EC proposes Securitisation package in bid to revive EU market

The European Commission (EC) has published a Securitisation package which aims to strengthen and simplify the EU securitisation framework. It is the first legislative initiative proposed under the Savings and Investments Union Strategy. The package consists of a proposal to amend the EU Securitisation Regulation (Regulation (EU) 2017/2402), a proposal to amend the Capital Requirements Regulation (CRR) as regards exposures to securitisations and a consultation on measures to amend the Liquidity Coverage Ratio (LCR) Delegated Regulation (Commission Delegated Regulation (EU) 2015/61). The proposal to amend the Securitisation Regulation seeks to simplify the existing due diligence rules with the aim of reduce duplicative and time-consuming requirements for investors. Verification of information will no longer be required regarding EU-based selling parties and low-risk investments guaranteed by multilateral development banks will be exempt from due diligence.

The EC also makes recommendations for the reporting templates to be revised, which the European Banking Authority will consider when it reviews those templates. In addition, the EC is proposing to amend the homogeneity requirement, specifying that it will be fulfilled where at least 70% of the underlying pool of exposures consists of SME loans, replacing the current 100% for pools made up of exposures from different jurisdictions.

The proposal to amend the CRR as regards exposures of banks to securitisations include a proposal to reduce the capital requirements where a bank's exposure is deemed less risky, including where a bank acts as the issuer of the securitisation. In addition, the significant risk transfer framework, which sets the criteria for supervisors to assess whether an originator bank qualifies for capital relief by transferring a sufficient amount of risk to third parties, is being changed to be clearer and less prescriptive.

The LCR Delegated Regulation sets out the amount and characteristics of liquid assets for EU banks to meet their short-term liquidity requirements and recognises securitisations as eligible assets for the liquidity buffer. The EC is consulting on extending the eligibility of securitisation for inclusion in these buffers. The consultation is open until 5 July. The EC does not propose to adopt the amendments until the revisions to the Securitisation Regulation and CRR have been agreed by the European Parliament and the Council of the European Union and intends for the changes to take effect at the same time.

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