EBA · 2016_2960 Rejected question

Risk retention and credit risk mitigation

Regulation
Regulation (EU) No 575/2013 (CRR)
Article
405, para. 1
Topic
Securitisation and Covered Bonds
Submitted by
Law firm
Submitted
2016-10-21
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Question

If the Originator retains a vertical slice of a securitisation capital structure the most senior tranche of which is guaranteed - as part of the original securitisation structure - by a third party guarantor, would that be in contrast with the requirement as set out in paragraph 1 of Article 405 of CRR, providing that the net economic interest shall not be subject to any credit risk mitigation or any short positions or any other hedge and shall not be sold.

Background

According to Article 405 of CRR, the requirement on the retention of a material net economic interest can be satisfied through the retention of no less than 5 % of the nominal value of each of the tranches sold or transferred to the investors. Pursuant to the second last sentence of paragraph 1 of Article 405 of CRR, the net economic interest shall not be subject to any credit risk mitigation or any short positions or any other hedge and shall not be sold. According to Italian law n. 18 of 14 February 2016, the Italian Government can issue a guarantee (so called “GACS”) in order to secure the payment obligations vis-à-vis the holders of the most senior tranche of ABS issued by Italian securitisation vehicles and backed by portfolios of non-performing claims assigned by Italian banks. The above guarantee might, prima facie (and wrongly in our opinion, for the reasons set out below), appear as a credit risk mitigation or an hedge of the net economic interest to be retained by the originator.
No answer published yet.

Original source: European Banking Authority, Q&A ID 2016_2960

This Q&A is published by European Banking Authority and is non-binding. It does not constitute legal advice. Updated weekly from official ESA sources.

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