Regulation

Securitisation Regulation

Standardised rules for Europe and STS as a quality segment

Regulatory definition of securitisation

What is a securitisation from a regulatory perspective? Article 2 of the Securitisation Regulation provides an answer to this question:

‘Securitisation’ means a transaction or scheme, whereby the credit risk associated with an exposure or a pool of exposures is tranched, having all of the following characteristics:

payments in the transaction or scheme are dependent upon the performance of the exposure or of the pool of exposures;
the subordination of tranches determines the distribution of losses during the ongoing life of the transaction or scheme;
the transaction or scheme does not create exposures which possess all of the characteristics listed in Article 147(8) of Regulation (EU) No 575/2013." (Specialised Lending Exposures)

Ongoing review of the Securitisation Regulation

On 10 October 2022, the European Commission published the report on the functioning of the EU Securitisation Regulation pursuant to Article 46 of the Securitisation Regulation. Essentially, the Commission concluded that the Securitisation Regulation fulfils its purpose. However, it has failed to achieve essential goals: access to credit for the real economy has not yet improved and the investor base has not been broadened. In addition, the EU Commission also addressed some points that urgently need improvement. For example, it called on ESMA to revise the disclosure templates, as they are hardly being used by investors, for whose information they are essentially intended. The templates thus do not fulfil their purpose and represent an unreasonably high workload for originators. The main findings of the report on the functioning of the Securitisation Regulation are summarised here.

Similar findings were contained in the Joint Committee of ESAs' response to the European Commission's Call for Advice on securitisation regulation, which was published on 12 December 2022. Only in the case of synthetic securitisations are the capital requirements to be lowered. Details of the Joint Committee's assessment can be found here.

Structure of the Securitisation Regulation

For a more detailed understanding of the various definitions, technical terms and requirements, it is worth reading the Securitisation Regulation more closely. The structure is as follows:

Chapter 1

General provisions and Definitions

Chapter 2

Provisions applicable to all securitisations
- Art. 5: Due diligence requirements for institutional investors
- Art. 6: Risk retention
- Art. 7: Transparency requirements
- Art. 8: Ban of re-securitisation
- Art. 9: Criteria for credit-granting

Chapter 3

Registration of a securitisation repository

Chapter 4

STS – Simple, transparent and standardised securitisation

Chapter 5

Supervision

STS – simple, transparent and standardised securitisation

The acronym STS was used for the first time to comprehensively define a quality segment. Initially, true sale securitisations were defined from January 2019, and synthetic balance sheet securitisations have also been taken into account since April 2021:

Article 19 to 22

ABS term securitisations ('non-ABCP')

Article 23 to 25

ABCP transactions

Article 26

ABCP programmes

Article 26a to 26e

Synthetic balance sheet securitisations

STS as a quality segment has been successfully established in the market since 2019 and is being used extensively in all market segments. The function of verification by independent third-party verifiers is also new. This contributes to a uniform application and implementation of the STS criteria and thus to regulatory compliance. Further information on the role of an independent third-party verifier, the STS criteria and the STS verification process can be found at STS Verification International GmbH.

Publicly placed ABS issues are regularly STS-notified to ESMA as the competent supervisory authority. The same applies to ABCP transactions and, since 2021, to synthetic balance sheet securitisations (synthetics).

Banks appreciate the preferred capital weighting of STS, which mitigates the significant increase in risk weights in the CRR since January 2019. Only for ABCP programmes has STS not established itself, as the legal criteria are factually not fulfillable and no positive effects for banks and investors exist.