The FBF considers it is essential that continuity in retention requirements be the main guiding line.
There is a need to clarify Article 3(4) (b) on two points:
First, when considering if the relevant originator has contributed more than 50% of the total assets, rather than referring to “exposure value” here, reference should be made to the “nominal value” of the assets. This is to ensure simplicity and avoid confusion as nominal value is a more straightforward concept compared to exposure value.
Second, in a scenario involving a corporate group where the parent company provides the retention for assets originated by one of the group subsidiaries, we propose to add “directly or indirectly” in the sentence (see below). This is to allow any parent company of a corporate group to provide retention in the form of a subordinated tranche on behalf of their subsidiaries who are the sellers. This would be in line with current market practice for ABCP/trade receivables transactions.
Proposal : “With respect to the proposed clarification of the measurement basis to be used when considering whether the relevant originator has contributed more than 50%, directly or indirectly, of the nominal value ….”
In response to its mandates on risk retention laid down in the Securitisation Regulation ESMA launched a public consultation on disclosure requirements, operational standards.
The FBF is preparing a response to this consultation. For the time being it is therefore difficult to take a clear stance and to provide the EBA with specific comments or requirements.
Article 11 of the draft RTS should be clarified.
When considering the undrawn amounts in exposures in the form of credit facilities, two situations should be envisaged:
- Case 1: the originator only sells the initial outstanding amounts. Subsequently the new receivables (i.e. later drawings) will be kept by the originator. Then no adjustment of the retention should be required
- Case 2: Upcoming drawings are also securitized. Then the retention must adjust for fluctuations in the outstanding amount and provisions in article 11 should be considered.
It is useful to maintain this provision allowing the use of retained exposures or securitization positions as collateral. It should also be clarified that this provision covers repo and extends to securities lending agreements, although the latter may not be used only for funding purposes.
The FBF agrees with the provisions of art. 16.
According to article 16 (3) originators and sponsors have to prove that they apply rigorous procedures to avoid any biases while selecting assets to be transferred.
It is of upmost importance that they don’t have to explain or justify a higher credit risk observed for transferred assets. Generally speaking, the actual loss rates of two initially similar portfolios randomly selected from a set of comparable assets may significantly differ over time. In those cases where the originator transfers almost all of its pool assets to the SPPE and keeps only a few assets in its balance sheet, observed loss rates are even more likely to diverge. This observation does not call into question the assets selection process.
Many situations may entail a change of retainer. The FBF is of the view that article 17 should provide for the necessary flexibility to accommodate different situations.
In cases such as bankruptcy or merger where the change is even unavoidable it could be an impossible task to find a new retainer that fulfils all the provisions of article 17.
The bankruptcy of the retainer will not lead to the early termination of the transaction. Then it makes more sense to find a new retainer even if it does not comply with all the conditions.
We consider it essential that Article 14 of the CRR be amended or clarified by the relevant authorities to ensure that non-EU based entities/activities of EU banks do not have to comply with the EU regime on risk retention and transparency rules on top of any corresponding local rules. Otherwise, this would not only create an undue administrative burden but also an uneven playing field for non-EU based entities/activities of EU banks.
The FBF sees no harm in maintaining this wording.
The main concern regarding art 6 of the STS Regulation is not the definition of a significantly lower performance but rather the capacity to prove that rigorous procedures apply in selecting the assets (as detailed in our answer to question 5).