New capital requirements for securitisations

A new EU regulatory framework on securitisation has been adopted. It is composed of Regulation (EU) 2017/2402 of 12 December 2017 laying down a general framework for securitisation and creating a specific framework for simple, transparent and standardised securitisation (“Securitisation Regulation”), and of Regulation (EU) 2017/2401 of 12 December 2017 amending Regulation 575/2013 on prudential requirements for credit institutions and investment firms (“CRR Amending Regulation”). Both regulations will be applicable to securitisations whose securities are issued on or after 1 January 2019. Secondary measures completing the new framework will follow in the future, as policy-makers are currently working on it.

The two regulations intend to revitalise the EU securitisation market with a focus on high-quality securitisations and to increase the securitisation issuance volumes in the EU, as these remain below their pre-financial crisis peak.

To that end, the new framework creates a common set of rules governing securitisations in the EU as well as a special and more favourable framework for simple, transparent and standardised securitisations (“STS Securitisations”), being considered securitisations of a higher quality. Under the CRR Amending Regulation, STS Securitisations (whether they are part of an asset-backed commercial paper programme/transaction or not) are eligible for a more favourable differentiated capital and prudential treatment than securitisations that do not meet the criteria of STS Securitisation, in order to encourage investors to invest in STS Securitisations.

The rules applicable to the general regime are common to all types of investors, originators, sponsors or original lenders. Under the previous framework, different texts governed the securitisations depending on whether the relevant entity was governed by Regulation 575/2013 on prudential requirements for credit institutions and investment firms (“CRR Regulation”), Directive 2009/138/EC on the taking-up and pursuit of the business of insurance and reinsurance (“Solvency II Directive”) or by Directive 2011/61/EU on alternative investment funds managers (“AIFM Directive”). With the new regime, the same text is applicable to all market players. The common requirements remain substantially similar to the previous requirements concerning notably the retained interest of 5% and the five structural methods of risk retention, due diligence obligations, additional risk weight, credit granting and disclosures to investors.

Lastly, subject to certain legitimate purposes exceptions, the Securitisation Regulation prohibits the issuance of re-securitisations in the EU market. Indeed, the Securitisation Regulation states that the underlying exposures used in a securitisation shall not include securitisation positions. The legitimate purposes exceptions include the avoidance and facilitation of the winding-up of a credit institution, an investment firm or a financial institution. In addition, fully supported asset-backed commercial paper programmes shall not be considered to be re-securitisations and are therefore not banned.