables subject to contra-accounts between firms that buy and sell to each other…”
We understand that Article 154 (5) relates more to loan receivables than to trade receivables. Transferring this requirement to securitisations would make it prohibitive for trade receivables transactions, excluding the real economy / corporate transactions from the use of the KIRB RTS.
Furthermore, we understand that this issue is already addressed by the more generic “prudent securitisation” requirements and is usually addressed by eligibility criteria, or credit enhancement, or materiality concepts within a securitisation transaction.
Art 6 (3) (d): “…the pool of securitised exposures is sufficiently granular so as to support the above considerations, which shall be deemed to be the case where the number of underlying exposures of the securitisation to which the retail treatment is to be applied exceeds 500 and the aggregate exposure value of all such exposures to a single obligor in the pool do not exceed  % of the aggregate outstanding exposure values of the pool of securitised exposures. For the purposes of this calculation, loans or leases to a group of connected clients shall be considered as exposures to a single obligor…”
We believe that the concept of concentration risk related to securitisation transactions is comprehensively addressed under Regulation 1187/2014. Furthermore, a proper diversification is already required under Article 6 (2) (d). Thus, we do not see a need for an additional concentration risk limitation, and a concentration risk limitation going beyond the level as required under Regulation 1187/2014 would be almost prohibitive, making the SEC IRBA approach almost useless.