EBA Discussion Paper on STS synthetic securitisation

Regulation (EU) 2017/2402 of the European Parliament and of the Council (the “Securitisation Regulation”), which entered into force on 17 January 2018 and has applied from 1 January 2019, sets out (amongst other things) the framework for simple, transparent and standardised securitisations (the “STS regime”). The STS regime affords favourable regulatory capital treatment to STS-compliant securitisations.

Synthetic securitisations, apart from limited exceptions, do not currently benefit from the STS regime and therefore need to comply with higher regulatory capital charges than STS compliant securitisations. Article 45 of the Securitisation Regulation mandates the European Banking Authority (the “EBA”) to develop a report on the feasibility of a specific STS framework for balance-sheet synthetic securitisations.

On 24 September 2019, the EBA published a long-awaited discussion paper on its proposals for an STS framework for synthetic securitisation (the “Discussion Paper”).

Recommendations

The EBA has recommended:

  • the establishment of a cross-sectoral STS framework for balance sheet securitisations; and
  • that for any synthetic securitisation to be eligible as "STS", it should comply with (i) the current criteria on simplicity, standardisation and transparency set out in the Securitisation Regulation, as adapted for the specificities of synthetic securitisations (where applicable) and (ii) additional criteria specific to synthetic securitisations. The proposed criteria is set out in the Discussion Paper.

The Discussion Paper does not provide any recommendations on any potential differentiated regulatory treatment for synthetic securitisations.

Next steps

The public consultation will be open until 25 November 2019. A public hearing will take place at the EBA’s premises in Paris on 9 October 2019. It is expected that the EBA will deliver its recommendations to the European Commission by June 2020.

Read the full EBA Discussion Paper on STS synthetic securitisation.