EBA Publishes Final Draft Regulatory Technical Standards Relating To Risk Retention

On 12 April 2022, the European Banking Authority (the “EBA”) published its long awaited final draft regulatory technical standards (the “Final RTS”) specifying the requirements for originators, sponsors, original lenders and servicers relating to risk retention as required by Article 6(7) of Regulation (EU) 2017/2402 (the “Securitisation Regulation”) as amended by Regulation (EU) 2021/557 (the “Amending Regulation”) as part of the Capital Markets Recovery Package.

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In accordance with the mandate given to the EBA under Article 6(7) of the Securitisation Regulation, the Final RTS specifies, in detail, the risk retention requirements and, in particular:

(a) requirements on the modalities of retaining risk;

(b) the measurement of the level of retention;

(c) the prohibition of hedging or selling the retained interest;

(d) the conditions for retention on a consolidated basis;

(e) the conditions for exempting transactions based on a clear, transparent and accessible index;

(f ) the modalities of retaining risk in case of NPE securitisations (as defined in the Securitisation Regulation); and

(g) the impact of fees paid to the retainer on the effective material net economic interest.

Items (f) and (g) above were added to the EBA’s mandate under Article 6(7) of the Securitisation Regulation by the Amending Regulation.

The Final RTS substantially replicates the provisions contained in the original final draft regulatory technical standards relating to risk retention dated 31 July 2018 (the “Original RTS”). The Final RTS also incorporates provisions reflecting the EBA’s extended mandate (as outlined above) and addresses certain matters raised in the public consultation for the Final RTS (the “Consultation”). These additional provisions concern, amongst other things:

(a) expertise of the servicer in NPE securitisations;

(b) clarification of the synthetic excess spread; and

(c) retention in resecuritisations and own issued debt instruments.

Modifications are also made to several provisions of the Original RTS “for the sake of ensuring consistency with the [EBA’s] mandate and providing further clarity on some specific aspects”.

Additional Provisions

Modalities of risk retention in traditional NPE securitisations

The Final RTS specifies how the various risk retention options are to be applied to traditional NPE securitisations by reference to the net value of non-performing exposures (“NPEs”).

The draft Final RTS consulted upon as part of the Consultation provided for computation of the net value where risk retention is achieved via on-balance sheet retention of randomly selected NPEs but did not address how net value should be computed where one of the other risk retention options is applied. Helpfully, the Final RTS closes this gap, providing that in the case of the vertical slice, first loss tranche or originator interest in revolving assets options, the net value of the retained part of the NPEs must be computed using the same percentage of non-refundable purchase price discount (as defined in the Securitisation Regulation) that applies to the part that is transferred.

Expertise of the servicer in NPE securitisations

The Final RTS also specifies the criteria that a servicer in a traditional NPE securitisation must meet in order to be deemed to have the required “expertise” in servicing NPEs as a prerequisite to acting as a risk retainer in an NPE securitisation.

A servicer in a traditional NPE securitisation may demonstrate its expertise for this purpose if:

(a) the members of the management body of the servicer and the senior staff, other than the members of the management body, responsible for servicing NPEs have adequate knowledge and skills in the servicing of such exposures;

(b) the business of the servicer, or of its consolidated group for accounting or prudential purposes, has included the servicing of NPEs for at least five years prior to the date of the securitisation; or

(c) all of the following points are complied with:

(i) at least two of the members of its management body have relevant professional experience in the servicing of NPEs, on a personal level, of at least five years;

(ii) senior staff, other than the members of the management body, who are responsible for managing the entity’s servicing of NPEs have relevant professional experience in the servicing of such exposures, on a personal level, of at least five years;

(iii) the servicing function of the servicer is backed up by a back-up servicer compliant with point (b).

The above criteria are more stringent than those specified by the EBA in respect of the expertise of servicers of STS securitisations. The EBA responding to the Consultation justified this differing treatment on the basis that servicing NPEs is a more specialised business than servicing performing exposures within an STS securitisation.

Impact of fees payable to retainers on the risk retention requirement

The Final RTS also specifies the requirements for fees payable to a retainer (i.e. any remuneration payable to the retainer where the retainer acts in any additional capacity as service provider to the securitisation) to comply with the risk retention requirements.

The “background and rationale” to the Final RTS provides that the impact of fees paid to a retainer should not be such that the amount and / or structure of the fees would undermine the effectiveness (i.e. the integrity and soundness of the requirement over time) of the risk retention requirements.

