Commission Delegated Regulation (EU) 2023/2175 of 7 July 2023 on supplementing Regulation (EU) 2017/2402 of the European Parliament and of the Council with regard to regulatory technical standards specifying in greater detail the risk retention requirements for originators, sponsors, original lenders, and servicers

THE EUROPEAN COMMISSION,

Having regard to the Treaty on the Functioning of the European Union,

Having regard to Regulation (EU) 2017/2402 of the European Parliament and of the Council of 12 December 2017 laying down a general framework for securitisation and creating a specific framework for simple, transparent and standardised securitisation, and amending Directives 2009/65/EC, 2009/138/EC and 2011/61/EU and Regulations (EC) No 1060/2009 and (EU) No 648/2012⁽¹⁾, and in particular Article 6(7), third subparagraph thereof,

Whereas:

1. To ensure that investors and supervisors understand how a synthetic or contingent form of retention is equivalent to one of the retention options set out in Article 6(3) of Regulation (EU) 2017/2402, the use of such form of retention and the details thereof should be disclosed in the final offering document, prospectus, transaction summary or overview of the main features of the securitisation.

2. Article 6(3), points (a) to (e), of Regulation (EU) 2017/2402 lay down various modalities to fulfil the risk retention requirement laid down in Article 6(1) of that Regulation. To harmonise the application of the risk retention requirement and achieve an equivalent retention of a material net economic interest in a securitisation, it is necessary to specify further those modalities, including the fulfilment through a synthetic or contingent form of retention. In an ABCP programme, a liquidity facility that covers 100 % of the credit risk of each of the securitised exposures, or that constitutes a first loss position in relation to the securitisation, is equivalent to retaining a net economic interest in the securitisation. Therefore, such ABCP programmes should be considered to be compliant with the risk retention requirement in accordance with Article 6(3), point (a) and (d), of Regulation (EU) 2017/2402.

3. The synthetic excess spread is defined in Article 2, point (29), of Regulation (EU) 2017/2402 as an amount contractually designated by the originator to absorb losses. Consequently, the synthetic excess spread gives rise to an exposure value that should be taken into account in the measurement of the material net economic interest at origination. Therefore, the synthetic excess spread should be recognised as a possible form of compliance by the originator of a synthetic securitisation with the risk retention requirement where that synthetic excess spread meets the conditions set out in Article 6(1) of Regulation (EU) 2017/2402 and where that synthetic excess spread is subject to a capital requirement in accordance with the applicable prudential regulation.

4. Synthetic excess spreads can be designated in two different ways. One way is through providing credit enhancement to the senior or the mezzanine tranche. A second way is through providing credit enhancement to all the tranches, including the first loss tranche. Where the synthetic excess spread provides credit enhancement to the senior or mezzanine tranches only, it cannot be treated as a first loss tranche. The retainer should therefore retain at least a minimum amount in all the tranches to comply with Article 6(3), point (a), of Regulation (EU) 2017/2402. Where the synthetic excess spread provides credit enhancement to all the tranches, the synthetic excess spread should be equivalent to a first loss tranche of the synthetic securitisation, and, thus, be deemed to comply with Article 6(3), point (d), of Regulation (EU) 2017/2402.

5. It is necessary to specify the economic interest that is to be retained when the underlying exposures of a securitisation include drawn and undrawn amounts of credit facilities. Because the credit risk is determined on the basis of the drawn amounts, the net economic interest should be measured taking into account those amounts only.

6. In order to ensure the ongoing fulfilment of the retention requirement where the net economic interest is retained by the consolidated group and the retainer belonging to the group is no longer included in the scope of supervision on a consolidated basis, it is necessary to lay down that one or more of the remaining entities included in the scope of supervision on a consolidated basis should assume an exposure to the securitisation.

7. Article 6(1), first subparagraph, of Regulation (EU) 2017/2402 prohibits selling or hedging the retained economic interest as doing so would remove the retainer’s exposure to the credit risk of the retained securitisation positions or exposures. Therefore, hedging should only be allowed where it hedges the retainer against risks other than the credit risk of the retained securitisation positions or exposures. Hedging should, however, also be allowed where it is undertaken prior to the securitisation as a legitimate and prudent element of credit granting or risk management and does not create a differentiation for the retainer’s benefit between the credit risk of the retained securitisation positions or exposures and the securitisation positions or exposures transferred to investors. Furthermore, in securitisations where the retainer commits to retaining more than the minimum material net economic interest of 5 %, hedging should not be prohibited for any retained interest in excess of that percentage, provided that those circumstances are disclosed in the final offering document, prospectus, transaction summary or overview of the main features of the securitisation.

