juillet 26 2023

European Commission adopts the Final Draft Regulatory Technical Standards relating to Risk Retention


Other Author      Serena Brent, trainee solicitor

On 7 July 2023, the European Commission adopted and published the final draft Regulatory Technical Standards relating to Risk Retention (the “Final Draft RTS”). The European Parliament and Council will now review the Final Draft RTS and, if there are no objections, the final text is expected to be published in the Official Journal of the European Union and enter into force in Q4 2023 or Q1 2024. This will mark the end of the transitional period during which the CRR RTS, deriving from Commission Delegated Regulation (EU) No 625/2014, have applied.

The Final Draft RTS largely replicates, with minor changes, the draft RTS published by the European Banking Authority in April 2022 (the “2022 Draft RTS”) – see our legal update from last year for more information. In addition, the Final Draft RTS increases the certainty of the “sole purpose” test set out in Article 6(1) of the Securitisation Regulation ((Regulation EU) 2017/2402) which provides that “an entity shall not be considered to be an originator where the entity has been established or operates for the sole purpose of securitising exposures”. The Final Draft RTS now clarifies that an entity shall not be considered to have been established or to operate for the sole purpose of securitising exposures if it meets the criteria set out in Article 2(7) of the Final Draft RTS (i.e. if its sole or predominant source of revenue does not rely on the securitised exposures and if the members of its management have the necessary experience to pursue its business strategy).  This differs from the 2022 Draft RTS which required these conditions to be “taken into account”.

It remains uncertain whether or to what extent the Final Draft RTS will be adopted in the UK under the new UK securitisation rules, discussed further in our recent legal update. We await the consultation of the draft FCA and PRA rules on substantive matters such as risk retention and transparency, which we understand is due to be published “over summer” in 2023, for clarity on the issue.

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