The European Banking Authority (EBA) launched a public consultation on its discussion paper on significant risk transfer in securitisation. This work builds on the EBA’s monitoring activity of supervisory practices in the area of significant risk transfer, which the Authority started in 2014. The discussion paper aims at seeking stakeholders’ views on how to further harmonize the regulation and supervision of the risk transfer through securitization. The EBA’s proposals are based on the newly agreed European securitization legislation. The consultation runs until 19 December 2017.
In response to the mandate on significant risk transfer laid down in the Capital Requirements Regulation (CRR), this paper puts forward for public discussion proposals to strengthen the regulation and supervision framework of significant risk transfer and to improve regulatory certainty and level playing field for institutions transferring risk through securitisation.
Based on its monitoring activity, the EBA found that further regulatory specifications may be needed with regards to the process of significant risk transfer assessment, its quantitative assessment by competent authorities as well as the supervisory approach to core structural features of the securitisation transaction, such as, for example, amortization structure, excess spread, cost of credit protection, and call options. The EBA’s analysis also covers the significant risk transfer in securitization of non-performing loans (NPLs), one of the key measures towards the NPL resolution.
Consulting stakeholders at this stage is particularly important as the EBA’s proposals are fully based on the newly agreed European securitization framework, which will enter into force in the coming months, and will introduce simple transparent and standardized securitizations across the EU. Significant risk transfer will be a crucial aspect of such a reform.