European Union: Final Draft EU Technical Standards On Homogeneity Conditions For STS Securitizations

On July 31, 2018, the European Banking Authority published a final report and final draft Regulatory Technical Standards under the EU Securitization Regulation on the conditions for a securitization to be considered homogenous. Homogeneity is one of the requirements for a securitization to be classed as a simple, transparent and standardized securitization or STS securitization. Exposures related to STS securitizations will attract lower risk weightings for firms subject to the Capital Requirements Regulation. The new EU securitization framework will apply across the EU from January 1, 2019.

The final draft RTS, which will apply to both asset-backed commercial paper and non-ABCP securitizations, establish four conditions for the underlying exposures to be considered homogeneous: (i) they have been underwritten according to similar underwriting standards; (ii) they are serviced according to similar servicing procedures; (iii) they fall within the same asset category; and (iv) for a majority of asset categories, they are homogeneous with reference to at least one homogeneity factor, such as type of obligor, ranking of security rights, jurisdiction or type of immovable property. The final draft RTS contain a non-exhaustive list of asset categories which reflect the most common types of underlying exposures securitized, including residential and commercial mortgages, credit facilities to individuals and corporates, auto loans and leases, credit card receivables and trade receivables. In addition, the underlying exposures of these asset categories, except for trade receivables and credit facilities for individuals, must be homogeneous with reference to at least one of the homogeneity factors.

The final draft RTS have been submitted to the European Commission for endorsement. The final RTS will apply directly across the EU 20 days after publication in the Official Journal of the European Union.

 The final draft RTS is available at: http://www.eba.europa.eu/documents/10180/2298183/Draft+RTS+on+homogeneity+of+underlying+exposures+
in+securitisation+%28EBA-RTS-2018-02+%29.pdf  and details of the EBA's consultation on the draft RTS are available at: https://finreg.shearman.com/european-banking-authority-consults-on-draft-te.

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