The European Banking Authority (the “EBA”) has recently launched a public consultation on its proposals to create a simple, transparent and standardised (“STS”) framework for synthetic securitisations, as set out in its Draft Report on STS Framework for Synthetic Securitisation published on 24 September 2019 (the “Discussion Paper”), which can be found here. While the Securitisation Regulation allows traditional securitisations to benefit from preferential regulatory capital treatment if they meet the applicable STS criteria, together with some additional requirements under the Capital Requirements Regulation (as amended), synthetic securitisations are not yet able to qualify as STS.
The Discussion Paper sets out the EBA’s proposed STS criteria for synthetic securitisations. These criteria broadly follow the existing STS criteria for non-ABCP securitisations in the Securitisation Regulation, with some amendments and some additional criteria covering matters which are specific to synthetic transactions. STS designation would be limited to balance sheet securitisation and arbitrage securitisations would be excluded. A separate question is whether STS synthetic securitisations will be able to benefit from preferential regulatory capital treatment as with traditional securitisations, as many market participants hope, but the Discussion Paper does not reach a conclusion on this point.
The deadline for comments on the Discussion Paper is 25 November 2019.
We will be considering this issue in more detail in future updates and will continue to monitor this closely.
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