EUROPEAN COMMISSION

Brussels, 30.9.2015

COM(2015) 473 final

2015/0225(COD)

Proposal for a

REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

amending Regulation (EU) No 575/2013 on prudential requirements for credit institutions and investment firms

(Text with EEA relevance)

{SWD(2015) 185 final}
{SWD(2015) 186 final}

EXPLANATORY MEMORANDUM

1.CONTEXT OF THE PROPOSAL

•Reasons for and objectives of the proposal

In the first instance and to remove any form of mechanistic reliance on external ratings, an institution should use its own calculation of regulatory capital requirements where the institution has permission to use the Internal Ratings Based approach (IRB) in relation to exposures of the same type as those underlying the securitisation and is able to calculate regulatory capital requirements in relation to the underlying exposures as if these had not been securitised ("Kirb"), in each case subject to certain pre-defined inputs (the "SEC-IRBA"). A Securitisation External Ratings-Based Approach ("SEC-ERBA") should then be available to institutions that may not use the SEC-IRBA in relation to their positions in a given securitisation. Under the SEC-ERBA, capital requirements should be assigned to securitisation tranches on the basis of their external rating. When the first two approaches are not available or the use of the SEC-ERBA would result in incommensurate regulatory capital requirements relative to the credit risk embedded in the underlying exposures, institutions should be able to apply the Securitisation Standardised Approach (the "SEC-SA") which should rely on a supervisory-provided formula using as an input the capital requirements that would be calculated under the SA in relation to the underlying exposures if these had not been securitised ("Ksa").

•Consistency with existing policy provisions in the policy area

•Consistency with other Union policies

2.LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY

The legal basis for this proposal is Article 114(1) of the Treaty on the Functioning of the European Union ("TFEU") which empowers the Parliament and the Council to adopt measures for the approximation of the provisions laid down by law, regulation or administrative action in Member States which have as their object the establishment and functioning of the internal market.

The CRR, as amended in accordance with the present proposal, lays down a harmonised EU prudential framework for credit institutions and investment firms through the establishment of uniform and directly applicable rules to those institutions, including in the area of capital charges for credit risk attached to securitisation positions. This harmonisation will ensure a level playing field for EU credit institutions and investment firms and will boost confidence in the stability of institutions across the EU, including with respect to their activity as investors, originators or sponsors in securitisation markets.

•Subsidiarity (for non-exclusive competence)

Only EU legislation can ensure that the regulatory capital treatment for securitisation is the same for all credit institutions and investment firms operating in more than one Member State. Harmonised regulatory capital requirements ensure a level playing field, reduce regulatory complexity, avoid unwarranted compliance costs for cross-border activities, promote further integration in the EU markets and contribute to the elimination of regulatory arbitrage opportunities. Action at an EU level also ensures a high level of financial stability across the EU. For these reasons, regulatory capital requirements for securitisations are set out in the CRR and only amendments to that Regulation would achieve the purpose sought by this proposal. Accordingly, this proposal complies with the principles of subsidiarity and proportionality set out in Article 5 TFEU.

•Proportionality

•Choice of the instrument

A regulation was chosen because the proposal requires amending the CRR.

3.RESULTS OF EX-POST EVALUATIONS, STAKEHOLDER CONSULTATIONS AND IMPACT ASSESSMENTS

•Stakeholder consultations

The Commission services have closely followed and participated in the work of European and international fora, with particular regard to the relevant EBA and BCBS workstreams.

The Commission also conducted a public consultation in February 2015, covering the main elements of this proposal. The Commission received comments from a variety of respondents, including a relevant number of stakeholders in the banking sector (supervisory authorities, central banks, industry), which highlighted the wide consensus on the need for EU action in this field and provided input on the specific actions to be implemented and their potential benefits and costs. Responses to the public consultation are summarised in the accompanying impact assessment. Individual responses are available on the Commission's "EUSurvey" webpage 6 .

In addition, the Commission conducted separate consultations with Member States through the Expert Group on Banking, Payments and Insurance at its meeting of 22 July, 2015.

•Collection and use of expertise

As a follow-up to the Green Paper on long-term financing of the European economy 7 , the Commission issued a call for advice addressed to the EBA in order to gather evidence and collect the input on the most appropriate characteristics to identify STS securitisations and on the appropriateness, from a prudential perspective, of granting a differentiated preferential treatment to STS securitisations in order to foster EU securitisation markets.

EBA replied to Commission's call through the publication on 7 July, 2015 of the EBA report on qualifying securitisations.

•Impact assessment

For the preparation of this proposal an Impact Assessment was prepared and discussed with an Interservices Steering Group.

The impact assessment accompanying the Securitisation Regulation clearly shows the benefits in terms of efficiency and effectiveness of a) introducing a revised regulatory framework on capital charges for exposures to securitisations, and b) differentiating the treatment of STS securitisations having regard to the overall objectives of the Commission legislative package on securitisation, i.e. remove stigma attached to securitisations among investors; remove regulatory disadvantages for STS products; and reduce or eliminate unduly high operational costs for issuers and investors. Introducing a clear distinction between STS and non-STS securitisations in the area of capital charges will bring a number of positive effects, namely:

–the resulting securitisation framework would be more risk-sensitive and better balanced;

–preferential capital requirements would incentivise banks to comply with differentiated STS criteria;

–investors would be encouraged to re-enter the securitisation market, as a differentiated framework would send a clear signal that risks are now better calibrated and, therefore, the likelihood of a systemic crisis reoccurring would have been reduced.

The Impact Assessment report was submitted to the Regulatory Scrutiny Board on 17 June 2015. The board meeting took place on 15 July 2015. The Board gave a positive opinion on the suggested amendments to the regulatory capital treatment for institutions subject to the CRR.

•Regulatory fitness and simplification

•Fundamental rights

4.BUDGETARY IMPLICATIONS

5.OTHER ELEMENTS

•Implementation plans and monitoring, evaluation and reporting arrangements

A close monitoring of the impact of the new framework will be carried out in cooperation with the EBA and competent supervisory authorities on the basis of the supervisory reporting arrangements and disclosure requirements by institutions provided for in the CRR. Monitoring and evaluation of the new framework will be also implemented at a global level, with particular regard to the BCBS as part of its mission.

•Explanatory documents (for directives)

6.DETAILED EXPLANATION OF THE SPECIFIC PROVISIONS OF THE PROPOSAL

(a)Interaction and consistency between elements of the package

This Regulation forms a legislative package with the proposed Securitisation Regulation. As pointed out by many stakeholders during the consultation process, the development of STS eligibility criteria would not be sufficient 'per se' to achieve the objective of reviving EU securitisation markets if not accompanied with a new prudential treatment, including in the area of capital requirements, better reflecting their specific features.

Capital requirements for positions in securitisation, including the more risk-sensitive treatment for STS securitisations, are set out in the present proposal while eligibility criteria for STS securitisations, together with other cross-sectoral provisions, are contained in the Securitisation Regulation. These notably encompass all provisions on risk retention, due diligence and disclosure requirements, previously included in Part V of CRR. The same applies to some definitions originally included in Article 4 which are of general nature and therefore have been moved to the cross-sectoral legislative framework.

The current proposal will be followed at a later stage by an amendment to the LCR Delegated Act in order to align it with the Securitisation Regulation. In particular the eligibility criteria for securitisations as Level 2B assets in Article 13 of the LCR Delegated Act will be amended to make it consistent with the general STS criteria as laid down in the Securitisation Regulation. Amendments of this Delegated Act could not be made at this time since they follow a different procedure and depend on the outcome of the legislative negotiations on this package.

(b)Calculation of risk weighted amounts for securitisation positions

In order to preserve and enhance internal consistency and overall coherence of the text, the entire Chapter 5 of Title II, Part Three of CRR is replaced through the current proposal although several Articles are subject to limited refinements. This in particular concerns Section 2 (Recognition of significant risk transfer), part of Section 3 (Subsection 1: General Provisions) and Section 4 (External credit Assessments).

The most relevant changes are contained in new Articles 254 to 270a. On the basis of the revised BCBS framework a new sequence of applicable approaches for the calculation of Risk Weighted Assets (RWAs) for securitisation exposures is implemented. The use of each of the approaches depends on the information available to the institution holding the securitisation position. This single hierarchy of approaches will apply to both institutions using the standardised approach (SA) or the internal ratings based approach (IRB) for credit risk.

(c)A new Hierarchy of approaches (New Articles 254 to 270bis)

The Internal Ratings-Based Approach (SEC-IRBA) is at the top of the revised hierarchy and uses KIRB information as a key input. KIRB is the capital charge for the underlying exposures using the IRB framework (either the advanced or foundation approaches). In order to use the SEC-IRBA, the bank shall have: (i) a supervisory-approved IRB model for the type of underlying exposures in the securitisation pool; and (ii) sufficient information to estimate KIRB. Since the relevant effects of maturity are not fully captured through KIRB alone, the SEC-IRBA explicitly incorporates tranche maturity as an additional risk driver. Tranche maturity definition is based on the weighted-average maturity of the contractual cash flows of the tranche. Instead of calculating the weighted-average maturity an institution is allowed to choose simply to use the final legal maturity (with the application of a haircut). A 5-year cap and a 1-year floor are applicable in all cases.

An institution that cannot calculate KIRB for a given securitisation position will have to use the External Ratings-Based Approach (SEC-ERBA) for the calculation of the risk-weighted exposure amounts. Under the ERBA, RWs are assigned according to credit assessments (or inferred ratings), the seniority of the position and the granularity of the underlying pool. Where an institution cannot use the SEC-ERBA, it shall apply instead the Securitisation Standardised Approach (SEC-SA). The SA uses KSA, that is, the capital charge for the underlying exposures under the SA, and a factor “W”, which is the ratio of the sum of the amount of all underlying pool of exposures that are delinquent to the total amount of underlying exposures. Where the SEC-ERBA results in regulatory capital requirements which are not commensurate to the credit risk embedded in the exposures underlying a securitisation, institutions may apply the SEC-SA directly in relation to the positions of that securitisation, subject to the competent authority's review.

An institution that cannot use SEC-IRBA, SEC-ERBA, or SEC-SA for a given securitisation exposure will have to assign the exposure a risk weight of 1,250%.

A risk weight floor of 15% is set for all securitisation exposures and for all the three approaches. The risk weight floor is justified by certain risks, including model and agency risks, which are arguably more acute for securitisations exposures than for other categories of exposures and can lead to a certain amount of uncertainty in capital estimates despite overall enhanced risk-sensitivity of the new framework.

(d)A more risk-sensitive treatment of STS securitisations

A more risk-sensitive prudential treatment is provided for STS securitisations in line with the methodology proposed by the EBA in the report on qualifying securitisations under all the 3 new approaches for the calculation of RWAs (New Articles 260, 262, and 264). The 3 approaches are re-calibrated for all tranches in order to generate lower capital charges for positions in transactions qualifying as STS securitisations.

In addition to the re-calibration of the 3 approaches, senior positions in STS securitisations will also benefit from a lower floor of 10% (instead of 15% which will remain applicable to both non-senior positions in STS securitisations and to non-STS securitisations generally). It has been set in order to recognise, on the basis of EBA analysis, the materially better historical performance of STS senior tranches with respect to non-senior qualifying tranches, which is fully justified by the fact that STS features are able to materially reduce model and agency risks.

For the purposes of calculating risk-weighted exposure amounts, eligible STS securitisations, as defined in accordance with the Securitisation Regulation, shall fulfil additional requirements related to the underlying exposures, namely credit granting standards, minimum granularity and maximum Risk Weights (RWs) under the SA approach. Specific additional criteria are set also for Asset Backed Commercial Paper ("ABCP").