8. In order to ensure the ongoing retention of the material net economic interest, retainers should ensure that there is no embedded mechanism in the securitisation structure by which the retained material net economic interest measured at origination declines faster than the interest transferred. For the same reason, the retained material net economic interest should not be prioritised in terms of cash flows to preferentially benefit from being repaid or amortised in a way that would decrease that retained material net economic interest below 5 % of the ongoing nominal value of the tranches sold or transferred to investors or of the exposures securitised, or below the 5 % net value in the case of non-performing exposures of traditional NPE securitisations. Moreover, the credit enhancement provided to the investor assuming exposure to a securitisation position should not decline disproportionately to the rate of repayment on the underlying exposures. That requirement should not prevent the retainer from being remunerated on a priority basis for services rendered to the securitisation’s special purpose entity, provided that the remuneration’s amount is set on an arm’s length basis and that the structure of such remuneration does not undermine the retention requirement.

9. Where the principal obligor has full alignment of interest with the investor, including in the situation where the securitisation comprises exclusively own-issued covered bonds or other own-issued debt instruments, the entity that securitises those instruments should not be obliged to take any further action to comply with the risk retention requirement.

10. Article 8 of Regulation (EU) 2017/2402 provides for certain exceptions on the ban on resecuritisations. Because the retention requirements apply to the two levels of the transactions involved in a resecuritisation, it is necessary to specify how those transactions are to comply with the retention requirement. As a general rule, the first securitisations of exposures and the second ‘repackaged’ level of the transaction should be treated as separate for the purposes of meeting the risk retention requirement. There should therefore be an obligation to retain a material net economic interest at each of those levels. The same should apply for transactions with more than one underlying securitisation, such as ABCP programmes other than those referred to in Article 8(4) of Regulation (EU) 2017/2402. It is, however, possible that the securitisation’s originator acting as retainer securitises positions that it had retained in excess of the minimum retention requirement at the first level of a securitisation. In that case, that originator should not be required 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. In those cases, the resecuritisation should merely be regarded as the second leg of the same transaction that would not significantly change the economic basis of the securitisation. The original retention at the level of the securitisation should thus suffice to meet the purpose of the risk retention requirement. Lastly, the mere retranching by the securitisation’s originator of a securitisation position into contiguous tranches should not be considered a resecuritisation for the purposes of the retention requirement.

11. The asset selection requirements laid down in Article 6(2) of Regulation (EU) 2017/2402 are an integral part of the risk retention framework. If originators were able to cherry pick assets to securitise portfolios of worse credit quality, and in particular without the investors’ or potential investors’ knowledge, the purpose and effectiveness of risk retention to align the interests of originators and investors would be severely undermined. In that scenario, while the originator would be using the securitisation to offload risky assets, investors would be misled to rely on the originator’s retaining a slice of the risk as evidence of a proper alignment of interests. To avoid such a scenario and to provide for legal certainty and security, it is necessary to lay down criteria that originators may rely on to ensure compliance with Article 6(2) of Regulation (EU) 2017/2402. Furthermore, criteria for the determination of ‘comparable assets’ should also be provided. Securitisations where the comparison referred to in Article 6(2) of Regulation (EU) 2017/2402 is not possible because all the comparable assets were transferred to the SSPE should be considered as meeting the requirements of that paragraph, provided that the fact that such comparison is not possible is disclosed in the final offering document, prospectus, transaction summary or overview of the main features of the securitisation.

12. Where insolvency proceedings have been commenced in respect of the retainer, or where the retainer is unable to continue acting in that capacity for reasons beyond its control or the control of its shareholders, it should be possible for the remaining retained material net economic interest to be retained by another legal entity complying with Article 6 of Regulation (EU) 2017/2402, so that the alignment of interest continues to occur.

13. Pursuant to Article 6(1), fourth subparagraph, of Regulation (EU) 2017/2402, only servicers that can demonstrate expertise in the servicing of exposures of similar nature to the securitised exposures may act as retainers in a traditional NPE securitisation. It is therefore appropriate to set out the criteria that servicers should meet to be able to demonstrate that they have the required expertise in servicing exposures that are similar to those securitised.

14. Commission Delegated Regulation (EU) No 625/2014⁽²⁾ supplements risk retention provisions laid down in Article 405 of Regulation (EU) No 575/2013 of the European Parliament and of the Council⁽³⁾ for credit institutions and investment firms. Regulation (EU) 2017/2401 of the European Parliament and of the Council⁽⁴⁾ amended Regulation (EU) No 575/2013 by deleting Part Five, and thus Article 405, of that Regulation. The requirements on risk retention that were laid down in Article 405 of Regulation (EU) No 575/2013 are now laid down in Article 6 of Regulation (EU) 2017/2402. It is therefore appropriate to repeal Delegated Regulation (EU) No 625/2014, without prejudice to Article 43(6) of Regulation (EU) 2017/2402.

15. This Regulation is based on the draft regulatory technical standards developed in close cooperation with the European Securities and Markets Authority and the European Insurance and Occupational Pensions Authority, and submitted to the Commission by the European Banking Authority.

16. The European Banking Authority has conducted open public consultations on the draft regulatory technical standards on which this Regulation is based, analysed the potential related costs and benefits and requested the advice of the Banking Stakeholder Group established in accordance with Article 37 of Regulation (EU) No 1093/2010 of the European Parliament and of the Council⁽⁵⁾,

HAS ADOPTED THIS REGULATION: