EBA proposes framework for STS synthetic securitisation

The European Banking Authority (EBA) published today its proposals for developing a simple, transparent and standardised (STS) framework for synthetic securitisation. This proposal, which is limited to balance-sheet securitisation, includes a list of criteria to be considered when labelling the synthetic securitisation as ‘STS' and provides the pros and cons of a potential differentiated capital treatment for this type of securitisation.

The Report examines the rationale behind the STS synthetic product and assesses the positive and negative implications of its possible introduction. Based on this assessment, the EBA recommends to establish a cross-sectoral framework for STS synthetic securitisation that is limited to balance-sheet securitisation.

Among the proposed STS criteria are requirements on simplicity, standardisation and transparency similar to those applied to traditional securitisation. In addition, the Report includes other relevant criteria for synthetic transactions, such as those for mitigating counterparty credit risk or for addressing various structural features of synthetic securitisation. 

Finally, the Report provides conclusions on the prudential treatment of STS securitisation, and in particular, the pros and cons of a potentially differentiated capital treatment for this type of securitisation to inform the European Commission’s future legislative proposal for a STS synthetic securitisation.

Legal basis

The Report has been developed in response to a mandate assigned to the EBA in the Article 45 of the Securitisation Regulation (Regulation (EU) 2017/2402), which requires the Authority, in close cooperation with ESMA and EIOPA, to publish a report on the feasibility of a specific framework for simple, transparent and standardised (STS) synthetic securitisation, limited to balance sheet securitisation.