(e)Caps

•The maximum risk weight for senior securitisation positions (new Article 267)

Under the so-called 'look-trough' approach a securitisation position receives a maximum RW equal to the average RW applicable to the underlying exposures. According to existing rules the look-through approach can be used for the calculation of risk-weighted exposure of unrated positions (Article 253 CRR). It is now proposed, in line with the revised BCBS framework, to allow the look-through approach only for senior securitisation positions whether or not the relevant position is rated and regardless of the approach used for the underlying pool of exposures (SA or IRBA), provided that the bank is able to determine KIRB or KSA for underlying exposures. In light of the credit enhancement the senior tranches receive from subordinated tranches, an institution should not have to apply to a senior securitisation position a higher risk weight than if it held in relation to the underlying exposures directly.

•Maximum capital requirements (new article 268)

An overall cap in terms of maximum risk-weighted exposure amounts is currently foreseen for institutions that can calculate KIRB (Article 260). It is now proposed to a) keep this treatment, i.e. institutions that use the SEC-IRBA for a securitisation position may apply a maximum capital requirements for that position equal to the capital requirement that would have been held against the underlying exposures under the IRB had they not been securitised; and b) extend the same treatment to originator and sponsor institutions using SEC-ERBA and SEC-SA. This can be justified on the grounds that, from an originator's standpoint, the securitisation process can be viewed as similar to credit risk mitigation, i.e. it has the effect of transferring at least some of the risks of the underlying exposures to another party. From this perspective, provided the conditions for significant risk transfer are fulfilled, it would be not justified for an institution to have to hold more capital after securitisation than before, as the risks attached to the underlying exposures are reduced through the process of securitisation.

(f)Elimination of special treatment for certain exposures

In order to further reduce complexity in the framework and improve consistency within the securitisation framework, it is proposed to eliminate a series of special treatments currently provided for in CRR

–Second-loss or better positions in ABCP programs (current Article 254);

–Treatment of unrated liquidity facilities (current Article 255);

–Additional own funds securitisations of revolving exposures with early amortisation provisions (current Article 256).

(g)Treatment of specific exposures

•Re-securitisations (New Article 269)

A more conservative version of the SEC-SA will be the only approach available for re-securitisation positions which will be subject to significantly higher risk weight floor (100%).

•Senior positions in SME securitisations (New Article 270)

Taking into account that the overarching objective of the securitisation package is to contribute to generating an adequate flow of funding to support EU economic growth and that the SMEs constitute the backbone of the EU economy, a specific provision on SME securitisations is included in the present Regulation (Article 270). It targets in particular those securitisations of SME loans where the credit risk related to the mezzanine tranche (and in some cases the junior tranche) is guaranteed by a restricted list of third parties, including in particular the central government or central bank of a Member State, or counter-guaranteed by one of those (this scheme is usually defined 'tranched cover'). Given the relevance of these schemes in order to free capital to be used to increase lending to SMEs, it is proposed to grant a more risk-sensitive treatment, equivalent to that foreseen for STS securitisations, to the senior tranche retained by the originator institution. In order to qualify for this treatment the securitisation shall comply with a series of operational requirements, including applicable STS criteria. Where such transactions benefit from this type of guarantee or counterguarantee, the preferential regulatory capital treatment that would be available to them under Regulation (EU) No 575/2013 is without prejudice to compliance with the State Aid rules.

(h)Other main elements

•Amendments to Part Five (Exposures to Transferred Credit Risk)

Taking into account the parallel introduction in the Securitisation Regulation of a general framework on requirements for originator, sponsor and investor institutions applicable to all financial sectors, all the provisions included in Part Five (Articles 404 to 410) are repealed. Only the contents of Article 407 (Additional risk weight) and the correspondent empowerment of the Commission for the adoption of an ITS 8 are kept and this shall be found in new Article 270bis.

•Amendments to Article 456

It is proposed to amend the Article 456 to empower the Commission, as it is the case of other categories of own funds requirements, to adopt delegated act in order to incorporate any relevant developments at international level with particular regard to the on-going BCBS workstream.

•Review clause (Article 519a)

Within three years from the date of entry into force of this Regulation, the Commission will report to the Council and the Parliament on the impact of the new regulatory capital framework on EU securitisation markets. On the basis of its analysis and taking into account international regulatory developments and the need to safeguard financial stability, the Commission may propose further amendments to the CRR in relation to, inter alia, the hierarchy of approaches in accordance with Article 456.

•Entry into force

The entry into force of the new provisions is set at […].

2015/0225 (COD)

Proposal for a

REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

amending Regulation (EU) No 575/2013 on prudential requirements for credit institutions and investment firms

(Text with EEA relevance)

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Article 114 thereof,

Having regard to the proposal from the European Commission,

After transmission of the draft legislative act to the national parliaments,

Having regard to the opinion of the European Economic and Social Committee 9 ,

Acting in accordance with the ordinary legislative procedure,

Whereas:

(1)Securitisations are an important constituent part of well-functioning financial markets insofar as they contribute to diversifying institutions' funding sources and releasing regulatory capital which can then be reallocated to support further lending. Furthermore, securitisations provide institutions and other market participants with additional investment opportunities, thus allowing portfolio diversification and facilitating the flow of funding to businesses and individuals both within Member States and on a cross-border basis throughout the Union. These benefits, however, should be weighed against their potential costs. As seen during the first phase of financial crisis starting in the summer of 2007, unsound practices in securitisation markets resulted in significant threats to the integrity of the financial system, namely due to excessive leverage, opaque and complex structures that made pricing problematic, mechanistic reliance on external ratings or misalignment between the interests of investors and originators ("agency risks").

(2)In recent years, securitisation issuance volumes in the Union have remained below their pre-crisis peak for a number of reasons, among them the stigma generally associated with these transactions. The recovery of securitisation markets should be based on sound and prudent market practices to prevent a recurrence of the set of circumstances that triggered the financial crisis. To that end, Regulation [Securitisation Regulation] lays down the substantive elements of an overarching securitisation framework, with ad-hoc criteria to identify simple, transparent and standardised ("STS") securitisations and a system of supervision to monitor the correct application of these criteria by originators, sponsors, issuers and institutional investors. Furthermore, Regulation [Securitisation Regulation] provides for a set of common requirements on risk retention, due diligence and disclosure for all financial services sectors.

(3)Consistent with the objectives of Regulation [Securitisation Regulation], the regulatory capital requirements laid down in Regulation (EU) No 575/2013 for institutions originating, sponsoring or investing in securitisations should be amended to reflect adequately the specific features of STS securitisations and address the shortcomings of the framework which became apparent during the financial crisis, namely its mechanistic reliance on external ratings, excessively low risk weights for highly-rated securitisation tranches and, conversely, excessively high risk weights for low-rated tranches, and insufficient risk sensitivity. On 11 December 2014 the Basel Committee for Banking Supervision ("BCBS") published its “Revisions to the securitisation framework” (the “Revised Basel Framework”) setting out various changes to the regulatory capital standards for securitisations to address specifically those shortcomings. The amendments to Regulation (EU) No 575/2013 should take into account the provisions of the Revised Basel Framework.

(4)Capital requirements for positions in a securitisation under Regulation (EU) No 575/2013 should be subject to the same calculation methods for all institutions. In the first instance and to remove any form of mechanistic reliance on external ratings, an institution should use its own calculation of regulatory capital requirements where the institution has permission to use the Internal Ratings Based approach (the "IRB") in relation to exposures of the same type as those underlying the securitisation and is able to calculate regulatory capital requirements in relation to the underlying exposures as if these had not been securitised ("Kirb"), in each case subject to certain pre-defined inputs (the "SEC-IRBA"). A Securitisation External Ratings-Based Approach (the "SEC-ERBA") should then be available to institutions that may not use the SEC-IRBA in relation to their positions in a given securitisation. Under the SEC-ERBA, capital requirements should be assigned to securitisation tranches on the basis of their external rating. When the first two approaches are not available or the use of the SEC-ERBA would result in incommensurate regulatory capital requirements relative to the credit risk embedded in the underlying exposures, institutions should be able to apply the Securitisation Standardised Approach (the "SEC-SA") which should rely on a supervisory-provided formula using as an input the capital requirements that would be calculated under the Standardised Approach to credit risk (the "SA") in relation to the underlying exposures if these had not been securitised ("Ksa").

(5)Agency and model risks are more prevalent for securitisations than for other financial assets and give rise to some degree of uncertainty in the calculation of capital requirements for securitisations even after all appropriate risk drivers have been taken into account. In order to capture those risks adequately, Regulation (EU) No. 575/2013 should be amended to provide for a minimum 15% risk weight floor for all securitisation positions. Re-securitisations, however, exhibit greater complexity and riskiness and, accordingly, positions in them, should be subject to a more conservative regulatory capital calculation and a 100% risk weight floor.

(6)Institutions should not be required to apply to a senior position a higher risk weight than that which would apply if it held the underlying exposures directly, thus reflecting the benefit of credit enhancement that senior positions receive from junior tranches in the securitisation structure. Regulation (EU) No 575/2013 should therefore provide for a 'look-trough' approach according to which a senior securitisation position should be assigned a maximum risk weight equal to the average risk weight applicable to the underlying exposures, and such approach should be available irrespective of whether the relevant position is rated or unrated and the approach used for the underlying pool (Standardised Approach or IRB), subject to certain conditions.

(7)An overall cap in terms of maximum risk-weighted exposure amounts is available under the current framework for institutions that can calculate the capital requirements for the underlying exposures in accordance with the IRB approach as if those exposures had not been securitised (KIRB). Insofar as the securitisation process reduces the risk attached to the underlying exposures, this cap should be available to all originator and sponsor institutions, regardless of the approach they use for the calculation of regulatory capital requirements for the positions in the securitisation. .

(8)As pointed out by the European Banking Authority (the "EBA") in its "Report on Qualifying Securitisations" of June 2015 10 , empirical evidence on defaults and losses shows that STS securitisations exhibited better performance than other securitisations during the financial crisis, reflecting the use of simple and transparent structures and robust execution practices in STS securitisation which deliver lower credit, operational and agency risks. It is therefore appropriate to amend Regulation (EU) No 575/2013 to provide for an appropriately risk-sensitive calibration for STS securitisations in the manner recommended by the EBA in its Report which involves, in particular, a lower risk weight floor of 10% for senior positions.

(9)The definition of STS securitisations for regulatory capital purposes under Regulation (EU) No 575/2013 should be limited to securitisations where the ownership of the underlying exposures is transferred to the Special Purpose Entity ("traditional securitisations"). However, institutions retaining senior positions in synthetic securitisations backed by an underlying pool of loans to small and medium-size enterprises ("SMEs") should be allowed to apply to these positions the lower capital requirements available for STS securitisations where such transactions are regarded as of high quality in accordance with certain strict criteria. In particular, where such subset of synthetic securitisations benefits from the guarantee or counterguarantee by the central government or central bank of a Member State, the preferential regulatory capital treatment that would be available to them under Regulation (EU) No 575/2013 is without prejudice to compliance with the State Aid rules.

(10)Only consequential changes should be made to the remainder of the regulatory capital requirements for securitisations in Regulation (EU) No 575/2013 insofar as necessary to reflect the new hierarchy of approaches and the special provisions for STS securitisations. In particular, the provisions related to the recognition of significant risk transfer and the requirements on external credit assessments should continue to apply in substantially the same terms as they do currently. However, Part Five of Regulation (EU) No 575/2013 should be deleted in its entirety with the exception of the requirement to hold additional risk weights which should be imposed on institutions found in breach of the provisions in Chapter 2 of Regulation [Securitisation Regulation].

