Response to consultation on draft Guidelines on the STS criteria for on-balance-sheet securitisations
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In our view this is undesirable.
Q1. Do you agree that it is not necessary to further specify this criterion? If not, please provide reference to the aspects that require such further specification. For example, should additional interpretations of the term ‘no less stringent policies’ or ‘comparable exposures’ be provided and if yes, how are these terms understood in securitisation practice?
We do agree.Q2. Do you agree that it is not necessary to further specify this criterion? If not, please provide reference to the aspects that require such further specification. Please substantiate your reasoning.
We do agree.Q3. Do you agree that it is not necessary to further specify this criterion? If not, please provide reference to the aspects that require such further specification. Please substantiate your reasoning.
We would like to see more clarity about different group structures, especially where non-EU entities may be involvedQ4. Do you agree with the interpretation provided? Should additional aspects be clarified? Please substantiate your reasoning.
It should be stated explicitly that assets that are included in (true sale) securitisations that are fully retained or where there is no credit risk transfer (only senior tranches sold), should not be regarded as “hedged” for the purpose of this Article.Q5. Do you agree that it is not necessary to further specify this criterion? If not, please provide reference to the aspects that require such further specification. Please substantiate your reasoning.
We do agree.Q6. Do you agree with the interpretation provided? Should additional aspects be clarified? Please substantiate your reasoning.
We propose to distinguish between the date of inclusion and the cut-off date, since it looks like they are deemed to be the same, which is not in line with reality. What matters is the day the protection starts, so maybe the best solution is to replace “date of inclusion” by “date the protection starts”.Q7. Do you agree with the interpretation provided? Should additional aspects be clarified? Please substantiate your reasoning.
We do agree.Q8. Do you agree with the interpretation provided? Should additional aspects be clarified? Please substantiate your reasoning.
We do agree.Q9. Do you agree that it is not necessary to further specify this criterion? If not, please provide reference to the aspects that require such further specification. Please substantiate your reasoning.
We do agree.Q10. Do you agree with the interpretation provided? Should additional aspects be clarified? Please substantiate your reasoning.
We do agree.Q11. Do you agree with the interpretation provided? Should additional aspects be clarified? Please substantiate your reasoning.
If the accounting principles include IFRS stage 2 assets, this may have a serious impact on transactions. Can you please clarify whether this is the case or not ?Q12. Do you agree with the interpretation provided? Should additional aspects be clarified? Please substantiate your reasoning.
The definition “rental, principal, interest or any other payment specified in the contract” is very narrow. For the purpose of preventing fraud any payment between borrower and debtor should be sufficient.Q13: Do you agree with the interpretation provided? Should additional aspects be clarified? Please substantiate your reasoning.
We do agree.Q14: Do you agree with the interpretation provided? Should additional aspects be clarified? More specifically, is there a need to further clarify the term ‘appropriate mitigation’ of interest-rate and currency risks and further specify any mitigation measures? Please elaborate.
We do agree.Q15: Do you agree with the interpretation provided? Should additional aspects be clarified? Please substantiate your reasoning.
We do agree.Q16: On reference rates: Is the interpretation on this term deemed helpful for the interpretation of this requirement? Please provide more information on the referenced interest payments used in relation to the transaction in your entity’s practice.
The interpretation is sufficiently helpful.Q17: On complex formulae or derivatives: Is the guidance provided sufficient to clarify the requirement or should the guidance be extended? In case of the latter, please provide suggestions on how to define complex formulae and derivatives.
The guidance provided is sufficient.Q18: Do you agree with the interpretation provided? Should additional aspects be clarified? Please substantiate your reasoning.
We do agree.Q19: Do you agree with the interpretation provided? Should additional aspects be clarified? Please substantiate your reasoning.
Can you please clarify why ‘significant losses’ should be understood to refer to two thirds of the absolute amount of losses expected to occur during the expected maturity of the transaction.Q20: Do you agree that it is not necessary to further specify this criterion? If not, please provide reference to the aspects that require such further specification. Please substantiate your reasoning.
We do agree.Q21: Do you agree with the interpretation provided? Should additional aspects be clarified? Please substantiate your reasoning.
We do agree.Q22: Do you agree with the interpretation provided? Should additional aspects be clarified? Please substantiate your reasoning.
We do agree.Q23: Do you agree that it is not necessary to further specify this criterion? If not, please provide reference to the aspects that require such further specification. Please substantiate your reasoning.
