The European Banking Authority (EBA) published today its final draft Regulatory Technical Standards (RTS) specifying the requirements for originators, sponsors and original lenders related to risk retention as laid down in the new EU securitisation framework (STS Regulation). These final draft RTS, which replace the current Commission Delegated Regulation on risk retention, aim to provide clarity on the requirements relating to risk retention, thus reducing the risk of moral hazard and aligning interests
These final draft RTS address the fundamental issue of the possible misalignment of interests and incentives in securitisation transactions between the investors on the one hand, and the originators, sponsors or original lenders on the other, by ensuring that the latter maintain their ‘skin in the game' and retain at least 5% of material net economic interest in each securitisation.
In addition, these RTS include various new provisions, in particular relating to when an entity shall be deemed not to have been established or to operate for the sole purpose of securitising exposures, transfers or hedging of the retained interest, circumstances under which the retainer should be changed and adverse selection of assets.
However, due to the narrower mandate on risk retention under the STS Regulation, as opposed to the previous mandate, certain provisions from the existing Delegated Regulation were not included in these final draft RTS, in particular those relating to due diligence requirements, policies for credit granting and disclosure of materially relevant data.
Finally, given the cross-sectoral nature of its application, the new STS Regulation contains transitional provisions regarding the application of the existing Delegated Regulation to those securitisations whose securities were issued before its application date.
Legal basis and next steps
The final draft RTS have been developed according to Articles 6 of the STS Regulation, which lays down requirements relating to risk retention. In particular, Article 6(7) of that Regulation sets out a mandate for the EBA to develop draft regulatory technical standards to specify, in greater detail, the risk retention requirement.
The STS Regulation sets out requirements concerning the retention of material net economic interest and other requirements related to exposures to securitisations, which will replace those currently set out in the Capital Requirements Regulation (CRR).