(11)In light of the on-going debate within the BCBS on the convenience of recalibrating the Revised Basel Framework to reflect the specific features of STS securitisations, the Commission should be empowered to adopt a delegated act to make further amendments to the regulatory capital requirements for securitisation in Regulation (EU) No 575/2013 to take account of the outcome of such discussions.

(12)It is appropriate for the amendments to Regulation (EU) No 575/2013 provided for in this Regulation to apply to securitisations issued on or after the date of application of this Regulation and to securitisations outstanding as of that date. However, for legal certainty purposes and to mitigate transitional costs in as much as possible, institutions should be allowed to grandfather all outstanding securitisation positions that they hold on that date for a period ending on [31 December 2019]. Where an institution makes use of this option, outstanding securitisations should continue to be subject to the regulatory capital requirements set out in Regulation (EU) No 575/2013 in the version that applied prior to the date of application of this Regulation.

HAVE ADOPTED THIS REGULATION:

Article 1
Amendment of Regulation (EU) No 575/2013

Regulation (EU) No 575/2013 is amended as follows:

(1)Article 4(1) is amended as follows:

(a)Points (13) and (14) are replaced by the following:

'(13)'originator' means originator as defined in Article 2(3) of [Securitisation Regulation];

(14) 'sponsor' means sponsor as defined in Article 2(5) of [Securitisation Regulation];

(b)Points (61) and (63) are replaced by the following:

(61) 'securitisation' means securitisation as defined in Article 2(1) of [Securitisation Regulation];

(63) 're-securitisation' means re-securitisation as defined in Article 2(4) of [Securitisation Regulation];

(c)Points (66) and (67) are replaced by the following:

(66) 'securitisation special purpose entity' or 'SSPE' means securitisation special purpose entity or SSPE as defined in Article 2(2) of [Securitisation Regulation];

(67) 'tranche' means tranche as defined in Article 2(6) of [Securitisation Regulation];'

(2)In Article 36(1)(k), point (ii) is replaced by the following:

'(ii) securitisation positions, in accordance with Article 244(1)(b), Article 245(1)(b) and Article 253;'

(3)Article 109 is replaced by the following:

'Article 109

Treatment of securitisation positions

Institutions shall calculate the risk-weighted exposure amount for a position they hold in a securitisation in accordance with Chapter 5.'

(4)In Article 153, paragraph 7 is replaced by the following:

(7)'For purchased corporate receivables, refundable purchase discounts, collateral or partial guarantees that provide first loss protection for default losses, dilution losses, or both, may be treated as a first loss tranche under Chapter 5.'

(5)In Article 154, paragraph 6 is replaced by the following:

(6)'For purchased corporate receivables, refundable purchase discounts, collateral or partial guarantees that provide first loss protection for default losses, dilution losses, or both, may be treated as a first loss tranche under Chapter 5.'

(6)In Article 197(1), point (h) is replaced by the following:

(h)'securitisation positions that are not re-securitisation positions and which are subject to a 100% risk-weight or lower in accordance with Article 261 to Article 264;’

(7)Chapter 5 of Title II, Part Three is replaced by the following:

'CHAPTER 5

Section 1
Definitions and Criteria for STS Securitisations

Article 242
Definitions

For the purposes of this Chapter, the following definitions shall apply:

(1)'clean-up call option' means a contractual option that entitles the originator to call the securitisation positions before all of the securitised exposures have been repaid, either by repurchasing the underlying exposures remaining in the pool in the case of traditional securitisations or by terminating the credit protection in the case of synthetic securitisations, in both cases when the amount of outstanding underlying exposures falls to or below certain pre-specified level;

(2)'credit-enhancing interest-only strip' means an on-balance sheet asset that represents a valuation of cash flows related to future margin income and is a subordinated tranche in the securitisation;

(3)'liquidity facility' means the securitisation position arising from a contractual agreement to provide funding to ensure timeliness of cash flows to investors;

(4)'unrated position' means a securitisation position which does not have an eligible credit assessment by an ECAI as referred to in Section 4;

(5)'rated position' means a securitisation position which has an eligible credit assessment by an ECAI as referred to in Section 4;

(6)'senior securitisation 'position' means a position backed or secured by a first claim on the whole of the underlying exposures, disregarding for these purposes amounts due under interest rate or currency derivative contracts, fees or other similar payments;

(7)'IRB pool' means a pool of underlying exposures of a type in relation to which the institution has permission to use the IRB Approach and is able to calculate risk weighted exposure amounts in accordance with Chapter 3 for all of these exposures;

(8)'standardised Approach (SA) pool' means a pool of underlying exposures in relation to which the institution:

(a)does not have permission to use the IRB Approach to calculate risk weighted exposure amounts in accordance with Chapter 3;

(b)is unable to determine KIRB;

(c)is otherwise precluded from using the IRB Approach by its competent authority;

(9)'mixed pool' means a pool of underlying exposures of a type in relation to which the institution has permission to use the IRB Approach and is able to calculate risk weighted exposure amounts in accordance with Chapter 3 for some, but not all, exposures;

(10)'credit enhancement' means any arrangement which provides support for a securitisation position and serves to increase the likelihood that any such securitisation position will be repaid;

(11)'overcollateralisation' means any form of credit enhancement by virtue of which underlying exposures are posted in value which is higher than the value of the securitisation positions';

(12)'STS securitisation' means a securitisation meeting the requirements set out in Chapter 3 of [Securitisation regulation] and the requirements set out in Article 243;

(13)'asset-backed commercial paper (ABCP) programme' means asset backed commercial paper (ABCP) programme as defined in Article 2(7) of [Securitisation Regulation];

(14)'traditional securitisation' means traditional securitisation as defined in Article 2(9) of [Securitisation Regulation];

(15)'synthetic securitisation' means synthetic securitisation as defined in Article 2(10) of [Securitisation Regulation];'

(16)'revolving exposure' means revolving exposure as defined in Article 2(15) of [Securitisation Regulation];'

(17)'early amortisation provision' means early amortisation provision as defined in Article 2(17) of [Securitisation Regulation];

(18)'first loss tranche' means first loss tranche as defined in Article 2(18) of [Securitisation Regulation];

(19)'servicer' means servicer as defined in Article 2(13) of [Securitisation Regulation];

Article 243
Criteria for STS Securitisations

(1)Positions in an ABCP programme shall qualify as positions in an STS securitisation for the purposes of Articles 260, 262 and 264 where the following requirements are met:

(a)for all transactions within the ABCP programme the underlying exposures at origination meet the conditions for being assigned, under the Standardised Approach and taking into account any eligible credit risk mitigation, a risk weight equal to or smaller than 75% on an individual exposure basis where the exposure is a retail exposure or 100% for any other exposures;

(b)the aggregate exposure value of all exposures to a single obligor at ABCP programme level does not exceed 1% of the aggregate exposure value of all exposures within the ABCP programme at the time the exposures were added to the ABCP programme. For the purposes of this calculation, loans or leases to a group of connected clients as referred to in Article 4(1) point (39) shall be considered as exposures to a single obligor.

In the case of trade receivables, point (b) shall not apply where the credit risk of those trade receivables is fully covered by eligible credit protection in accordance with Chapter 4, provided that in that case the protection provider is an institution, an insurance undertaking or a reinsurance undertaking. For the purposes of this subparagraph, only the portion of the trade receivables remaining after taking into account the effect of any purchase price discount shall be used to determine whether they are fully covered.

(2)Positions in a securitisation other than an ABCP programme shall qualify as positions in an STS securitisation for the purposes of Articles 260, 262 and 264 where the following requirements are met:

(a)the underlying exposures are originated in accordance with sound and prudent credit granting criteria as required under Article 79 of Directive 2013/36/EU;

(b)at the time of inclusion in the securitisation, the aggregate exposure value of all exposures to a single obligor in the pool does not exceed 1% of the exposure values of the aggregate outstanding exposure values of the pool of underlying exposures. For the purposes of this calculation, loans or leases to a group of connected clients, as referred to in point (39) of Article 4(1), shall be considered as exposures to a single obligor;

(c)at the time of their inclusion in the securitisation, the underlying exposures meet the conditions for being assigned, under the Standardised Approach and taking into account any eligible credit risk mitigation, a risk weight equal to or smaller than:

(i)    40% on an exposure value-weighted average basis for the portfolio where the exposures are loans secured by residential mortgages or fully guaranteed residential loans, as referred to in paragraph 1(e) of Article 129;

(ii)    50% on an individual exposure basis where the exposure is a loan secured by a commercial mortgage;

(iii)    75% on an individual exposure basis where the exposure is a retail exposure;

(iv)    for any other exposures, 100% on an individual exposure basis;

(d)where points (c)(i) and (ii) apply, the loans secured by lower ranking security rights on a given asset shall only be included in the securitisation where all loans secured by prior ranking security rights on that asset are also included in the securitisation;

(e)where point (c)(i) applies, no loan in the pool of underlying exposures shall have a loan-to-value ratio higher than 100%, measured in accordance with paragraph 1(d)(i) of Article 129 and paragraph 1 of Article 229.

Section 2
Recognition of significant risk transfer

Article 244
Traditional securitisation

(1)The originator institution of a traditional securitisation may exclude underlying exposures from the calculation of risk-weighted exposure amounts and expected loss amounts if either of the following conditions is fulfilled:

(a)significant credit risk associated with the underlying exposures has been transferred to third parties;

(b)the originator institution applies a 1,250 % risk weight to all securitisation positions it holds in the securitisation or deducts these securitisation positions from Common Equity Tier 1 items in accordance with Article 36(1)(k).

(2)Significant credit risk shall be considered as transferred in either of the following cases:

(a)the risk-weighted exposure amounts of the mezzanine securitisation positions held by the originator institution in the securitisation do not exceed 50 % of the risk-weighted exposure amounts of all mezzanine securitisation positions existing in this securitisation;

(b)the originator institution does not hold more than 20 % of the exposure value of the first loss tranche in the securitisation, provided that the following conditions are met:

(i)    the originator can demonstrate that the exposure value of the first loss tranche exceeds a reasoned estimate of the expected loss on the underlying exposures by a substantial margin;

(ii)    there are no mezzanine positions in the securitisation.

Where the possible reduction in risk-weighted exposure amounts, which the originator institution would achieve by the securitisation under points (a) or (b), is not justified by a commensurate transfer of credit risk to third parties, competent authorities may decide on a case-by-case basis that significant credit risk shall not be considered as transferred to third parties.

For the purposes of this paragraph, a position in a securitisation shall be considered a mezzanine securitisation position where it meets the following requirements:

(a)it is subject to a risk weight lower than 1,250% in accordance with this Section or, in the absence of a position with that risk weight, it is more senior than the first loss tranche; and

(b)it is subordinated to the senior securitisation position.

(3)By derogation from paragraph 2, competent authorities may allow originator institutions to recognise significant credit risk transfer in relation to a securitisation where the originator institution demonstrates in each case that the reduction in own funds requirements which the originator achieves by the securitisation is justified by a commensurate transfer of credit risk to third parties. Permission may only be granted where the institution meets the following conditions:

(a)the institution has adequate internal risk management policies and methodologies to assess the transfer of credit risk;

(b)the institution has also recognised the transfer of credit risk to third parties in each case for the purposes of the institution's internal risk management and its internal capital allocation.

