EBA issues advice on securitisation

One of the most important lessons of the 2007-2009 crisis is that defaults and losses associated with securitisation positions have varied substantially across different types of securitisations and regions. The crisis has also shown that the poor performance of certain products was associated with recurring factors, including: i) misalignment of interest between originators and investors resulting in loose underwriting standards on the underlying exposures; ii) excessive leverage; iii) maturity transformation; and iv) complex structures. 

The post-crisis regulatory approach to securitisation incorporates a distinction between qualifying securitisations and other securitisations. 'Qualifying' securitisation is defined following a two-stage approach whereby in order to qualify for differential treatment, a securitisation transaction should first meet a list of criteria ensuring simplicity, standardisation and transparency and, as a second step, the underlying exposures should meet criteria of minimum credit quality of the underlying exposures. 

The rationale of the proposed criteria on simplicity, standardisation and transparency is to ensure that all the risks arising in the securitisation are properly mitigated. For this reason the capital treatment proposed for ‘qualifying’ transactions should aim at more appropriate levels of non-neutrality of capital charge.

Since the financial crisis, many regulatory reforms and initiatives, both at international and EU level, have been introduced or are still being proposed to address the shortcomings of the securitisation market. Reforms in each jurisdiction should be revisited depending on the progress and decisions taken by the Basel and IOSCO Committees on the definition of a global Simple, Standard and Comparable (STC) securitisations framework, and on the re-calibration of the BCBS 2014 securitisation framework to provide regulatory recognition to STC securitisations. In January 2014 the EBA recommended that a systematic review of the entire regulatory framework applicable to securitisations be carried out, across the different regulations and regulatory authorities, on a stand-alone basis and in comparison to the regulatory framework applicable to other investment instruments (i.e. covered bonds, whole loan portfolios). 

Following the public hearing held on June 26, the EBA published the full text of its advice to the European Commission on a framework for qualifying securitisation.  The report proposes a more risk-sensitive approach to capital regulation for long-term securitisation instruments, as well as for asset-backed-commercial paper. 

http://www.eba.europa.eu/-/eba-issues-advice-on-securitisation