If the originator institution of a synthetic securitisation retains a vertical slice of securitised exposures, as well as some of the tranches, should this vertical slice be treated as a securitisation position as defined in Article 4(1)(62) CRR?
If yes, should this position be taken into account to assess whether significant credit risk has been transferred to third parties in accordance with Article 244 CRR?
A bank has originated a non-revolving, non-rated synthetic securitisation from a pool of IRB compliant underlying loans and it has retained both:
- a vertical slice of each securitised loan (a variable specific percentage X% of the EAD of each of the underlying loans), to satisfy the retention requirements in accordance with Article 5.1(a) of the Commission Delegated Regulation 625/2014;
- the remaining slice of the transaction (the remaining percentage 100-X% of the EAD of the underlying loans).
The two slices are ranked pari passu rather than one senior and the other subordinated. The way the bank achieves this retention is by signing a derivative contract that only shifts 100-X% of the value of each exposure to the securitisation vehicle. Therefore, X% of the value of each exposure is not transferred to the securitisation vehicle.
The bank claims that the vertical slice retained in the form of securitised exposures is to be treated under the Part 3, Title II, Chapter 3 CRR (the credit risk framework), while the retained remaining slice is to be treated as a securitisation position, within the securitisation framework. Therefore, one exposure is classified at the same time as both an exposure to a corporate, pursuant to Article 147(2)(c) of CRR and a securitisation position, pursuant to Article 147(2)(f) of CRR. However the RWA treatment suggested by the bank does not comply with the principle established in Article 147 of the CRR that an exposure can only be affected to one asset class, so each securitised exposure has to be treated entirely as either an exposure to a corporate or a securitisation position, but not as both at the same time.
Where an originator institution does not sell or transfer and instead maintains a part of each the underlying exposures of the securitisation, this will not be part of the securitisation portfolio and therefore will not qualify as 'securitisation position' according to Article 4(1)(62) of the Regulation (EU) No 575/2013 (CRR).
Therefore this part of any original exposure is not subject to any requirements in accordance with Part 3 Title II Chapter 5 of the CRR and shall be assigned to the same exposure class as the original exposure in accordance with Article 147 of the CRR.
Consequently, this does not qualify as 'securitisation position' according to Article 4(1)(62) of the CRR and must not be considered in the assessment of the significant risk transfer according to Article 243 and Article 244 of the CRR.
However, if an originator institution retains no less than 5% of the nominal value of each of the tranches sold or transferred as referred to in Article 405 (1)(a) of the CRR or a vertical tranche which has a nominal value of no less than 5% of the total nominal value of all the issued tranches of notes in order to fulfil the retention requirements according to Article 5(1)(c) of the Commission Delegated Regulation (EU) No. 625/2014, the retained tranche(s) are part of the securitisation and should be treated under the securitisation framework.