Response to consultation on the draft RTS on homogeneity of underlying exposures in securitisation

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Question 1: Do you agree with the focus of the RTS, general approach and underlying assumptions on which the RTS are based? Does the proposed approach provide sufficient clarity and certainty on the interpretation and application of the criterion of homogeneity?

We propose that only (i) similar underwriting, (ii) uniform servicing and (iii) the same asset category are considered as criteria for homogeneous pools. If in addition the proposed risk factors are applied, available pools for securitization are significantly decreased. The due to the risk factors lower available volumes especially for medium and smaller banks would in combination with the newly proposed intensive disclosure and STS notification requirements result in the STS label not being used by most originators and this would not lead in the intended revival of the European securitization market.

Existing European securitization transactions such as mixed amortising/bullet or collateralized/uncollateralized consumer or SME pools as well as retail/commercial auto leases have shown very strong performance even during the financial crisis years. Investors have been used to and able to analyze and perform robust due diligence of these pools for many years. A further unproportionate differentiation based on risk factors will lead to concentration in smaller portfolios and prevent especially medium and smaller banks to compile an appropriate portfolio size and exclude them from securitization.

More clarity would be appreciated on Art. 1 (d) “at least one” risk factor needs to be considered: Does this mean a SME/corp pool Art. 2 (d) needs to apply one risk factor that the originator can choose such as the same jurisdiction or all seven quoted ones in Art. 3 (d) need to be applied?
In Art. 3 (e), (f) and (g) it seems that there is a typo in the letters to which is referred in Art. 2

Question 2: Do you agree with the assessment of the homogeneity of underlying exposures based on criteria specified under (a) to (d)? Should other criteria be added or should any of the criteria be disregarded?

As mentioned in the notes the risk factors under (d) should be disregarded in the homogeneity assessment.

Question 3: Are there any impediments or practical implications of the criteria as defined? Are there any important and severe unintended consequences of the application of the criteria?

As mentioned in the notes with the unproportionate further decrease of available pools the full potential of STS-securitisation cannot be used and both customers and small markets such as CEE will not be able to benefit from the STS securitisation initiative.

Question 4: Do you agree that when considering the relevance of the risk factors, the asset category, type of securitisation (non-ABPC or ABCP), and specific characteristics of the pool of exposures, should be taken into account? Should other elements be considered as important determinants of the relevance of the individual risk factors?

Risk factors should be disregarded in the homogeneity assessment.

Question 6: Do you agree with providing a list of asset categories in the RTS? Do you agree with the asset categories listed? Should other asset categories be included or some categories be merged? For example, should separate asset categories of project finance, object finance, commodities finance, leasing receivables, dealer floor plan finance, corporate trade receivables, retail trade receivables, credit facilities to SMEs and credit facilities to corporates, be included? Please substantiate your reasoning.

We agree with the list of asset categories.

Question 7: Do you agree with the definitions of the asset categories provided? For example, do you consider that the asset category of credit facilities to SMEs and corporates should be further specified and for the SMEs should refer to the definition provided in the Commission Recommendation 2003/361/EC, or should other reference be used (for example to Art. 501 of the CRR)? Please substantiate your reasoning.

We strongly propose no further differentiation between SMEs and Corporates as the available portfolios for small and medium banks would be considerably decreased.

Question 8: Do you agree with the approach to determination of the homogeneity based on the risk factors, and the distinction between the concept of risk factors to be considered for each asset category, and relevant risk factors to be applied for a particular pool of underlying exposures, as proposed? Are there any impediments or practical implications of the risk factors as defined? Are there any important and severe unintended consequences of the application of the risk factors?

Please see notes and answers to Q1, Q2 and Q3 above.

Question 9: Do you agree with the distribution of the risk factors that need to be considered for each asset category, as proposed? What other risk factors should be included for consideration for which asset category?

Risk factors should be disregarded in the homogeneity assessment.

Question 10: Do you agree with the definition of the risk factor related to the governing law, which refers to the governing law for the contractual arrangements with respect to the origination and transfer to SSPE of the underlying exposures, and with respect to the realisation and enforcement of the credit claims? Do you consider the risk factor of the governing law should be further specified, or further limited (e.g. to the realisation and enforcement of the financial collateral arrangements securing the repayment of the credit claims)?

Risk factors should be disregarded in the homogeneity assessment.

Question 11: Do you consider prepayment characteristics as a relevant risk factor for determining the homogeneity? If yes, based on which concrete aspect of the prepayment characteristics of the underlying exposures should the distinction be made, and for which asset categories this risk factor should be considered and should be most relevant?

Risk factors should be disregarded in the homogeneity assessment.

Question 12: Do you consider seniority on the liquidation of the property or collateral a relevant risk factor for determining the homogeneity? If yes, do you consider the distinction between the credit claims with higher ranking liens on the property or collateral, and credit claims with no higher ranking liens on a different property or different collateral, as appropriate for the purpose of determination of homogeneity?

Risk factors should be disregarded in the homogeneity assessment.

Question 14: Do you believe that materiality thresholds should be introduced with respect to the risk factors i.e. that it should be possible to consider as homogeneous also those pools which, while fully compliant with requirements under Article 1 (a), (b) and (c), are composed to a significant percentage (e.g. min 95% of the nominal value of the underlying exposures at origination), by underlying exposures which share the relevant risk factors (e.g. by 95% of general residential mortgages with properties located in one jurisdiction and 5% of income producing residential mortgages located in that and other jurisdictions)? Please provide the reasoning for possible introduction of such materiality thresholds.

Materiality thresholds would not be needed if risk factors are disregarded.

Question 16: Which option from the two (the existing proposal as described in this consultation paper, and the alternative option as described in this box) is considered more appropriate and provides more clarity and certainty on the determination of homogeneity? Please substantiate your reasoning.

We prefer that risk factors are not included in the homogeneity definition also not in the alternative option under underwriting standards. The effect would be the same: Pools would need to be decreased as eg the underwriting standards for private autoleases versus corporate autoleases might slightly differ due to the different borrower characteristics.

Question 17: Please provide an assessment of the impact of the two proposed options, on your existing securitisation practices and if possible, provide examples of impact on existing transactions.

If risk factors are applied, at least some institutions would not have large enough autolease pools for their securitization transactions as well as too small SME/corp pools.

Question 18: Alternatively, do you believe that a hybrid option, combining the existing proposal and the alternative proposal, would be most appropriate? The hybrid option could envisage that all the risk factors would need to be taken into account in the underwriting, and for those risk factors that are not taken into account in the underwriting, (i) either adequate justification would need to be provided that it is not required for the purpose of the homogeneity, (ii) or if the justification cannot be provided, the risk factor would still need to be taken into account when determining the exposures in the pool (on the top of the requirements related to underwriting, servicing, and asset category). Or, should other hybrid option be envisaged? Please substantiate your reasoning.

Risk factors should be disregarded in the homogeneity assessment.

Question 19: What are the advantages, disadvantages and unintended consequences of this alternative option, in particular compared to the existing proposal?

See answers to Q16 and Q17.

Name of organisation

Austrian Federal Economic Chamber, Division Bank and Insurance