What group entities are considered as “related” to the obligor for the purpose of the second sub-paragraph of Article 207(2) of Regulation (EU) No 575/2013 (CRR)? In particular, does this apply to securitisation special purpose entities (SSPE)?
Where an SSPE belongs to the same group as the obligor, the question arises whether securities issued by this SSPE can be recognised as financial collateral. There are reasons, according to our view, that allow concluding that the value of these securities has in general no material positive correlation with the credit quality of the obligor, thus the condition in the first sub-paragraph of Article 207(2) CRR would be met. However, the second paragraph of Article 207(2) CRR specifically excludes recognition of securities issued by a related group entity. Therefore, a clarification is required whether an SSPE belonging to the same group as the obligor is to be considered as a related group entity.
To the extent that the term “related group entity” is not defined in Regulation (EU) No 575/2013 (CRR), it is not possible to establish in general terms what group entities are considered as “related” for the purpose of the second subparagraph of Article 207(2) of Regulation (EU) No 575/2013 (CRR). At the same time an SSPE that ‘belongs to the same group as the obligor’ is not automatically considered to be a “related” group entity, thereby excluding its securities as eligible collateral.
More specifically, the eligibility as collateral is subject to meeting the first subparagraph of Article 207(2) CRR, which requires that no material correlation exists and thus calls for an ad hoc assessment of the nature of the assets securitised by the SSPE and of the economic correlation between these securitised assets and the assets of the obligor.
In order for an SSPE that belongs to the group of the obligor not to be considered as a related group entity for the purpose of Article 207(2) CRR, at least, the following elements should be assessed on an ongoing basis:
(i) the absence of economic interdependence or any other factors that could be indicative of a material positive correlation between the credit quality of the obligor and the value of the collateral; among other factors, some of the criteria preventing the deconsolidation of the SSPE or the derecognition of securitised assets under the applicable accounting rules may have to be assessed as potential signs of material positive correlation;
(ii) the specific nature of the SSPE, especially its bankruptcy remoteness (based on Article 300(1) of Regulation (EU) No 575/2013 (CRR) - in the sense that effective arrangements exist which ensure that the assets of the SSPE will not be available to the creditors of the obligor in the event of the insolvency of that obligor - and the fact that the debt securities it issues normally reference assets that are third-parties’ liabilities;
(iii) the structural enhancement in a securitisation and the de-linkage of the obligations of the SSPE from those of the obligor, such as the existence of provisions, in the transactions documentation, ensuring servicing and operational continuity; and
(iv) the compliance to the provisions under Article 250(2)
48 of Regulation (EU) No 575/2013 as amended by Regulation (EU) 2017/2401 regarding arm’s length condition.
Update 26.03.2021: This Q&A has been updated in the light of the changes introduced to Regulation (EU) No 575/2013 (CRR).