31 July 2018

EBA publishes final draft technical standards on risk retention for securitisation transactions

These final draft RTS, which replace the current Commission Delegated Regulation on risk retention, aim to provide clarity on the requirements relating to risk retention, thus reducing the risk of moral hazard and aligning interests.

These final draft RTS address the fundamental issue of the possible misalignment of interests and incentives in securitisation transactions between the investors on the one hand, and the originators, sponsors or original lenders on the other, by ensuring that the latter maintain their ‘skin in the game' and retain at least 5% of material net economic interest in each securitisation.

In addition, these RTS include various new provisions, in particular relating to when an entity shall be deemed not to have been established or to operate for the sole purpose of securitising exposures, transfers or hedging of the retained interest, circumstances under which the retainer should be changed and adverse selection of assets.

However, due to the narrower mandate on risk retention under the STS Regulation, as opposed to the previous mandate, certain provisions from the existing Delegated Regulation were not included in these final draft RTS, in particular those relating to due diligence requirements, policies for credit granting and disclosure of materially relevant data.

Finally, given the cross-sectoral nature of its application, the new STS Regulation contains transitional provisions regarding the application of the existing Delegated Regulation to those securitisations whose securities were issued before its application date.

Press release

Draft RTS

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