Securitisation and Regulation News

EU banking package and securitisation - an update

Review of the Securitisation Regulation, ESA’s response to the Call for Advice, European trialogue on the finalisation of Basel III - there has been a lot going on recently around the regulatory framework for securitisation. Therefore, we summarise the current status and give you an update on the EU banking package and securitisation:

Review of the Securitisation Regulation

In October 2022, the EU Commission published its report on the functioning of the Securitisation Regulation. As expected, the report did not call for any major reforms (see news from 10 October 2022). One of the larger projects derived from the report is the revision of the ESMA Disclosure Templates. Here, ESMA invited to an informal field-by-field review at the end of last year, in which TSI actively participated together with its stakeholders. The next step is expected to be an official consultation in the second quarter of 2023.

ESAs' response to the Call for Advice - and the EU Commission's current thinking

The Call for Advice on securitisation regulation was published by the Joint Committee (JC) of the ESAs on 12 December 2022 (see news from 12 December 2022). But there was not much more outcome than a proposal to lower the risk weight floors for retained senior tranches. The result has drawn much criticism, especially since the proposal essentially only favours synthetic securitisations. In addition, it does not take into account the output floors of CRR III (see below), which would probably cancel out the positive effects of the proposed lower risk weights (see news from 13 February 2023). The vehemently demanded reduction of the p-factors (see news from 4 November 2022), which would represent a real relief for all securitisation types, was disregarded with the argument that such an amendment would not be in line with the Basel requirements.

European Trilogue on Final Implementation of Basel III

The European Commission, the EU Parliament and the Council are currently negotiating the final Basel III package. The introduction of the CRR III is part of it including the much-discussed output floors that must be applied in future when applying the IRBA approach for calculating capital requirements. After a transitional phase, these may no longer fall below 75% of the capital requirement calculated with the standard approach (SA).  For securitisations, this would mean that the already (too) high capital requirements would increase even further. The proposal currently contained in the draft CRR III to halve the p-factors used to calculate the output floor for securitisation positions is therefore to be welcomed. This measure would not lower the capital requirements, but it substantially limits the further increase.

EGBPI proposals support securitisation

Hope was also raised recently by the news that the EU Commission's EGBPI (Expert Group on Banking, Payments and Insurance) is considering measures that go significantly beyond the measures proposed by the JC. The proposals of the EGBPI indeed provide for the halving of the p-factor for STS securitisations from 0.5 to 0.25 in the SEC-SA approach and in the SEC-IRBA for the reduction of the minimum p-factor to 0.1 as well as the introduction of a maximum p-factor of 0.3. These measures would be declared as a transitional solution until the Basel Committee has reviewed the securitisation regulation. According to our information, the proposal was unfortunately received rather cautiously by many smaller EU member states at the last EGBPI meeting on 16 February. The deviation from Basel seems to be the strongest counterargument. In addition, usual political motives come to this. However, the large member states such as Germany and France, but also Italy and Spain seem to support the EU Commission's initiative, which is in line with the positive statements made recently by politicians and supervisors (see news of 1 February 2023).

EU banking package and securitisation - the outlook

The European trialogue negotiations on the EU banking package are entering the decisive phase and we eagerly await the outcome. Based on the latest developments, there is still hope that some measures for capital relief for securitisation positions will make it into CRR III after all.