“At all times” requires further specification. This cannot be a permanent 24/7 process.Q24: Do you agree with the interpretation provided? Should additional aspects be clarified? Please substantiate your reasoning.
It should be specified that this refers to external investors and not the originator as holder of the senior notes or retention.Q25: Do you agree with the interpretation provided? Should additional aspects be clarified? Please substantiate your reasoning.
Some additional clarification on (the similarity of) corporate/SME exposures might be welcome, since these are the assets mainly seen in OBS transactions.Q26: Do you agree with the interpretation provided? Should additional aspects be clarified? Please substantiate your reasoning.
The “check of the originator’s database or IT systems against the transaction documentation and the credit protection agreement” should be better explained. Is it necessary to check each and every loan agreement ?Q27: In particular, do you agree with the interpretation of the scope of the verification, in particular with the specification on how the size of the representative sample should be determined? Should additional aspects/parameters for determining the sample be clarified? Please substantiate your reasoning.
We do agree.Q28: Do you agree with the interpretation provided? Should additional aspects be clarified? Please substantiate your reasoning.
We would like to receive confirmation that it is appreciated that a model for a synthetic securitisation contains a limited number of cashflows as compared to a model for a cash transaction and as such is hard to qualify as a cash flow model.Q29: Do you agree with the interpretation provided? Should additional aspects be clarified? Please substantiate your reasoning.
We would like to receive clarification which Principal Adverse Impacts exactly are referenced. Can the draft RTS sustainability indicators for STS securitisations be used for this purpose ?Q30: Do you agree with the interpretation provided? Should additional aspects be clarified? Please substantiate your reasoning.
We do agree.Q31: Do you agree with the interpretation provided? Should additional aspects be clarified? Please substantiate your reasoning.
Could you please clarify what will happen with a credit event that has been cured; will the exposure be allowed to stay in the pool, should it be removed, or are both situations possible.Q32: Do you agree with the interpretation provided? Should additional aspects be clarified? Please substantiate your reasoning.
We do agree.Q33: Do you agree with the interpretation of the determination of interim credit protection payments? Do you agree with the interpretation of the criterion with respect to the ‘higher of’ condition? Should the interpretation be amended, further clarified or additional aspects be covered? Please substantiate your reasoning.
We do agree.Q34: Do you agree with the interpretation provided? Should additional aspects be clarified? Please substantiate your reasoning.
We do agree.Q35: Do you agree with the interpretation provided? Should additional aspects be clarified? Please substantiate your reasoning.
The text about the sample seems to refer to the original pool cut; this does not give any insight in how the sampling in case of defaults should be handled.Q36: Do you agree with the interpretation provided? Should additional aspects be clarified? Please substantiate your reasoning.
We do not agree with the suggested calculation of the WAL to the extent that it excludes prepayment assumptions.Q37: Do you consider necessary to provide interpretation of the term ‘breach by the investor of any material obligation'? Please provide information on such material breaches applied in securitisation practice.
No, that is not considered necessary.Q38: Do you agree that it is not necessary to further specify this criterion? If not, please provide reference to the aspects that require such further specification. For example, do you consider it necessary to provide interpretation of the term ‘material breach’ of contractual obligations by the originator? Please substantiate your reasoning.
We do agree.Q39: Do you agree with the interpretation provided? Should additional aspects be clarified? Please substantiate your reasoning.
We do agree.Q40: Do you agree that it is not necessary to further specify this criterion? If not, please provide reference to the aspects that require such further specification. Please substantiate your reasoning.
We do agree.Q41: Do you agree with the interpretation provided? Should additional aspects be clarified? Please substantiate your reasoning.
We do agree.Q42: Do you agree with the interpretation provided? Should additional aspects be clarified? Please substantiate your reasoning.
It would help if more guidance could be given how the credit quality step 3 mapping would be applied in case of a mix of long and short term and /or multiple CQS scores.Q43: Do you agree that no other requirements are necessary to be specified further? If not, please provide reference to the relevant provisions of the STS requirements and their aspects that require such further specification. Please substantiate your reasoning.
We do agree. However, as a general comment we notice that there are no grandfathering arrangements in place. This may imply that some existing STS transactions (both true sale and on balance sheet) may no longer qualify as STS, while they had claimed STS status in the past on the basis of good faith and the knowledge available at the time.In our view this is undesirable.