On June 19, 2018, the European Banking Authority launched a consultation on draft Regulatory Technical Standards on the conditions to allow institutions to calculate capital requirements, including on expected loss, arising from securitized exposures (known as KIRB) in accordance with the purchased receivables approach under the Capital Requirements Regulation.

As part of the new EU Securitization framework that will apply from January 1, 2019, an Amending Regulation makes amendments to the CRR to revise the capital requirements for securitizations.

The current securitization framework provides that a specific supervisory permission is needed for institutions other than originators to use the Internal Ratings Based approach to securitization capital. The Amending Regulation removes that specific approval and makes use of the Securitisation IRB Approach (known as the SEC-IRBA) conditional only on the IRB permissions of the credit risk framework and on the availability of sufficient information to compute KIRB. Under the CRR, as amended by the Amending Regulation, institutions that are permitted to apply to calculate their regulatory capital requirements for securitization positions may use provisions that normally apply to purchased receivables under the IRB framework for credit risk. Using the purchased receivables provisions, institutions can calculate KIRB and corresponding risk factors (probability of default and loss given default) and use the results as input into the SEC-IRBA. The Amending Regulation also permits the use of "proxy data" where sufficient, accurate or reliable data on the securitized exposures is not available for the calculation of KIRB.

The draft RTS set out details of the conditions under which institutions may use the provisions on purchased receivables in the context of securitization transactions. The RTS cover: (i) the general approach to the relationship between the IRB rules on purchased receivables and the SEC-IRBA framework; (ii) eligibility conditions to compute KIRB; (iii) IRB permissions and prior experience; (iv) eligibility to use the retail risk quantification standards; and (v) the use of proxy data.

The EBA intends to hold a public hearing on the proposals on September 4, 2018. Comments on the consultation are invited by September 19, 2018. The RTS will then be finalized and submitted to the European Commission for adoption.

The consultation paper is available at: http://www.eba.europa.eu/documents/10180/2256128/Consultation+Paper+on+RTS+on+the+calculation+of+Kirb
+in+accordance+with+the+purchased+receivables+approach+%28EBA-CP-2018-10%29.pdf
, the online response form is available at: http://bit.ly/2K0pVn5 and the registration page for the public hearing is available at: https://www.eba.europa.eu/news-press/calendar?p_p_id=8&_8_struts_action=%2Fcalendar%2Fview_event&_8_eventId=2256144.

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