The European Banking Authority (EBA) published today its final draft Regulatory Technical Standards (RTS) setting out conditions to allow institutions to calculate capital requirements of the securitised exposures (K_IRB) in accordance with the purchased receivables approach laid down in the amended Capital Requirements Regulation (CRR). These draft RTS aim at striking the right balance between the need to acknowledge the specific circumstances under which institutions calculate capital requirements in the context of a securitisation transaction and the need to maintain appropriately safe and prudent requirements on the internal modelling of capital requirements. The RTS are part of 28 mandates assigned to the EBA within its important role in the implementation of the new securitisation framework.

In order to expand the use of the Securitisation Internal Ratings-Based Approach (SEC-IRBA), which sits now at the top of the hierarchy of approaches for calculating capital requirements of securitisation positions, the CRR amendment accompanying the Securitisation Regulation introduces the possibility of using the provisions that normally apply to purchased receivables under the general IRB credit risk framework. This way, eligible institutions may calculate the K_IRB, and the corresponding risk parameters, (probability of default –(PD)  and loss given default –(LGD)), under the provisions of the purchased receivables and then use them as input in the SEC-IRBA, along with other information on the securitisation position.

The draft RTS specify the conditions under which institutions may use the provisions on purchased receivables to make them fully workable in the context of securitisation transactions. For thipurpose, retail securitised exposures shall be treated as purchased retail receivables and non-retail securitised exposures as purchased corporate receivables.

The main areas that the draft RTS covers are the following:

• General approach to the relationship between the IRB rules on purchased receivables and the SEC-IRBA framework
• Eligibility conditions to compute K_IRB under the RTS
• IRB permissions and prior experience
• Eligibility to use the retail risk quantification standards
• Use of proxy data

Legal basis

The RTS have been developed according to Article 255(9) of Regulation (EU) No 575/2013 (CRR), as amended by Regulation (EU) 2401/2017. Article 255(9) mandates the EBA to develop draft regulatory technical standards to further specify the conditions to allow institutions to calculate K_IRB for the pools of underlying exposures in accordance with Article 255(4).