(4)In addition to the requirements set out in paragraphs 1 to 3,the following conditions shall be met:

(a)the transaction documentation reflects the economic substance of the securitisation;

(b)the securitisation positions do not constitute payment obligations of the originator institution;

(c)the underlying exposures are placed beyond the reach of the originator institution and its creditors in a manner that meets the requirement set out in Article 6(2)(a) of [Securitisation Regulation];

(d)the originator institution does not retain control over the underlying exposures. It shall be considered that control is retained over the underlying exposures where the originator has the right to repurchase from the transferee the previously transferred exposures in order to realise their benefits or if it is otherwise required to re-assume transferred risk. The originator institution's retention of servicing rights or obligations in respect of the underlying exposures shall not of itself constitute control of the exposures;

(e)the securitisation documentation does not contain terms or conditions that:

(i)    require the originator institution to alter the underlying exposures to improve the average quality of the pool;

(ii)    increase the yield payable to holders of positions or otherwise enhance the positions in the securitisation in response to a deterioration in the credit quality of the underlying exposures;

(f)where applicable the transaction documentation makes it clear that the originator or the sponsor may only purchase or repurchase securitisation positions or repurchase, restructure or substitute the underlying exposures beyond their contractual obligations where such arrangements are executed in accordance with prevailing market conditions and the parties to them act in their own interest as free and independent parties (arm's length);

(g)where there is a clean-up call option, that option shall also meet the following conditions:

(i)    it can be exercised at the discretion of the originator institution;

(ii)    it may only be exercised when 10 % or less of the original value of the underlying exposures remains unamortised;

(iii)    it is not structured to avoid allocating losses to credit enhancement positions or other positions held by investors and is not otherwise structured to provide credit enhancement;

(h)the originator institution has received an opinion from a qualified legal counsel confirming that the securitisation complies with the conditions set out in points (b) to (g) of this paragraph.

(5)The competent authorities shall inform EBA of those cases where they have decided that the possible reduction in risk-weighted exposure amounts was not justified by a commensurate transfer of credit risk to third parties in accordance with paragraph 2, and the cases where institutions have chosen to apply the provisions in paragraph 3.

(6)EBA shall monitor the range of supervisory practices in relation to the recognition of significant risk transfer in traditional securitisations in accordance with this Article and report its findings to the Commission by 31 December 2017. The Commission, where appropriate after having taken into account the Report from EBA, may adopt a Delegated Act to specify further the following items:

(a)the conditions for the transfer of significant credit risk to third parties in accordance with paragraphs 2, 3 and 4;

(b)the interpretation of "commensurate transfer of credit risk to third parties" for the purposes of the competent authorities' assessment provided for in the penultimate subparagraph of paragraph 2 and paragraph 3;

(c)the requirements for the competent authorities' assessment of securitisation transactions in relation to which the originator seeks recognition of significant credit risk transfer to third parties in accordance with paragraphs 2 or 3.

Article 245
Synthetic securitisation

(1)The originator institution of a synthetic securitisation may calculate risk-weighted exposure amounts, and, where relevant, expected loss amounts, for the securitised exposures in accordance with Article 251, where either of the following conditions is met:

(a)significant credit risk has been transferred to third parties either through funded or unfunded credit protection;

(b)the originator institution applies a 1,250 % risk weight to all securitisation positions that it retains in the securitisation or deducts these securitisation positions from Common Equity Tier 1 items in accordance with Article 36(1)(k).

(2)Significant credit risk shall be considered as transferred in either of the following cases:

(a)the risk-weighted exposure amounts of the mezzanine securitisation positions held by the originator institution in the securitisation do not exceed 50 % of the risk-weighted exposure amounts of all mezzanine securitisation positions existing in this securitisation;

(b)the originator institution does not hold more than 20 % of the exposure value of the first loss tranche in the securitisation, provided that the following conditions are met:

(i)    the originator can demonstrate that the exposure value of the first loss tranche exceeds a reasoned estimate of the expected loss on the underlying exposures by a substantial margin;

(ii)    there are no mezzanine positions in the securitisation.

Where the possible reduction in risk-weighted exposure amounts, which the originator institution would achieve by the securitisation, is not justified by a commensurate transfer of credit risk to third parties, competent authorities may decide on a case-by-case basis that significant credit risk shall not be considered as transferred to third parties.

For the purposes of this paragraph, a position in a securitisation shall be considered a mezzanine securitisation position where it meets the requirements laid down in the last subparagraph of Article 244(2)

(3)By derogation from paragraph 2, competent authorities may allow originator institutions to recognise significant credit transfer in relation to a securitisation where the originator institution demonstrates in each case that the reduction in own funds requirements which the originator achieves by the securitisation is justified by a commensurate transfer of credit risk to third parties. Permission may only be granted where the institution meets the following conditions:

(a)the institution has adequate internal risk-management policies and methodologies to assess the transfer of risk;

(b)the institution has also recognised the transfer of credit risk to third parties in each case for the purposes of the institution's internal risk management and its internal capital allocation.

(4)In addition to the requirements set out in paragraphs 1 to 3, the following conditions shall be met:

(a)the transaction documentation reflects the economic substance of the securitisation;

(b)the credit protection by virtue of which credit risk is transferred complies with Article 249;

(c)the securitisation documentation does not contain terms or conditions that:

(i)    impose significant materiality thresholds below which credit protection is deemed not to be triggered if a credit event occurs;

(ii)    allow for the termination of the protection due to deterioration of the credit quality of the underlying exposures;

(iii)    require the originator institution to alter the composition of the underlying exposures to improve the average quality of the pool;

(iv)    increase the institution's cost of credit protection or the yield payable to holders of positions in the securitisation in response to a deterioration in the credit quality of the underlying pool;

(d)the credit protection is enforceable in all relevant jurisdictions;

(e)where applicable, the transaction documentation makes it clear that the originator or the sponsor may only purchase or repurchase securitisation positions or repurchase, restructure or substitute the underlying exposures beyond their contractual obligations where such transactions are executed in accordance with prevailing market conditions and the parties to them act in their own interest as free and independent parties (arm's length);

(f)where there is a clean-up call option, that option meets all the following conditions:

(i)    it can be exercised at the discretion of the originator institution;

(ii)    it may only be exercised when 10 % or less of the original value of the underlying exposures remains unamortised;

(iii)    it is not structured to avoid allocating losses to credit enhancement positions or other positions held by investors in the securitisation and is not otherwise structured to provide credit enhancement;

(g)the originator institution has received an opinion from a qualified legal counsel confirming that the securitisation complies with the conditions set out in points (b) to (f) of this paragraph;

(5)The competent authorities shall inform EBA of the cases where they have decided that the possible reduction in risk-weighted exposure amounts was not justified by a commensurate transfer of credit risk to third parties in accordance with paragraph 2, and the cases where institutions have chosen to apply the provisions in paragraph 4.

(6)EBA shall monitor the range of supervisory practices in relation to the recognition of significant risk transfer in synthetic securitisations in accordance with this Article and report its findings to the Commission by 31 December 2017. The Commission, where appropriate after having taken into account the Report from EBA, may adopt a Delegated Act to specify further the following items:

(a)the conditions for the transfer of significant credit risk to third parties in accordance with paragraphs 2, 3 and 4;

(b)the interpretation of "commensurate transfer of credit risk to third parties" for the purposes of the competent authorities' assessment provided for in the penultimate subparagraph of paragraph 2 and paragraph 3;

(c)the requirements for the competent authorities' assessment of securitisation transactions in relation to which the originator seeks recognition of significant credit risk transfer to third parties in accordance with paragraphs 2 or 3.

Article 246
Operational requirements for Early Amortisation provisions

Where the securitisation includes revolving exposures and early amortisation or similar provisions, significant credit risk shall only be considered transferred by the originator institution where the requirements laid down in Articles 244 and 245 are met and the early amortisation provision, once triggered, does not:

(d)subordinate the institution's senior or pari passu claim on the underlying exposures to the other investors' claims;

(e)subordinate further the institution’s claim on the underlying exposures relative to other parties' claims;

(f)otherwise increase the institution’s exposure to losses associated with the underlying revolving exposures.

Section 3
Calculation of the risk-weighted exposure amounts

Sub-Section 1
General Provisions

Article 247
Calculation of risk-weighted exposure amounts

(1)Where an originator institution has transferred significant credit risk associated with the underlying exposures of the securitisation in accordance with Section 2, that institution may:

(a)in the case of a traditional securitisation, exclude the underlying exposures from its calculation of risk-weighted exposure amounts, and, as relevant, expected loss amounts,;

(b)in the case of a synthetic securitisation, calculate risk-weighted exposure amounts, and, where relevant, expected loss amounts, with respect to the underlying exposures in accordance with Articles 251 and 252.

(2)Where the originator institution has decided to apply paragraph 1, it shall calculate the risk-weighted exposure amounts as set out in this Chapter for the positions that it may hold in the securitisation.

Where the originator institution has not transferred significant credit risk or has decided not to apply paragraph 1, it shall continue including the underlying exposures in its calculation of risk-weighted exposure amounts as if they had not been securitised.

(3)Where there is an exposure to positions in different tranches in a securitisation, the exposure to each tranche shall be considered a separate securitisation position. The providers of credit protection to securitisation positions shall be considered as holding positions in the securitisation. Securitisation positions shall include exposures to a securitisation arising from interest rate or currency derivative contracts that the institution has entered into with the transaction.

(4)Unless a securitisation position is deducted from Common Equity Tier 1 items pursuant to Article 36(1)(k), the risk-weighted exposure amount shall be included in the institution's total of risk-weighted exposure amounts for the purposes of Article 92(3).

(5)The risk-weighted exposure amount of a securitisation position shall be calculated by multiplying the exposure value of the position, calculated as set out in Article 248, by the relevant total risk weight.

(6)The total risk weight shall be determined as the sum of the risk weight set out in this Chapter and any additional risk weight in accordance with Article 270a.

Article 248
Exposure value

(1)The exposure value of securitisation positions shall be calculated as follows:

(a)the exposure value of an on-balance sheet securitisation position shall be its accounting value remaining after the relevant credit risk adjustments on the securitisation position have been applied in accordance with Article 110;

(b)the exposure value of an off-balance sheet securitisation position shall be its nominal value less any applicable credit risk adjustments in accordance with Article 110, multiplied by the relevant conversion factor as set out in this Chapter. The conversion factor shall be 100 %, unless otherwise specified;

(c)the exposure value for the counterparty credit risk of a securitisation position that results from a derivative instrument listed in Annex II, shall be determined in accordance with Chapter 6.

(2)Where an institution has two or more overlapping positions in a securitisation, it shall include only one of the positions in its calculation of risk-weighted exposure amounts.

Where the positions are partially overlapping, the institution may split the position into two parts and recognise the overlap in relation to one part only in accordance with the first subparagraph.. Alternatively, the institution may treat the positions as if they were fully overlapping by expanding for capital calculation purposes the position that produces the higher risk-weighted exposure amounts.

The institution may also recognise an overlap between the specific risk own funds requirements for positions in the trading book and the own funds requirements for securitisation positions in the non-trading book, provided that the institution is able to calculate and compare the own funds requirements for the relevant positions.

For the purposes of this paragraph, two positions shall be deemed overlapping where they are mutually offsetting in such a manner that the institution is able to preclude the losses arising from one position by performing the obligations required under the other position.

(3)Where Article 270c applies to positions in ABCP, the institution may use the risk-weight assigned to a liquidity facility in order to calculate the risk-weighted exposure amount for the ABCP, provided that the liquidity facility covers 100 % of the ABCP issued by the programme and the liquidity facility ranks pari passu with the ABCP in a manner that they form an overlapping position. The institution shall notify the competent authorities where it has applied the provisions laid down in this paragraph. For the purposes of determining the 100% coverage set out in this paragraph, the institution may take into account other liquidity facilities in the ABCP programme, provided that they form an overlapping position with the ABCP.

