Application of the retention requirements to situations where the retained exposure is transferred to a third-party after losses associated with the relevant exposure

Can a retention holder under Article 6(3)(c) (so-called random selection) of Regulation (EU) 2402/2017 (“Securitisation Regulation”) transfer the retained exposure to a third party if the transfer occurs after crystallisation on the retention holder’s accounts of the losses associated with the relevant exposure?

In relation to non-performing exposures, a recovery way alternative to judicial enforcement proceedings against the debtor is often the transfer for consideration of the relevant exposure to specialised third parties. Such transfer occurs typically at a discount (since the underlying exposures are non-performing) which in the Italian markets is significant (e.g. 70/80% discount on GBV for secured exposures, 95/99% discount on GBV for unsecured exposures) and which determines a loss (being the difference between the GBV and the sale price of the relevant exposure) on the seller’s accounts. Therefore, taking into account the statement from Article 6(3) of EBA’s final draft regulatory technical standards specifying the requirements for originators, sponsors, original lenders and servicers relating to risk retention pursuant to Article 6(7) of Regulation (EU) 2017/2402 as amended by Regulation (EU) 2021/557 -EBA/RTS/2022/04 (hereinafter, “Final Draft RTS”) which provides that “The retainer shall not designate different individual exposures at different points in time, except where this may be necessary to fulfil the retention requirement in relation to a securitisation in which the securitised exposures fluctuate over time, either due to new exposures being added to the securitisation or to changes in the level of the individual securitised exposures” and the statement from Article 10(2) of Final Draft RTS which provides that ”The retainer shall not be required to constantly replenish or readjust its retained interest to at least 5 % as losses are realised on its retained exposures or allocated to its retained positions”, the question arises on whether, following the crystallisation of the losses (i.e. the recording of the relevant losses on the retainer’s accounts), the retention holder can sell the retained exposure without violating the provision of Article 6(1) of the Securitisation Regulation.