The STS criteria identify three main pillars on the basis of which securitisation transactions should be structured, which are simplicity, standardisation and transparency. Third party certification, however, will not absolve originators, sponsors and issuers from liability for making STS assertions that turn out to be false. the package contains only residential A securitisation which meets the relevant STS criteria (and in some cases, other criteria) can benefit from preferential regulatory treatment, including WebLastly, a new Section (2A new article 26a-e)) contains the criteria for imple, transparent and s standardised ('STS') balance-sheet synthetic securitisation: these are requirements relating to simplicity, standardisation and transparency, are aligned as much as possible with those for and traditional STS securitisation. This applies to all transactions, including where the investors are not CRR-regulated credit institutions or investment firms (which is not currently the case under the CRR). The EBA has published separate sets of guidelines for non asset-backed commercial paper (ABCP) The progress made by the EBA in its report of December 2015, identifying a possible set of STS criteria for synthetic securitisation and defining balance-sheet synthetic securitisation and arbitrage synthetic securitisation, should be acknowledged. General 36 5. Please note that the deadline for the submission of comments is 20 July 2018. It applies to all securitisation products and includes due diligence, risk banks and investment firms) can benefit potentially from more favorable regulatory capital treatment for STS securitisation exposures. 1.7 These two regulations are referred to as the Securitisation Regulations. This approach assesses the capital charges of the underlying assets (based on type) and then applies the ratio of delinquent underlying exposures to the total amount of underlying exposures. To obtain an STS designation, a securitisation first needs to comply with the general rules of the Securitisation Regulationthat apply to all European securitisation s, such as the risk retention, transparency and due diligence requirements. Responses to this consultation can be sent to the EBA by clicking on the "send your comments" button on the consultation page. For example, positions in an ABCP programme or ABCP transaction will only be eligible for STS treatment if the underlying exposures meet, at the time of the inclusion in the ABCP programme (taking into account credit risk mitigation), an SEC-SA risk weight of 75 percentor less. Third party certification, however, will not absolve originators, sponsors and SPVs from liability for making STS assertions that turn out to be false. LX Studio; Professional development; Publications; Blogs; Videos; Events; Webinars Criteria related to standardisation 38 6. Securitisation Standardized Approach (SEC-SA): this method relies on a supervisory-provided formula using as an input the capital requirements that would be calculated under the existing standardized approach under the CRR, subject to a risk-weight floor of 10 percentfor senior STS securitisation positions. WebThe Securitisation Regulation sets out an optional process whereby an authorized third party can attest to the satisfaction of the STS criteria. "There are currently 21 criteria, with over 50 elements that need to be considered. Securitisation External Ratings Based Approach (SEC-ERBA): this method of last resort is based on credit ratings assigned by external rating agencies (or inferred) to the securitisation tranches. Third party certification, however, will not absolve originators, sponsors and issuers from liability for making STS assertions that turn out to be false. Lastly, the risk weight under the SEC-IRBA is subject to a floor of 15%, unless the securitisation position meets the STS criteria, in which case the capital surcharge is halved and the risk weight floor is set at 10%. Programme-level criteria 53 4. WebCriteria for STS Synthetic Securitisation - Open Risk Manual Criteria for STS Synthetic Securitisation navigation search Definition A set of proposed criteria to undepin the WebSTS criteria and ensure common understanding a of them by the originators, riginal lenders, o sponsors, securitisation special purpose entities ( SSPEs), investors , Articles 6 to 10 of the proposed Regulation set out the criteria for STS securitisation. WebSTS Criteria. Criteria related to transparency 44 WebThe criteria for both types of securitisation focus more on the structure of the transaction, than on the quality of the underlying assets, and many of the criteria Implementation 25 4. With less than three weeks to go until the scheduled end of the post-Brexit EU-UK transition period, the Joint Committee of the European Supervisory Authorities (ESAs) published a supervisory statement on 7 December 2020 highlighting the impact of Brexit on the status of simple, transparent and standard (STS) securitisation However, the concentration limit does not apply in respect of trade receivables in an ABCP programme where the credit risk is covered by eligible credit protection. WebThe EBA recognises that securitisation can be used as an effective credit risk transfer tool and for risk management purposes. updated Q&A of the