Overview of the EBA’s final draft regulatory technical standards on the risk retention requirements for securitisations

As highlighted in our recent insight on CBI financial regulation priorities for 2022, the European Banking Authority (EBA), as expected, has now published its final draft Regulatory Technical Standards (New RTS) specifying the requirements for originators, sponsors and original lenders related to risk retention as laid down in Regulation (EU) 2017/2402 (Securitisation Regulation), as amended by the Capital Markets Recovery Package (CMRP).

The EBA intends the New RTS to provide clarity on the risk retention requirements, ensure a better alignment of interests among securitisation parties, and reduce the risk of moral hazard, thus furthering the development of the EU securitisation market.

Key points

The New RTS provide greater detail on the risk retention requirements under the Securitisation Regulation and, while they modify the previous draft RTS on risk retention adopted by the EBA in 2018 (2018 RTS), the New RTS preserve most of the provisions on risk retention in the 2018 RTS.

Certain additional provisions have been included to address the extended mandate for the EBA under Article 6(7), following amendments to the Securitisation Regulation under Regulation (EU) 2021/557, and to provide further clarity on some aspects, namely the adverse selection of assets by originators.

The principal positive development in the New RTS is the greater flexibility afforded to securitisations fully or partially backed by non-performing exposures (NPEs). In particular, the ability of the servicer to act as the risk retainer on an NPE securitisation, and the calculation of the 5% risk retention on the basis of the "net", rather than "nominal" value of the underlying NPEs. These changes aim to facilitate the securitisation of NPEs and are part of the EBA's broader work on supporting the functioning of the secondary markets for NPE. 

Application

While the New RTS will replace the existing 2014 Commission Delegated Regulation, the Securitisation Regulation contains transitional provisions regarding the application of the existing Delegated Regulation to those securitisations whose securities were issued before its application date. 

The New RTS now pass to the European Commission for consideration and adoption as a draft delegated regulation. This will then be scrutinised by the European Parliament and the Council. It is not expected that the New RTS will come into force before Q3 of 2022.

Next steps

We will be monitoring the adoption, scrutiny and publication phases of this future delegated regulation, and will publish a further update in due course.

For further information in relation to this topic, please contact Peter Walker, Partner, Sinéad O'Connor, Partner, Jack Sheehy, Partner, or any member of ALG's Capital Markets Debt team.

To stay up to date on key issues facing regulated firms, you can register your interest to attend our 'Regulatory Webinar Series', a series of webinars covering the key issues facing regulated firms. Our next webinar, 'Structured Finance Focus: Regulatory Hot Topics', which will address various issues, including the New RTS, takes place on 25 May 2022.

Date published: 26 April 2022