Article 249
Recognition of credit risk mitigation for securitisation positions

(1)An institution may recognise funded or unfunded credit protection with respect to a securitisation position where the requirements for credit risk mitigation laid down in this Chapter and in Chapter 4 are met.

(2)Eligible funded credit protection shall be limited to financial collateral which is eligible for the calculation of risk-weighted exposure amounts under Chapter 2 as laid down under Chapter 4 and recognition of credit risk mitigation shall be subject to compliance with the relevant requirements as laid down under Chapter 4.

Eligible unfunded credit protection and unfunded credit protection providers shall be limited to those which are eligible in accordance with Chapter 4 and recognition of credit risk mitigation shall be subject to compliance with the relevant requirements as laid down under Chapter 4.

(3)By way of derogation from paragraph 2, the eligible providers of unfunded credit protection listed in points (a) to (h) of Article 201(1) shall have been assigned a credit assessment by a recognised ECAI which is credit quality step 2 or above at the time the credit protection was first recognised and credit quality step 3 or above thereafter. The requirement set out in this subparagraph shall not apply to qualifying central counterparties.

Institutions which are allowed to apply the IRB Approach to a direct exposure to the protection provider may assess eligibility in accordance with the first sub-paragraph based on the equivalence of the PD for the protection provider to the PD associated with the credit quality steps referred to in Article 136.

(4)By way of derogation from paragraph 2, SSPEs shall be eligible protection providers where all of the following conditions are met:

(a)the SSPE owns assets that qualify as eligible financial collateral in accordance with Chapter 4;

(b)the assets referred to in (a) are not subject to claims or contingent claims ranking ahead or pari passu with the claim or contingent claim of the institution receiving unfunded credit protection; and

(c)all the requirements for the recognition of financial collateral in Chapter 4 are met.

(5)For the purposes of this paragraph, the amount of the protection adjusted for any currency and maturity mismatches in accordance with Chapter 4 (GA) shall be limited to the volatility adjusted market value of those assets and the risk weight of exposures to the protection provider as specified under the Standardised Approach (g) shall be determined as the weighted-average risk weight that would apply to those assets as financial collateral under the Standardised Approach.

(6)Where a securitisation position benefits from full credit protection, the following requirements shall apply:

(a)the institution providing credit protection shall calculate risk-weighted exposure amounts for the securitisation position benefiting from credit protection in accordance with Subsection 3 as if it held that position directly;

(b)the institution buying protection shall calculate risk-weighted exposure amounts in accordance with Chapter 4.

(7)In the event of partial protection, the following requirements shall apply:

(a)the institution providing credit protection shall treat the portion of the position benefiting from credit protection as a securitisation position and shall calculate risk-weighted exposure amounts as if it held that position directly in accordance with Subsection 3, subject to paragraphs 8 and 9;

(b)the institution buying credit protection shall calculate risk-weighted exposure amounts for the protected position referred to in (a) in accordance with Chapter 4. The institution shall treat the portion of the securitisation position not benefiting from credit protection as a separate securitisation position and shall calculate risk-weighted exposure amounts in accordance with Subsection 3, subject to paragraphs 8 and 9.

(8)Institutions using the Securitisation Internal Ratings Based Approach (SEC-IRBA) or the Securitisation Standardised Approach (SEC-SA) under Subsection 3 shall determine the attachment point (A) and detachment point (D) separately for each of the positions derived in accordance with paragraph 7 as if these had been issued as separate securitisation positions at the time of origination of the transaction. The value of KIRB or KSA, respectively, shall be calculated taking into account the original pool of exposures underlying the securitisation.

(9)Institutions using the Securitisation External Ratings Based Approach (SEC-ERBA) under Subsection 3 shall calculate risk-weighted exposure amounts for the positions derived in accordance with paragraph 7 as follows:

(a)where the derived position has the higher seniority, it shall be assigned the risk-weight of the original securitisation position;

(b)where the derived position has the lower seniority, it may be assigned an inferred rating in accordance with Article 261(7). Where a rating may not be inferred, the institution shall apply the higher of the risk-weight resulting from either:

(i)    applying the SEC-SA in accordance with paragraph 8 and Subsection 3; or

(ii)    the risk-weight of the original securitisation position under the SEC-ERBA.

Article 250
Implicit support

(1)An originator institution which has transferred significant credit risk associated with the underlying exposures of the securitisation in accordance with Section 2 and a sponsor institution shall not provide support to the securitisation beyond its contractual obligations with a view to reducing potential or actual losses to investors.

(2)A transaction shall not be considered as support for the purposes of paragraph 1 where the transaction has been duly taken into account in the assessment of significant risk transfer and both parties have executed the transaction acting in their own interest as free and independent parties (arm's length). For these purposes, the institution shall undertake a full credit review of the transaction and, at a minimum, take into account all of the following items:

(a)the repurchase price;

(b)the institution's capital and liquidity position before and after repurchase;

(c)the performance of the underlying exposures;

(d)the performance of the securitisation positions;

(e)the impact of support on the losses expected to be incurred by the originator relative to investors.

(3)The originator institution and the sponsor institution shall notify the competent authority of any transaction entered into in relation to the securitisation in accordance with paragraph 2.

(4)EBA shall, in accordance with Article 16 of Regulation (EU) No 1093/2010, issue guidelines on what constitutes "arm's length" for the purposes of this Article and when a transaction is not structured to provide support.

(5)If an originator institution or a sponsor institution fails to comply with paragraph 1 in respect of a securitisation, the institution shall include all of the underlying exposures of that securitisation in its calculation of risk-weighted exposure amounts as if they had not been securitised and disclose:

(a)that it has provided support to the securitisation in breach of paragraph 1; and

(b)the impact of the support provided in terms of own funds requirements.

Article 251
Originator institutions' calculation of risk-weighted exposure amounts securitised in a synthetic securitisation

(1)For the purpose of calculating risk-weighted exposure amounts for the underlying exposures, the originator institution of a synthetic securitisation shall use the calculation methodologies set out in this Section where applicable instead of those set out in Chapter 2. For institutions calculating risk-weighted exposure amounts and expected loss amounts under Chapter 3, the expected loss amount in respect of such exposures shall be zero.

(2)The requirements set out in the first paragraph shall apply to the entire pool of exposures backing the securitisation. Subject to Article 252, the originator institution shall calculate risk-weighted exposure amounts with respect to all tranches in the securitisation in accordance with the provisions of this Section, including the positions in relation to which the institution is able to recognise credit risk mitigation in accordance with Article 249. The risk-weight to be applied to positions which benefit from credit risk mitigation may be amended in accordance with Chapter 4.

Article 252
Treatment of maturity mismatches in synthetic securitisations

For the purposes of calculating risk-weighted exposure amounts in accordance with Article 251, any maturity mismatch between the credit protection by which the transfer of risk is achieved and the underlying exposures shall be calculated as follows:

(a)the maturity of the underlying exposures shall be taken to be the longest maturity of any of those exposures subject to a maximum of five years. The maturity of the credit protection shall be determined in accordance with Chapter 4;

(b)an originator institution shall ignore any maturity mismatch in calculating risk-weighted exposure amounts for securitisation positions subject to a risk weight of 1,250 % in accordance with this Section. For all other positions, the maturity mismatch treatment set out in Chapter 4 shall be applied in accordance with the following formula:

   RW* = ((RWSP · ((t – t*)/(T – t*))) + (RWAss · ((T – t)/(T – t*))))

where:

Article 253
Reduction in risk-weighted exposure amounts

(1)Where a securitisation position is assigned a 1,250% risk weight under this Section, institutions may deduct the exposure value of such position from Common Equity Tier 1 capital in accordance with Article 36(1)(k) as an alternative to including the position in their calculation of risk-weighted exposure amounts. For these purposes, the calculation of the exposure value may reflect eligible funded protection in accordance with Article 249.

(2)Where an institution makes use of the alternative set out in paragraph 1, it may subtract the amount deducted in accordance with Article 36(1)(k) from the amount specified in Article 268 as maximum capital requirement that would be calculated in respect of the underlying exposures as if they had not been securitised.

Subsection 2
Hierarchy of methods and common parameters

Article 254
Hierarchy of methods

(1)Institutions shall use one of the methods set out in Subsection 3 to calculate risk-weighted exposure amounts in relation to all the positions they hold in a securitisation.

(2)The methods set out in Subsection 3 shall be applied in accordance with the following hierarchy:

(a)an institution shall use the Internal Ratings-Based Approach (SEC-IRBA) where the conditions set out in Article 258 are met;

(b)where the SEC-IRBA may not be used, institutions shall use the Securitisation External Ratings-Based Approach (SEC-ERBA) for rated positions or positions in respect of which an inferred rating may be used in accordance with Articles 261 and 262;

(c)where the SEC-ERBA may not be used, institutions shall use the Securitisation Standardised Approach (SEC-SA) in accordance with Articles 263 and 264.

(3)By derogation from paragraph 2(b), institutions may use the SEC-SA instead of the SEC-ERBA in relation to all the positions they hold in a securitisation where the risk-weighted exposure amounts resulting from the application of the SEC-ERBA is not commensurate to the credit risk embedded in the exposures underlying the securitisation. Where the institution has decided to apply the SEC-SA in accordance with this paragraph, it shall promptly notify the competent authority. Where an institution has applied the SEC-SA in accordance with this paragraph, the competent authority may require the institution to apply a different method.

(4)Without prejudice to paragraph 2, institutions may use the Internal Assessment Approach (IAA) to calculate risk-weighted exposure amounts in relation to an unrated position in an ABCP programme in accordance with Article 266, provided that the conditions set out in Article 265 are met.

(5)For a position in a re-securitisation, institutions shall apply the SEC-SA in accordance with Article 263, with the modifications set out in Article 269.

(6)In all other cases, a risk weight of 1,250 % shall be assigned to securitisation positions.

(7)The competent authorities shall inform EBA of any notifications received and decisions made in accordance with paragraph 3. EBA shall monitor the range of practices in connection with paragraph 3 and issue guidelines in accordance with Article 16 of Regulation (EU) No 1093/2010.

Article 255
Determination of KIRB and KSA

(1)Where an institution applies the SEC-IRBA under Subsection 3, the institution shall calculate KIRB in accordance with paragraphs 2 to 5.

(2)Institutions shall determine KIRB by multiplying the risk-weighted exposure amounts that would be calculated under Chapter 3 in respect of the underlying exposures as if they had not been securitised by the applicable capital ratio in accordance with Chapter 1 divided by the value of the underlying exposures. KIRB shall be expressed in decimal form between zero and one.

(3)For KIRB calculation purposes, the risk-weighted exposure amounts that would be calculated under Chapter 3 in respect of the underlying exposures shall include:

(a)the amount of expected losses associated with all the underlying exposures of the securitisation including defaulted underlying exposures that are still part of the pool in accordance with Chapter 3; and

(b)the amount of unexpected losses associated with the all the underlying exposures including defaulted underlying exposures in the pool in accordance with Chapter 3;

(4)Institutions may calculate KIRB in relation to the underlying exposures of the securitisation in accordance with the provisions set out in Chapter 3 for the calculation of capital requirements for purchased receivables. For these purposes, retail exposures shall be treated as purchased retail receivables and non-retail exposures as purchased corporate receivables.

(5)Institutions shall calculate KIRB separately for dilution risk in relation to the underlying exposures of a securitisation where dilution risk is material to such exposures.

Where losses from dilution and credit risks are treated in an aggregate manner in the securitisation, institutions shall combine the respective KIRB for dilution and credit risk into a single KIRB for the purposes of Subsection 3. The presence of a single reserve fund or overcollateralisation available to cover losses from either credit or dilution risk may be regarded as an indication that these risks are treated in an aggregate manner.