JC of ESAs. Subject matter, scope and definitions 34 3. WebThe criteria for STS securitisation and the harmonisation of the existing provisions in EU law on securitisation related to risk retention, disclosure and due diligence will underpin the correct and safe functioning of the internal market. WebThe Securitisation Regulation is a cornerstone of the EUs efforts to establish a Capital Markets Union. These Guidelines will ensure a harmonised interpretation of these STS criteria, in alignment with theEBA Guidelines for traditional securitisations. transaction documentation, asset performance), with related information being made available to potential investors before pricing (on request). Accordingly, the EBA deems appropriate that these draft RTS further specify the triggers under point (a), set out the triggers under points (b) and (c), and set out criteria to be fulfilled by the parties to the securitisation in order to set the level of the triggers under points (a) to (c). ESMA is currently consulting on draft technical standards that will set out the procedural, form and content requirements for making an STS notification. will asset pools need to be grouped by class, or according to sub-sets exhibiting common characteristics. Third party certification, however, will not absolve originators, sponsors and issuers from liability for making STS assertions that turn out to be false. The European Banking Authority (EBA) has now developed draft guidelines, intended to provide a harmonized interpretation and application of the STS criteria. Based on these elements, it is not impossible that transactions that are perceived to not meet the criteria could be restructured to be STS compliant," Ahuja observes. With the STS criteria, the Commission proposal II. The STS notification will need to include a concise explanation or justification as to why the transaction satisfies the STS criteria. These Guidelines will play a crucial role in the new EU securitisation framework that becomes applicable on 1 January 2019, by providing a single point of consistent interpretation of the STS criteria for all entities involved in the STS securitisation including originators, sponsors, investors, competent authorities and third party STS verifiers. WebSubstantial element of uncertainty Interpretation essential Red criteria: Not possible to interpret consistently Interpretation crucial Non-ABCP securitisation: traffic light The In order to support a consistent interpretation of the STS framework across the EU, it is expected that the competent authorities and other addressees of the Guidelines will generally apply the approach set out in the guidelines as from the application date of the EU securitisation framework on 1 January 2019. WebThe Securitisation Regulation sets out an optional process whereby an authorized third party can attest to the satisfaction of the STS criteria. The final step in the labeling process is to notify regulators of the STS designation. WebThe Securitisation Regulation sets out an optional process whereby an authorized third party can attest to the satisfaction of the STS criteria. About STS Government. Criteria related to transparency 44 Originators, sponsors and SPVs will shoulder responsibility of notifying their regulator and ESMA if a transaction ceases to be STS-eligible. Reference to individual STS criteria. WebSecuritisation Regulation may also provide guidance from time to time on STS requirements. Regulation (EU) 2017/2402 (the Securitisation Regulation) consolidates the patchwork of legislation governing European securitisation s, and introduces a new framework for simple, transparent and standardized (STS) securitisation s. Regulation (EU) 2017/2401 (the securitisation Prudential Regulation, or SPR) replaces certain provisions of the Capital Requirements Regulation (CRR) and sets out the framework under which certain institutional investors (e.g. Indeed, a capital requirement of fifteen percent (15%) should be charged. Subject matter, scope and definitions 24 3. The specific eligibility criteria for STS securitisation transactions include: the originator, sponsor and SSPE in an STS securitisation transaction must be established in the EU; only true sales are eligible for inclusion (and so synthetic securitisations and commercial mortgage backed securities transactions are excluded); The Webtransparent and standardised (STS) securitisation. In order for a third party to verify compliance with the STS criteria, it must be authorised by ESMA and is then supervised by the national In addition, the attestation provided by the third party is a point in time assessment; therefore, they will not provide ongoing monitoring. WebFor those reasons, the STS criteria should not allow synthetic securitisation. was published which, among other things, included guidance on whether mortgages secured by non- owner occupied residential / mixed -use real estate properties comply with the STS Some criteria take into account cases where a special purpose entity is not For a limited number of these criteria, the Guidelines for non-ABCP and ABCP securitisation have been updated to ensure further clarity and to reflect on the practical implementation of the criteria. Implementation 25 4. The EBA is consulting on an approach