Article 15(2) of the Final RTS provides that arrangements on fees payable to the retainer on a priority basis to remunerate that retainer for services of any kind provided to the securitisation shall only be deemed as complying with the Article 15(1) of the Final RTS (i.e. the requirement that there shall be no arrangements or embedded mechanisms in the securitisation by virtue of which the retained interest at origination would decline faster than the interest transferred) where all of the following conditions are met:

(a) the amount of the fees is set on an arm’s length basis having regard to comparable transactions in the market. In the absence of comparable transactions in the relevant market, the set amount may be deemed compliant by reference to fees payable in similar transactions in other markets or by using appropriate valuation metrics, taking into account the type of securitisation and the service being provided; and

(b) the fees are structured as a consideration for the provision of the relevant service and do not create a preferential claim in the securitisation cash flows that effectively declines the retained interest faster than the transferred interest.

The Final RTS also prohibits the guaranteeing of fees or payment of fees up-front in any form, in full or in part “in advance of the services being provided post-closing” (thus permitting fees for pre-closing services e.g. arrangement fees), and where the effective material net economic interest after deducting such fees would be lower than the minimum net economic interest required to be retained under the Securitisation Regulation.

Clarification of the synthetic excess spread

The Final RTS recognises synthetic excess spread (“SES”) as a possible form of compliance with the risk retention requirement by the originator of a synthetic securitisation. Where the exposure value of the SES that provides credit enhancement to all the tranches of the synthetic securitisation and serves as a first loss protection is subject to a capital charge in accordance with the prudential regulation applicable to the originator, Article 10(1)(d) of the Final RTS permits the originator (acting as retainer in accordance with Article 6(3)(d) of the Securitisation Regulation (i.e. first loss tranche)) to take the exposure value of the SES into account when measuring the material net economic interest being retained by treating the SES as retention of the first loss tranche, in addition to any actual retention of the first loss tranche.

Retention in resecuritisations

Whereas resecuritisation is generally banned under the Securitisation Regulation, Article 8 of the Securitisation Regulation does provide some limited exceptions. The recitals to the Final RTS note that, as a general rule, the first securitisation(s) of exposures and the second ‘repackaged’ level of the transaction should be treated as separate for the purposes of meeting the risk retention requirements and, accordingly, there should be an obligation to retain a material net economic interest at each of those levels. Notwithstanding this, the Final RTS does go on to provide that where the securitisation’s originator acting as retainer securitises exposures or positions that it had retained in excess of the minimum retention requirement at the first level of a securitisation, that originator should be under no obligation to retain an additional interest at the level of the resecuritisation, provided that no other exposures or positions are added to the resecuritisation’s underlying pool and there is no maturity mismatch between the underlying securitisation exposures or positions and the resecuritisation.

Other Modifications / Points of Note


Article 17 of the RTS provides additional clarity on the rules around asset selection and the factors that will be taken into account in determining whether the requirements of Article 6 (2) of the Securitisation Regulation have been complied with.

Sole-Purpose Test

Some modifications have been made to the Original RTS in terms of what must be taken into account to assess whether an entity has been established or operates for the “sole purpose” of securitising exposures.

As part of the Consultation, respondents proposed minor amendments to the text of Article 2(7) in order to, amongst other things, more closely track the wording of Article 6(1) of the Securitisation Regulation (i.e. through the deletion of the words “or predominant“ from the draft Final RTS consulted upon as part of the Consultation). The EBA did not make any changes in response to these suggestions.

Prohibition of hedging or selling the retained interest

The Original RTS provided that a retainer may sell, transfer or otherwise surrender all or part of the retained interest in the event of the insolvency of the retainer. The Final RTS includes two additional circumstances where a retainer may sell, transfer or otherwise surrender all or part of the retained interest:

(a) when the retainer is, for legal reasons beyond its control and beyond the control of its shareholders, unable to continue acting in that capacity; or

(b) in the case of retention on a consolidated basis in accordance with Article 14 of the Final RTS.

Next steps

The Final RTS will now be transmitted to the European Commission for endorsement. If endorsed by the European Commission the Final RTS will be reviewed by the European Council and the European Parliament before the final form can be published in the Official Journal of the European Union. The final form of the RTS will enter into force on the twentieth day following its publication.

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