Where dilution and credit risk are not treated in an aggregate manner in the securitisation, institutions shall modify the treatment set out in the previous paragraph to combine the respective KIRB for dilution and credit risk in a prudent manner.

(6)Where an institution applies the SEC-SA under Subsection 3, the institution shall calculate KSA by multiplying the risk-weighted exposure amounts that would be calculated under Chapter 2 in respect of the underlying exposures as if they had not been securitised by 8% divided by the value of the underlying exposures. KSA shall be expressed in decimal form between zero and one.

For the purposes of this paragraph, institutions shall calculate the exposure value of the underlying exposures without netting any specific credit adjustments and additional value adjustments in accordance with Articles 34 and 110 and other own funds reductions.

(7)For the purposes of paragraphs 1 to 6, where a securitisation structure involves the use of an SSPE, all the SSPE’s exposures related to the securitisation shall be treated as underlying exposures. Without prejudice to the preceding, the institution may exclude the SPE’s exposures from the pool of underlying exposures for KIRB or KSA calculation purposes if the risk from the SPE’s exposures is immaterial or if it does not affect the institution’s securitisation position.

In the case of funded synthetic securitisations, any material proceeds from the issuance of credit-linked notes or other funded obligations of the SPE that serve as collateral for the repayment of the securitisation positions shall be included in the calculation of KIRB or KSA if the credit risk of the collateral is subject to the tranched loss allocation.

(8)For the purposes of the third subparagraph of paragraph 5, EBA shall issue guidelines in accordance with Article 16 of Regulation (EU) No 1093/2010 on the appropriate methods to combine KIRB for dilution and credit risk where these risks are not treated in an aggregate manner in a securitisation.

Article 256
Determination of attachment point (A) and detachment point (D)

(1)For the purposes of Subsection 3, institutions shall set the attachment point (A) at the threshold at which losses within the pool of underlying exposures would start to be allocated to the relevant securitisation position.

The attachment point (A) shall be expressed as a decimal value between zero and one and shall be equal to the greater of zero and the ratio of the outstanding balance of the pool of underlying exposures in the securitisation minus the outstanding balance of all tranches that rank senior or pari passu to the tranche containing the relevant securitisation position to the outstanding balance of all the underlying exposures in the securitisation.    

(2)For the purposes of Subsection 3, institutions shall set the detachment point (D) at the threshold at which losses within the pool of underlying exposures would result in a complete loss of principal for the tranche containing the relevant securitisation position.

The detachment point (D) shall be expressed as a decimal value between zero and one and shall be equal to the greater of zero and the ratio of the outstanding balance of the pool of underlying exposures in the securitisation minus the outstanding balance of all tranches that rank senior to the tranche containing the relevant securitisation position to the outstanding balance of all the underlying exposures in the securitisation.    

(3)For the purposes of paragraphs 1 and 2, institutions shall treat overcollateralisation and funded reserve accounts as tranches and the assets comprising such reserve accounts as underlying exposures.

(4)For the purposes of paragraphs 1 and 2, institutions shall disregard unfunded reserve accounts and assets that do not provide credit enhancement, such as those that only provide liquidity support, currency or interest rate swaps and cash collateral accounts related to those positions in the securitisation. For funded reserve accounts and assets providing credit enhancement, the institution shall only treat as securitisation positions the part of those accounts or assets that are loss-absorbing.

Article 257
Determination of tranche maturity (MT)

(1)For the purposes of Subsection 3 and subject to paragraph 3, institutions may measure the maturity of a tranche (MT) as either:

(a)the weighted–average maturity of the contractual payments due under the tranche in accordance with the following formula:

where CFt denotes all contractual payments (principal, interests and fees) payable by the borrower during period t; or

(b)the final legal maturity of the tranche in accordance with the following formula:

MT = 1 + (ML – 1) * 80%,

where ML is the final legal maturity of the tranche.

(2)By derogation from paragraph 1, institutions shall only use the final legal maturity of the tranche to determine its maturity (MT) in accordance with point (b) of paragraph 1 where the contractual payments due under the tranche are conditional or dependent upon the actual performance of the underlying exposures.

(3)For the purposes of paragraphs 1 and 2, the determination of a tranche maturity (MT) shall be subject in all cases to a floor of one year and a cap of five years.

(4)Where an institution may become exposed to potential losses from the underlying exposures by virtue of contract, the institution shall determine the maturity of the securitisation position by taking into account the longest maturity of such underlying exposures. For revolving exposures, the longest contractually possible remaining maturity of the exposure that might be added during the revolving period shall apply.

Subsection 3
Methods to calculate risk-weighted exposure amounts

Article 258
Conditions for the use of the Internal Ratings-Based Approach (SEC-IRBA)

(1)Institutions shall use the SEC-IRBA to calculate risk-weighted exposure amounts in relation to a securitisation position where the following conditions are met:

(a)the position is backed by an IRB pool or a mixed pool, provided that, in the latter case, the institution is able to calculate KIRB in accordance with Section 3 on at a minimum of 95% of the underlying risk-weighted exposure amount;

(b)there is sufficient information publicly available in relation to the underlying exposures of the securitisation for the institution to be able to calculate KIRB; and

(c)the institution has not been precluded from using the SEC-IRBA in relation to a specified securitisation position in accordance with paragraph 2.

(2)Competent authorities may on a case-by-case basis preclude the use of the SEC-IRBA where securitisations have highly complex or risky features. For these purposes, the following may be regarded as highly complex or risky features:

(a)credit enhancement that can be eroded for reasons other than portfolio losses resulting from non-payment of principal or interest;

(b)pools of underlying exposures with high degree of internal correlation as a result of concentrated exposures to single sectors or geographical areas

(c)transactions were the repayment of the securitisation positions are highly dependent on risk drivers not reflected in KIRB; or

(d)highly complex loss allocations between tranches.

Article 259
Calculation of risk-weighted exposure amounts under the SEC-IRBA

(1)Under the SEC-IRBA, the risk weighted exposure amount for a securitisation position shall be calculated by multiplying the exposure value of the position calculated in accordance with Article 248 by the applicable risk weight determined as follows, in all cases subject to a floor of 15%:

RW = 1,250%                            when D ≤ KIRB

RW = 12.5·KSSFA(KIRB)                        when A ≥ KIRB

   when A˂ KIRB˂D

where:

KIRB is the capital charge of the pool of underlying exposures as defined in Article 255

D is the detachment point as determined in accordance with Article 256

A is the attachment point as determined in accordance with Article 256

where:

a = –(1 / (p * KIRB))

u = D – KIRB

l = max (A - KIRB; 0)

where:

p = max [0.3; (A + B*(1/N) + C* KIRB + D*LGD + E*MT)]

where:

N is the effective number of exposures in the pool of underlying exposures, calculated in accordance paragraph 4

LGD is the exposure-weighted average loss-given-default of the pool of underlying exposures, calculated in accordance with paragraph 5

MT is the maturity of the tranche as determined in accordance with Article 257

the parameters A, B, C, D, and E shall be determined according to the following look-up table:

(2)If the underlying IRB pool comprises both retail and non-retail exposures, the pool shall be divided into one retail and one non-retail subpool and, for each subpool, a separate p-parameter (and the corresponding input parameters N, KIRB and LGD) shall be estimated. Subsequently, a weighted average p-parameter for the transaction shall be calculated on the basis of the p-parameters of each subpool and the nominal size of the exposures in each subpool.

(3)Where an institution applies the SEC-IRBA to a mixed pool, the calculation of the p-parameter shall be based on the underlying exposures subject to the IRB Approach only. The underlying exposures subject to the Standardised Approach shall be ignored for these purposes.

(4)The effective number of exposures (N) shall be calculated as follows:

where EADi represents the exposure-at-default associated with the ith instrument in the pool.

Multiple exposures to the same obligor shall be consolidated and treated as a single exposure.

(5)The exposure-weighted average LGD shall be calculated as follows:

where LGDi represents the average LGD associated with all exposures to the ith obligor.

Where credit and dilution risks for purchased receivables are managed in an aggregate manner in a securitisation, the LGD input shall be construed as a weighted average of the LGD for credit risk and 100% LGD for dilution risk. The risk weights shall be the stand-alone IRB capital charges for credit risk and dilution risk, respectively. For these purposes, the presence of a single reserve fund or [overcollateralisation] available to cover losses from either credit or default risk may be regarded as an indication that these risks are managed in an aggregate manner.

(6)Where the share of the largest underlying exposure in the pool (C1) is no more than 3%, institutions may use the following simplified method to calculate N and the exposure-weighted average LGDs:

LGD = 0.50

where

Cm denotes the share of the pool corresponding to the sum of the largest m exposures (e.g. a 15% share corresponds to a value of 0.15); and

m is set by the institution.

If only C1 is available and this amount is no more than 0.03, then the institution may set LGD as 0.50 and N as 1/C1.

(7)Where the position is backed by a mixed pool and the institution is able to calculate KIRB on at least 95% of the underlying exposure amounts in accordance with Article 258(1)(a), the institution shall calculate the capital charge for the underlying pool of exposures as:

dˑ KIRB + (1–d)ˑ KSA,

where

d is the percentage of the exposure amount of underlying exposures for which the bank can calculate KIRB over the exposure amount of all underlying exposures; and

KIRB and KSA are as defined in Article 255.

(8)Where an institution has a securitisation position in the form of a derivative, the institution may attribute to the derivative an inferred risk weight equivalent to the risk weight of the reference position calculated in accordance with this Article.

For the purposes of the first Subparagraph, the reference position shall be the position that is pari passu in all respects to the derivative or, in the absence of such pari passu position, the position that is immediately subordinate to the derivative.

Article 260
Treatment of STS securitisations under the SEC-IRBA

Under the SEC-IRBA, the risk weight for position in an STS securitisation shall be calculated in accordance with Article 259, subject to the following modifications:

risk weight floor for senior securitisation positions = 10%

p = max [0.3; 0.5ˑ (A + Bˑ(1/N) + Cˑ KIRB + D*LGD + EˑMT)]

Article 261
Calculation of risk-weighted exposure amounts under the External Ratings-Based Approach (SEC-ERBA)

(1)Under the SEC-ERBA, the risk weighted exposure amount for a securitisation position shall be calculated by multiplying the exposure value of the position as calculated in accordance with Article 248 by the applicable risk weight in accordance with this Article.

(2)For exposures with short-term credit assessments or when a rating based on a short-term credit assessment may be inferred in accordance with paragraph 7, the following risk weights shall apply:

Table 1

(3)For exposures with long-term credit assessments or when a rating based on a long-term credit assessment may be inferred in accordance with paragraph 7, the risk weights set out in Table 2 shall apply, adjusted as applicable for tranche maturity (Mt) in accordance with Article 257 and paragraph 4 and for tranche thickness for non-senior tranches in accordance with paragraph 5:

Table 2

(4)In order to determine the risk weight for tranches with a maturity between 1 and 5 years, institutions shall use linear interpolation between the risk weights applicable for one and five years maturity respectively in accordance with table 2.

(5)In order to determine the tranche thickness, institutions shall calculate the risk weight for non-senior tranches as follows:

RW = [RW after adjusting for maturity according to paragraph 4] [1 – min(T; 50%)]

where

T = tranche thickness measured as D – A

where

D is the detachment point as determined in accordance with Article 256

A is the attachment point as determined in accordance with Article 256

(6)The risk weight for non-senior tranches resulting from paragraphs 3 to 5 shall be subject to a floor of 15%. In addition, the resulting risk weight shall be no lower than the risk weight corresponding to a hypothetical senior tranche of the same securitisation with the same credit assessment and maturity.