that would specify a list of asset categories as well as list of risk factors to be considered when determining whether an asset pool is sufficiently homogeneous. Transaction-level criteria 37 6. Weba starting point the criteria for traditional STS securitisation set out in the Securitisation Regulation. Securitisation Internal Ratings Based Approach (SEC-IRBA): uses an institutions own internal rating models that must be pre-approved by the institutions regulator. WebThe Securitisation Regulation sets out an optional process whereby an authorized third party can attest to the satisfaction of the STS criteria. However, in practice it will be an extra administrative step in the notification process. SEC-IRBA looks at the capital treatment of the underlying exposures as if they were not being securitized, then applies certain pre-defined inputs. WebThe amended regulation is in effect as of 6 April 2021 and includes specific wording relating to the STS criteria adopted for on-balance-sheet securitisations and NPE securitisations. Finally we outline an alternative perspective to tackling the challenge of risk retention faced by CLO issuers, particularly CLO managers, who are somewhat similar to eligibility criteria applied to non-CLO securitisations, but with a CLO specific adaptation. 2.1. WebThe aim is also to make securitisation more appealing by consolidating the current patchwork of securitisation rules into one place. The Securitisation Regulationhas been criticized for the vague nature of its eligibility criteria relating to the homogeneity of underlying asset pools. The importance of the clear guidance to be provided in the guidelines is underlined by the fact that the implementation of the STS criteria is a prerequisite for application of preferential risk weights under The table below outlines some of the most common tests. In the case of ABCP, only the sponsor is responsible for STS notification; the STS notification is one of the documents to be made available before pricing; Third party certification, however, will not absolve originators, sponsors and issuers from liability for making STS assertions that turn out to be false. If a securitisation transaction obtains the STS label, it is not guaranteed to receive preferential capital treatment. WebFor those reasons, the STS criteria should not allow synthetic securitisation. Third party certification, however, will not absolve originators, sponsors and issuers from liability for making STS assertions that turn out to be false. It will significantly reform the EU securitisation market, and will introduce a framework for simple, transparent and standardised ( STS) securitisations. WebThe Securitisation Regulation sets out an optional process whereby an authorized third party can attest to the satisfaction of the STS criteria. interpretation and consistent application of the STS Criteria. Guidelines on the STS criteria for non-ABCP securitisation 21 1. The second section includes the targeted amendments to the Guidelines for non-ABCP and ABCP securitisation to ensure that the interpretation provided by the EBA is, where appropriate, the same and consistent across all three sets of guidelines. STS Criteria Articles 18-26 of the Securitisation Regulation, setting out criteria for simple, transparent and standardised securitisations Transaction The securitisation of auto loan and lease receivables involving FACT S.A. as Issuer This Checklist sets out (1) the criteria for The mandate entitles the EBA, in close cooperation with ESMA and EIOPA, to adopt guidelines and recommendations on the harmonised interpretation and application of the criteria related to simplicity, transparency, standardisation and additional specific criteria for on-balance-sheet securitisation. However, for many of the criteria, market participants will require more detail WebHowever, for many of the criteria, market participants will require more detail than provided in the Securitization Regulation text to implement the new framework. We have set out below some practical steps to be taken in the STS analysis. One of them revises the general rules for securitisation transactions and creates a framework for simple, transparent and standardised (STS) securitisations (Regulation (EU) 2017/2402, amending Directives 2009/65/EC, With the introduction of STS criteria for on-balance-sheet securitisations in the Securitisation Regulation, on-balance-sheet securitisations are now eligible for preferential risk-weight treatment under the Capital Requirements Regulation (CRR). One of the aims of the STS regime is to foster the growth of the securitisation market. Third party certification, however, will not absolve originators, sponsors and issuers from liability for making STS assertions that turn out to be false. WebIt is essential to establish a general and cross-sectorally applicable definition of STS securitisation based on the existing criteria, as well as on the criteria adopted by the WebWhen the securitisation structure classifies for the STS securitisation criteria, this eligibility leads to a lower capital requirement. Securitisation is therefore regulated uniformly throughout Europe, sector-specific regulations such as CRR, SolvV or the MMF Regulation refer to the Securitisation Regulation.