Validation v11650_m states that for the positions reported in the C14.00 template that are not Covered Bonds or Other Liabilities, Own Funds Requirements before Securitisation (%) Ksa (c0223) should be reported.

However, is this validation also valid if the reported Originators are issuer loans (held to meet the securitisation risk retention requirements), and are not securitisation positions. The purpose of the issuer loan is to hold a 5% vertical slice - a single position that is a vertical slice cannot be a securitisation as it is not subject to any credit trenching. 

REGULATION (EU) 2017 defines different methods to risk weight the retained risk in the correct framework:

•           If the retained position is a “first loss tranche” then such a position would itself be a “securitisation” exposure and risk weighted accordingly in the securitisation framework. A first loss tranche would meet the definition of a securitised exposure as represents tranching of underlying credit risk. In this case we believe c0223 should be populated in line with the v11650_m validation

•           If a vertical slice of risk is retained there are different ways this can be done e.g. retaining a random selection of the underlying securitised assets vs retaining 5% of each issued tranche vs an issuer loan.

•           If a vertical slice was retained via 5% of the securitised exposures (i.e. multiple positions each being underlying traditional loans), then these would be risk weighted as traditional loans as each position does represent a securitisation exposure (i.e. no tranching of credit risk). In this instance it is as if the loans had not been transferred to the vehicle and securitised.

An issuer loan is a single instrument (exposure) where institution lends to the securitisation vehicle and the repayment of the loan is from the pro-rata cash-flows of the underlying assets. i.e. the issuer loan is not tranching credit risk of underlying assets. This is equivalent to retaining 5% of the assets being securitised. As such, the reported positions with reported blank Own funds requirements before securitization (%) are not a securitisation position and would be risk weighted as a traditional loan. However, even though these issuer loans are not  securitisation, we believe these Originator positions should be reported in the template C14.00 in accordance with the guideline where all securitisations the institution is involved in should be reported.