(7)For the purposes of using inferred ratings, institutions shall attribute to an unrated position an inferred rating equivalent to the credit assessment of a rated reference position which meets all of the following conditions:

(a)the reference position ranks pari passu in all respects to the unrated securitisation position or, in the absence of a pari passu ranking position, the reference position is immediately subordinate to the unrated position;

(b)the reference position does not benefit from any third-party guarantees or other credit enhancements that are not available to the unrated position;

(c)the maturity of the reference position shall be equal to or longer than that of the unrated position in question;

(d)on an ongoing basis, any inferred rating shall be updated to reflect any changes in the credit assessment of the reference position.

Article 262
Treatment of STS securitisations under SEC-ERBA

(1)Under the SEC-ERBA, the risk weight for a position in an STS securitisation shall be calculated in accordance with Article 261, subject to the modifications laid down in this Article.

(2)For exposures with short-term credit assessments or when a rating based on a short-term credit assessment may be inferred in accordance with Article 261(7), the following risk weights shall apply:

Table 3

(3)For exposures with long-term credit assessments or when a rating based on a long-term credit assessment may be inferred in accordance with Article 261(7), risk weights shall be determined in accordance with Table 4, adjusted for tranche maturity (MT) in accordance with Article 257 and Article 261(4) and for tranche thickness for non-senior tranches in accordance with Article 261(5):

Table 4

Article 263
Calculation of risk-weighted exposure amounts under the Standardised Approach (SEC-SA)

(1)Under the SEC-SA, the risk weighted exposure amount for a position in a securitisation shall be calculated by multiplying the exposure value of the position as calculated in accordance with Article 248 by the applicable risk weight determined as follows, in all cases subject to a floor of 15%:

RW = 1,250%                    when D ≤ KA

RW = 12.5· KSSFA(KA)                when A ≥ KA

    when A˂KA˂D

where:

D is the detachment point as determined in accordance with Article 256

A is the attachment point as determined in accordance with Article 256

KA is a parameter calculated in accordance with paragraph 2

where:

a = –(1 / (p * KA))

u = D – KA

l = max (A – KA; 0)

p = 1 for a securitisation exposure that is not a re-securitisation exposure

(2)For the purposes of paragraph 1, KA shall be calculated as follows:

where:

is the capital charge of the underlying pool as defined in Article 255

W = ratio of the sum of the nominal amount of underlying exposures in default to the nominal amount of all underlying exposures. For these purposes, an exposure in default shall mean an underlying exposure which is either: (i) 90 days or more past due; (ii) subject to bankruptcy or insolvency proceedings; (iii) subject to foreclosure or similar proceeding; or (iv) in default in accordance with the securitisation documentation.

Where an institution does not know the delinquency status for 5% or less of underlying exposures in the pool, the institution may use the SEC-SA subject to the following adjustment in the calculation KA:

Where the institution does not know the delinquency status for more than 5% of underlying exposures in the pool, the position in the securitisation must be risk weighted at 1,250%.

(3)Where an institution has a securitisation position in the form of a derivative, the institution may attribute to the derivative an inferred risk weight equivalent to the risk weight of the reference position calculated in accordance with this Article.

For the purposes of this paragraph, the reference position shall be the position that is pari passu in all respects to the derivative or, in the absence of such pari passu position, the position that is immediately subordinate to the derivative.

Article 264
Treatment of STS securitisations under SEC-SA

Under the SEC-SA the risk weight for a position in an STS securitisation shall be calculated in accordance with Article 263, subject to the following modifications

risk weight floor for senior securitisation positions = 10%

p = 0,5

Article 265
Scope and operational requirements for the Internal Assessment Approach (IAA)

(1)Institutions may calculate the risk-weighted exposure amounts for unrated positions in ABCP programmes under the IAA in accordance with Article 266 where they have been granted permission by their competent authorities in accordance with paragraph 2.

(2)The competent authorities may grant institutions permission to use the IAA within a clearly defined scope of application where all of the following conditions are met:

(a)all positions in the commercial paper issued from the ABCP programme are rated positions;

(b)the internal assessment of the credit quality of the position reflects the publicly available assessment methodology of one or more ECAIs for the rating of securitisation positions or underlying exposures of the same type;

(c)the institution’s internal assessment process is at least as conservative as the publicly available assessments of those ECAIs which have provided an external rating for the commercial paper issued from the ABCP programme, in particular with regard to stress factors and other relevant quantitative elements;

(d)the institution's internal assessment methodology takes into account all relevant publicly available rating methodologies of the ECAIs that rate the commercial paper of the ABCP programme and includes rating grades corresponding to the credit assessments of ECAIs. The institution shall document in its internal records an explanatory statement describing how the requirements set out in this point have been met and shall update such statement on a regular basis;

(e)the institution uses the internal assessment methodology for internal risk management purposes, including in its decision making, management information and internal capital allocation processes;

(f)internal or external auditors, an ECAI, or the institution's internal credit review or risk management function perform regular reviews of the internal assessment process and the quality of the internal assessments of the credit quality of the institution's exposures to an ABCP programme;

(g)the institution tracks the performance of its internal ratings over time to evaluate the performance of its internal assessment methodology and makes adjustments, as necessary, to that methodology when the performance of the exposures routinely diverges from that indicated by the internal ratings;

(h)the ABCP programme includes underwriting and liability management standards in the form of guidelines to the programme administrator on, at least:

(i)    the asset eligibility criteria, subject to point (i);

(ii)    the types and monetary value of the exposures arising from the provision of liquidity facilities and credit enhancements;

(iii)    the loss distribution between the securitisation positions in the ABCP programme;

(iv)    the legal and economic isolation of the transferred assets from the entity selling the assets;

(i)the asset eligibility criteria in the ABCP programme provide for, at least:

(i)    exclusion of the purchase of assets that are significantly past due or defaulted;

(ii)    limitation of excessive concentration to individual obligor or geographic area;

(iii)    limitation of the tenor of the assets to be purchased;

(j)an analysis of the asset seller's credit risk and business profile is performed including, at least, an assessment of the seller's:

(i)    past and expected future financial performance;

(ii)    current market position and expected future competitiveness;

(iii)    leverage, cash flow, interest coverage and debt rating;

(iv)     underwriting standards, servicing capabilities, and collection processes;

(k)the ABCP programme has collection policies and processes that take into account the operational capability and credit quality of the servicer and comprises features that mitigate performance-related risks of the seller and the servicer. For the purposes of this point, performance-related risks may be mitigated through triggers based on the seller or servicer's current credit quality to prevent commingling of funds in the event of the seller's or servicer's default;

(l)the aggregated estimate of loss on an asset pool that may be purchased under the ABCP programme takes into account all sources of potential risk, such as credit and dilution risk;

(m)where the seller-provided credit enhancement is sized based only on credit-related losses and dilution risk is material for the particular asset pool, the ABCP programme comprises a separate reserve for dilution risk;

(n)the size of the required enhancement level in the ABCP programme is calculated taking into account several years of historical information, including losses, delinquencies, dilutions, and the turnover rate of the receivables;

(o)the ABCP programme comprises structural features in the purchase of exposures in order to mitigate potential credit deterioration of the underlying portfolio. Such features may include wind-down triggers specific to a pool of exposures;

(p)the institution evaluates the characteristics of the underlying asset pool, such as its weighted-average credit score, and identifies any concentrations to an individual obligor or geographical region and the granularity of the asset pool.

(3)Where the institution's internal audit, credit review, or risk management functions perform the review provided for in point (f) of paragraph 2, those functions shall be independent from the institution's internal functions dealing with ABCP programme business and customer relations.

(4)Institutions which have received permission to use the IAA shall not revert to the use of other methods for positions that fall within scope of application of the IAA unless all of the following conditions are met:

(a)the institution has demonstrated to the satisfaction of the competent authority that the institution has good cause to do so;

(b)the institution has received the prior permission of the competent authority.

Article 266
Calculation of risk-weighted exposure amounts under the IAA

(1)Under the IAA the institution shall assign the unrated position in the ABCP to one of the rating grades laid down in point (d) of Article 265(2) on the basis of its internal assessment. The position shall be attributed a derived rating which shall be the same as the credit assessments corresponding to that rating grade as laid down in point (d) of Article 265(2).

(2)The rating derived in accordance with paragraph 1 shall be at least at the level of investment grade or better at the time it was first assigned and shall be regarded as an eligible credit assessment by an ECAI for the purposes of calculating risk-weighted exposure amounts in accordance with Article 261 or Article 262, as applicable.

Sub-Section 4
Caps for securitisation positions

Article 267
Maximum risk weight for senior securitisation positions: 'Look-through' approach

(1)An institution which has knowledge at all times of the composition of the underlying exposures may assign the senior securitisation position a maximum risk weight equal to the weighted-average risk weight that would be applicable to the underlying exposures if the underlying exposures had not been securitised.

(2)In the case of pools of underlying exposures where the institution uses exclusively the Standardised Approach or the IRB Approach, the maximum risk weight shall be equal to the exposure-weighted average risk weight that would apply to the underlying exposures under Chapter 2 or 3, respectively, as if they had not been securitised.

In the case of mixed pools the maximum risk weight shall be calculated as follows:

(a)where the institution applies the SEC-IRBA, the Standardised Approach portion and the IRB portion of the underlying pool shall each be assigned the corresponding Standardised Approach risk weight and IRB risk weight respectively;

(b)where the institution applies the SEC-SA or the SEC-ERBA, the maximum risk weight for senior securitisation positions shall be equal to the Standardised Approach weighted-average risk weight of the underlying exposures.

(3)For the purposes of this Article, the risk weight that would be applicable under the IRB Approach in accordance with Chapter 3 shall include the ratio of expected losses to exposure at default of the underlying exposures multiplied by 12.5.

(4)Where the maximum risk weight calculated in accordance with paragraph 1 results in a lower risk weight than the floor risk weights set out in Articles 259 to 264, as applicable, the former shall be used instead.

Article 268
Maximum capital requirements 

(1)An originator institution, a sponsor institution or other institution using the SEC-IRBA or an originator institution or sponsor institution using the SEC-ERBA or the SEC-SA may apply a maximum capital requirement for the securitisation position it holds equal to the capital requirements that would be calculated under Chapter 2 or 3 in respect of the underlying exposures had they not been securitised. For the purposes of this Article, the IRB capital requirement shall include the amount of the expected losses associated with those exposures calculated under Chapter 3 and that of unexpected losses multiplied by a factor of 1.06.

(2)In the case of mixed pools, the maximum capital requirement shall be determined by calculating the exposure-weighted average of the capital requirements of the IRB and Standardised Approach portions of the underlying exposures in accordance with paragraph 1.

(3)The maximum capital requirement shall be the result of multiplying the amount calculated in accordance with paragraphs 1 or 2 by the P factor calculated as follows:

(a)for an institution that has one or more securitisation positions in a single tranche, the P factor shall be equal to the ratio of the nominal amount of the securitisation positions that the institution holds in that given tranche to the nominal amount of the tranche;

(b)for an institution that has securitisation positions in different tranches, the P factor shall be equal to the maximum proportion of interest across tranches. For these purposes, the proportion of interest for each of the different tranches shall be calculated as set out in point (a).

(4)When calculating the maximum capital requirement for a securitisation position in accordance with this Article, the entire amount of any gain on sale and credit-enhancing interest-only strips arising from the securitisation transaction shall be deducted from Common Equity Tier 1 items in accordance with Article 36(1)(k).

