Question ID
2024_6984
Legal act
Regulation (EU) No 2017/2402 (SecReg)
Topic
Other topics
Article
Articles 2(3) and 29(5)
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
Not applicable
Article/Paragraph
n/a
Name of institution / submitter
BANK OF SPAIN
Country of incorporation / residence
SPAIN
Type of submitter
Competent authority
Subject matter
Qualification of a branch as originator, designation of Competent Authority and compliance with STS requirements
Question

May a branch of a credit institution be considered as an entity within the meaning of Article 2.3 of the Regulation (EU) 2017/2402 and hence as originator under Article 29(5) thereto? 

Should the answer to the above question be affirmative, which Competent Authority (home or host) should be responsible to supervise the STS requirements set out in Articles 18 to 27 of the Regulation (EU) 2017/2402?

Background on the question

Article 29(5) of the Regulation (EU) 2017/2402 requires Member States to designate one or more competent authorities to supervise compliance by, among others, originators with Articles 18 to 27 thereto.

In this respect, Article 2.3 of the Regulation (EU) 2017/2402 defines originator as an entity which:  

(a) itself or through related entities, directly or indirectly, was involved in the original agreement which created the obligations or potential obligations of the debtor or potential debtor giving rise to the exposures being securitised; or

(b) purchases a third party’s exposures on its own account and then securitises them;

The term entity is not defined in the Regulation (EU) 2017/2402 (or in Directive 2013/36/EU or Regulation (EU) No 575/2013).The term entity is used in other pieces of EU legislation though e.g. financial sector entity, securitisation special purpose entity, resolution entity, GSII entity, etc. However, those cases seem to exclude branches, since they refer to legal entities. 

Further, Article 4.1(17) of CRR defines a branch as “a place of business which forms a legally dependent part of an institution and which carries out directly all or some of the transactions inherent in the business of institutions”. 

Considering the above, two possible interpretations may be upheld: either a branch of a credit institution could qualify as originator; or, in all cases, the “originator” should be the credit institution itself (acting through its branch).

The  answer to the previous question would determine the allocation of supervisory responsibilities among different Member States. In particular, pursuant to Article 29(5) of the Regulation (EU) 2017/2402 each Member State shall designate one or more competent authority to “supervise the compliance of originators [located in its jurisdiction] […] with Articles 18 to 27”. 

Considering the above, the following two scenarios are possible, depending on whether a branch is considered or not as an “originator”:

a)            If a branch of a credit institution qualifies as an “originator”: the supervision of the STS requirements should be allocated to the competent authority(ies) designated by the Member State where the branch of the credit institution is located (rather than where the institution is incorporated and supervised under CRD-CRR).

b)            If a branch of a credit institution does not qualify as an “originator”: the credit institution itself should comply with the STS requirements and the supervision of those STS requirements should be allocated to the competent authority(ies) designated by the Member State where the credit institution is incorporated, irrespective of the location of its branch.

Submission date
Final publishing date
Final answer

According to Article 4.1(17) of CRR, branch is defined as “a place of business which forms a legally dependent part of an institution and which carries out directly all or some of the transactions inherent in the business of institutions”.

As per Article 4.1 (3) of CRR an ‘institution’ is defined as “a credit institution authorised under Article 8 of Directive 2013/36/EU or an undertaking as referred to in Article 8a(3) thereof”

As per Article 2 (3) of the Regulation (EU) 2017/2402 defines originator as “an entity which:

(a) itself or through related entities, directly or indirectly, was involved in the original agreement which created the obligations or potential obligations of the debtor or potential debtor giving rise to the exposures being securitised; or

(b) purchases a third party’s exposures on its own account and then securitises them;”

Considering that the branch is not an independent legal entity it doesn’t qualify as originator under Article 2 (3) of SECR; and therefore, in the case described in the question, the originator is the credit institution acting through its branch (indirectly).

As concerns the compliance with STS, the Competent Authority responsible for supervising compliance of the originator, in this case the credit institution itself, with Articles 18-27 is the Competent Authority that is designated under Article 29(5) of SECR by the Member State where the credit institution is incorporated, irrespective of the location of its branch.

 

Disclaimer: This answer clarifies provisions already contained in the applicable legislation. They do not extend in any way the rights and obligations deriving from such legislation, nor do they introduce any additional requirements for the concerned operators and competent authorities. The answers are merely intended to assist natural or legal persons, including competent authorities and Union institutions and bodies in clarifying the application or implementation of the relevant legal provisions. Only the Court of Justice of the European Union is competent to authoritatively interpret Union law. The views expressed in the internal Commission Decision cannot prejudge the position that the European Commission might take before the Union and national courts.

Status
Final Q&A
Answer prepared by
Answer prepared by the European Commission because it is a matter of interpretation of Union law.

Disclaimer

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