The European Banking Authority (EBA) launched today a public consultation on draft guidelines on implicit support for securitisation transactions. The objective of the guidelines is to provide clarity on what constitutes arm’s length conditions and when a transaction is not structured to provide support for securitisations. The consultation runs until 20 April 2016.
The Capital Requirements Regulation (CRR) foresees restrictions on the provision of implicit support to securitisations, as this raises significant supervisory concerns and undermines the achievement of significant risk transfer. If originator or sponsor institutions fail to comply with the relevant requirements, they shall, at a minimum, hold own funds against all of the securitised exposures as if such exposures had not been securitised.
The draft guidelines propose an objective test for the definition of arm’s length conditions and for assessing when a transaction is not structured to provide support. Furthermore, guidance is provided on those elements that should be considered when assessing whether a transaction is not structured to provide support and on the notification requirements applicable to such transactions. Finally, the draft guidelines include provisions to avoid a scenario whereby support is provided on behalf of the originator by another entity.
Responses to this consultation can be sent to the EBA by clicking on the “send your comments” button on the consultation page. Please note that the deadline for the submission of comments is 20 April 2016. A public hearing will take place at the EBA premises on 18 February 2016 from 14:00 to 16:00 U.K. time.
The draft guidelines have been developed pursuant to Article 248 CRR, which lays down restrictions on sponsor institutions and originator institutions providing support to securitisations beyond their contractual obligations. In particular, Article 248(2) of the CRR sets out a specific mandate for the EBA to issue guidelines on what constitutes arm's length conditions and when a transaction is not structured to provide support.