EBA publishes final draft technical standards defining the homogeneity of the underlying exposures in securitisation

The European Banking Authority (EBA) published today its final draft Regulatory Technical Standards (RTS) setting out conditions for securitisation to be deemed homogeneous. Homogeneity is one of the crucial requirements for a securitisation transaction to be assessed as simple, transparent and standardised (‘STS') and to be eligible for more risk-sensitive risk weights under the new EU securitisation framework. Homogeneity is also a key element for investors when assessing the underlying risks and performing their due diligence. The RTS are part of 28 mandates assigned to the EBA within its important role in implementation of the new securitisation framework.

 

According to the conditions specified in the RTS, homogeneous exposures need to be underwritten according to similar underwriting standards and serviced according to similar servicing procedures. In addition, they need to fall within the same asset category. To facilitate the assessment of homogeneity, the RTS specify a non-exhaustive list of the most common asset categories, reflecting the market practice. Finally, for the majority of these asset categories, the underlying exposures need to be homogeneous with reference to at least one of the homogeneity factors, such as type of obligor, ranking of security rights, jurisdiction, or type of immovable property. 

 

The conditions of the homogeneity have been designed from the perspective of investors, so as to facilitate the investors' assessment of the underlying risks on the basis of common methodologies and parameters.  

The RTS are applicable to both asset-backed commercial paper (ABCP) and non-ABCP securitisations. 

The RTS have been developed according to Articles 20(14) and 24(21) of the STS Securitisation Regulation. Article 20(14), which is applicable to non-ABCP securitisation, mandates the EBA, in close cooperation with ESMA and EIOPA, to develop the RTS further specifying which underlying exposures are deemed to be homogeneous. Art. 24(21), which is applicable to ABCP securitisation, establishes a corresponding mandate for ABCP securitisations.