EBA presents advice on criteria and capital treatment for securitisation

The EBA presents its recommendations on a European Union (EU) framework for qualifying securitisations at a public hearing held in London today. The European Commission had requested in 2014 the EBA to advise on criteria for identifying a prudentially sound securitisation market and its regulatory treatment. The EBA, as one of the specialised EU agencies in banking and financial regulation, will deliver the opinion to the EC in early July and today's hearing is intended to give advance information of its findings to market participants.

The EBA advice on securitisation defines a series of criteria to identify simple standard and transparent term securitisation and asset-backed commercial paper transactions; one of the salient points is that capital charges foreseen by the 2014 Basel securitisation framework can be lowered for on qualifying securitisations to reflect their relative lower riskiness. The EBA opinion specifies the conditions under which transactions could qualify for a differentiated treatment within this new international framework.

Presenting the findings at the hearing, Andrea Enria, Chairperson of the EBA explain that "the EBA fully supports a review of the regulatory securitisation framework, which would also be important in the light of the Commission's effort to create a Capital Markets Union" and added: "We hope and believe that our report will feed into this discussion".

The EBA explained that a qualifying securitisation framework in the EU should drive the development of a securitisation market that is sustainable and provides both issuers and investors with a more risk-sensitive regulatory treatment. While these are seen as the conditions to widen long-term funding opportunities for the EU economy, the EBA also reminded that regulatory capital should be maintained well within the prudential perimeter foreseen by the new international standards.