Sub-Section 5
Miscellaneous provisions

Article 269
Re-securitisations

(1)For a position in a re-securitisation, institutions shall apply the SEC-SA in accordance with Article 263, with the following changes:

(a)W = 0 for any exposure to a securitisation tranche within the underlying pool pf exposures;

(b)p = 1.5;

(c)the resulting risk weight shall be subject to a floor risk weight of 100%.

(2)KSA for the underlying securitisation exposures shall be calculated in accordance with Subsection 2.

(3)The maximum capital requirements set out in Sub-Section 4 shall not be applied to re-securitisation positions.

(4)Where the pool of underlying exposures consists in a mix of securitisation tranches and other types of assets, the KA parameter shall be determined as the nominal exposure weighted-average of the KA calculated individually for each subset of exposures.

Article 270
Senior positions in SME securitisations

An originator institution may calculate the risk-weighted exposure amounts in respect of a securitisation position in accordance with Articles 260, 262 or 264, as applicable, where the following conditions are met:

(a)the securitisation meets the requirements set out in Article 6(2) of the [Securitisation Regulation], other than point (a) of that paragraph;

(b)the position qualifies as the senior securitisation position;

(c)the securitisation is backed by a pool of exposures to undertakings, provided that at least 80% of those in terms of portfolio balance qualify as SMEs as defined in Art 501 at the time of issuance of the securitisation;

(d)the credit risk associated with the positions not retained by the originator institution is transferred through a guarantee or a counter-guarantee meeting the requirements for unfunded credit protection set out in Chapter 4 for the Standardised Approach to credit risk;

(e)the guarantor or counter-guarantor, as applicable, is the central government or the central bank of a Member State, a multilateral development bank or an international organisation, provided that the exposures to the guarantor or counter-guarantor qualify for a 0% risk weight under Chapter Two of Part Three.

Article 270a
Additional risk weight

(1)Where an institution does not meet the requirements in Chapter 2 of the [Securitisation Regulation] in any material respect by reason of the negligence or omission of the institution, the competent authorities shall impose a proportionate additional risk weight of no less than 250 % of the risk weight (capped at 1,250 %) which shall apply to the relevant securitisation positions in the manner specified in Article 247(6) or Article 337(3) respectively. The additional risk weight shall progressively increase with each subsequent infringement of the due diligence provisions. The competent authorities shall take into account the exemptions for certain securitisations provided in Article 4(4) of the [Securitisation Regulation] by reducing the risk weight it would otherwise impose under this Article in respect of a securitisation to which Article 4(4) of the [Securitisation Regulation] applies.

(2)EBA shall develop draft implementing technical standards to facilitate the convergence of supervisory practices with regard to the implementation of paragraph 1 of the present Article, including the measures to be taken in the case of breach of the due diligence and risk management obligations. EBA shall submit those draft implementing technical standards to the Commission by 1 January 2014.

(3)Power is conferred on the Commission to adopt the implementing technical standards referred to in the first subparagraph in accordance with Article 15 of Regulation (EU) No 1093/2010.

Section 4
External credit assessments

Article 270b
Use of Credit Assessments by ECAIs

Institutions may use only credit assessments to determine the risk weight of a securitisation position in accordance with this Chapter where the credit assessment has been issued or has been endorsed by an ECAI in accordance with Regulation (EC) No 1060/2009.

Article 270c
Requirements to be met by the credit assessments of ECAIs

For the purposes of calculating risk-weighted exposure amounts in accordance with Section 3, institutions shall only use a credit assessment of an ECAI where the following conditions are met:

(a)there is no mismatch between the types of payments reflected in the credit assessment and the types of payments to which the institution is entitled under the contract giving rise to the securitisation position in question;

(b)the ECAI publishes the credit assessments and information on loss and cash-flow analysis, sensitivity of ratings to changes in the underlying ratings assumptions, including the performance of underlying exposures, and on the procedures, methodologies, assumptions, and key elements underpinning the credit assessments in accordance with Regulation (EC) No 1060/2009. For the purposes of this point, information shall be considered as publicly available where it is published in accessible format. Information that is made available only to a limited number of entities shall not be considered as publicly available;

(c)the credit assessments are included in the ECAI's transition matrix;

(d)the credit assessments are not based or partly based on unfunded support provided by the institution itself. Where a position is based or partly based on unfunded support, the institution shall consider that position as if it were unrated for the purposes of calculating risk-weighted exposure amounts for this position in accordance with Section 3;

(e)the ECAI has committed to publishing explanations on how the performance of underlying exposures affects the credit assessment.

Article 270d
Use of credit assessments

(1)An institution may nominate one or more ECAIs the credit assessments of which shall be used in the calculation of its risk-weighted exposure amounts under this Chapter (a 'nominated ECAI').

(2)An institution shall use the credit assessments of its securitisation positions in a consistent and non-selective manner and,for these purposes, shall comply with the following requirements:

(a)an institution shall not use an ECAI's credit assessments for its positions in some tranches and another ECAI's credit assessments for its positions in other tranches within the same securitisation that may or may not be rated by the first ECAI;

(b)where a position has two credit assessments by nominated ECAIs, the institution shall use the less favourable credit assessment;

(c)where a position has three or more credit assessments by nominated ECAIs, the two most favourable credit assessments shall be used. Where the two most favourable assessments are different, the less favourable of the two shall be used;

(d)an institution shall not actively solicit the withdrawal of less favourable ratings.

(3)Where the exposures underlying a securitisation benefit from full or partial eligible credit protection in accordance with Chapter 4,and the effect of such protection has been reflected in the credit assessment of a securitisation position by a nominated ECAI, the institution shall use the risk weight associated with that credit assessment. Where the credit protection referred to in this paragraph is not eligible under Chapter 4, the credit assessment shall not be recognised and the securitisation position shall be treated as unrated.

(4)Where a securitisation position benefits from eligible credit protection in accordance with Chapter 4 and the effect of such protection has been reflected in its credit assessment by a nominated ECAI, the institution shall treat the securitisation position as if it were unrated and calculate the risk weighted exposure amounts in accordance with Chapter 4.

Article 270e
Securitisation Mapping

EBA shall develop draft implementing technical standards to map in an objective and consistent manner the credit quality steps set out in this Chapter relative to the relevant credit assessments of all ECAIs. For the purposes of this Article, EBA shall in particular:

(a)differentiate between the relative degrees of risk expressed by each assessment;

(b)consider quantitative factors, such as default or loss rates and the historical performance of credit assessments of each ECAI across different asset classes;

(c)consider qualitative factors such as the range of transactions assessed by the ECAI, its methodology and the meaning of its credit assessments in particular whether such assessments take into account expected loss or first Euro loss, and timely payment of interests or ultimate payment of interests;

(d)seek to ensure that securitisation positions to which the same risk weight is applied on the basis of the credit assessments of ECAIs are subject to equivalent degrees of credit risk.

EBA shall submit those draft implementing technical standards to the Commission by 1 July 2014.

Power is conferred on the Commission to adopt the implementing technical standards referred to in the first subparagraph in accordance with Article 15 of Regulation (EU) No 1093/2010'.

(5)Article 337 is replaced by the following:

'Article 337

Own funds requirement for securitisation instruments

(1)For instruments in the trading book that are securitisation positions, the institution shall weight the net positions as calculated in accordance with Article 327(1) with 8 % of the risk weight the institution would apply to the position in its non-trading book according to Chapter 5 of Title II, Part Three, Section 3.

(2)When determining risk weights for the purposes of paragraph 1, estimates of PD and LGD may be determined based on estimates that are derived from an IRC approach of an institution that has been granted permission to use an internal model for specific risk of debt instruments. The latter alternative may be used only subject to permission by the competent authorities, which shall be granted if those estimates meet the quantitative requirements for the IRB Approach set out in Title II, Chapter 3.

In accordance with Article 16 of Regulation (EU) No 1093/2010, EBA shall issue guidelines on the use of estimates of PD and LGD as inputs when those estimates are based on an IRC approach.

(3)For securitisation positions that are subject to an additional risk weight in accordance with Article 247(6), 8 % of the total risk weight shall be applied.

(4)The institution shall sum its weighted positions resulting from the application of paragraphs 1, 2 and 3 regardless of whether they are long or short, in order to calculate its own funds requirement against specific risk, except for securitisation positions subject to Article 338(4).

(5)Where an originator institution of a traditional securitisation does not meet the conditions for significant risk transfer set out in Article 244, the originator institution shall include the exposures underlying the securitisation in its calculation of own funds requirement as if those exposures had not been securitised.

Where an originator institution of a synthetic securitisation does not meet the conditions for significant risk transfer set out in Article 245, the originator institution shall include the exposures underlying the securitisation in its calculation of own funds requirements as if those exposures had not been securitised and shall ignore the effect of the synthetic securitisation for credit protection purposes.'

(9)Part Five is deleted.

(10)In Article 456(1), the following point (k) is added:

(a)amendment of the provisions concerning the calculation of the risk-weighted exposure amounts of securitisation positions as set out in Articles 247 to 270a to take account of developments or amendments to international standards on securitisations.

(11)In Article 457, point (c) is replaced by the following:

(a)'the own funds requirements for securitisation laid down in Articles 242 to 270a'.

(12)The following Article 519bis is inserted:

'Article 519a

Report

By no later than 3 years from [insert date of entry into force of this Regulation], the Commission shall report to the European Parliament and Council on the application of the provisions in Chapter 5 of Title II, Part Three in the light of developments in securitisation markets. In particular, the report shall assess the impact of the hierarchy of methods set out in Article 254 on issuance and investment activity by institutions in securitisation markets in the Union and the effects on the financial stability of the Union and Member States.

Article 2
Transitional provisions concerning outstanding securitisation positions

In respect of securitisation positions outstanding as of [the date set out in Article 3(2)/fixed date], institutions may continue to apply the provisions in Chapter 5 of Title II, Part Three and Article 337 of Regulation (EU) No 575/2013 until 31 December 2019 in the version applicable on [day before the date set out in Article 3(2)], provided that the institution:

(a)notifies its intention to apply this Article to the competent authority by no later than [fixed date];

(b)applies this Article to all the outstanding securitisation positions that the institution holds on [the date set out in Article 3(2)/fixed date].

Article 3
Entry into force and date of application

(1)This Regulation shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union.

(2)This Regulation shall apply from [the date of entry into force].

This Regulation shall be binding in its entirety and directly applicable in all Member States.

Done at Brussels,

(1) Commission Delegated Regulation (EU) No 2015/61 of 10 October 2014 to supplement Regulation (EU) 575/2013 with regard to liquidity coverage requirement for Credit Institutions (OJ L 11, 17.1.2015, p; 1).

(2) Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012 (OJ L 176, 27.6.2013, p. 1).

(3) http://www.bis.org/bcbs/publ/d303.pdf

(4) http://www.bis.org/press/p150723.htm

(5) See https://www.eba.europa.eu/documents/10180/950548/EBA+report+on+qualifying+securitisation.pdf

(6) See https://ec.europa.eu/eusurvey/publication/securitisation-2015?language=en  

(7) See http://eur-lex.europa.eu/resource.html?uri=cellar:9df9914f-6c89-48da-9c53-d9d6be7099fb.0009.03/DOC_1&format=PDF  

(8) Commission Implementing Regulation (EU) No 602/2014 of 4 June 2014 laying down implementing technical standards for facilitating the convergence of supervisory practices with regard to the implementation of additional risk weights according to Regulation (EU) No 575/2013 (OJ L 166, 5.6.2014, p. 22–24)

(9) OJ C68, 6.3.2012, p. 39.

(10) See https://www.eba.europa.eu/documents/10180/950548/EBA+report+on+qualifying+securitisation.pdf