Homogeneity of underlying exposures in securitisation Consultation - PowerPoint PPT Presentation

Homogeneity of underlying exposures in securitisation Consultation on regulatory technical standards Public hearing, 19 February 2018

Mandate Additional guidance: Legal mandate: Art. 20(14) of Sec Reg for non-ABCP, Recital 27: Art. 24(21) for ABCP of Sec Reg: “ To ensure that investors perform robust due diligence and to facilitate “The EBA, in close cooperation with ESMA and EIOPA, the assessment of underlying risks, it is shall develop the RTS further specifying which important that securitisation underlying exposures referred to in paragraph 8 are transactions are backed by pools of deemed to be homogeneous.” exposures that are homogenous in Paragraph 8: asset type, such as pools of residential loans, or pools of corporate loans, “The securitisation/ABCP transactions shall be backed by a pool of underlying exposures that are business property loans, leases and homogeneous in terms of asset type, taking into credit facilities to undertakings of the account the specific characteristics relating to the cash same category , or pools of car loans flows of the asset type including their contractual, and leases , or pools of credit facilities credit-risk and prepayment characteristics. A pool of to individuals for personal, family or underlying exposures shall comprise only one asset household consumption purposes.” type.” RTS on the homogeneity of underlying exposures in securitisation, Public Hearing, 19 February 2018 2

Underlying assumption: balanced approach to definition of homogeneity Legal mandate: Provision of clarity Risk factors to on the reflect “ specific homogeneity characteristics relating to the cash flows of the criterion asset type including their contractual, credit-risk and prepayment characteristics” Recital: Flexibility / cross-sectoral Asset application categories RTS on the homogeneity of underlying exposures in securitisation, Public Hearing, 19 February 2018 3

Four requirements for definition of homogeneity Overarching Similar underwriting objective/end standards, methods • General criterion result: and criteria Investor Uniform servicing perspective: • General criterion procedures Exposures with similar risk profiles Exposures falling • (Non-exhaustive) and cash flow within the same list of asset characteristics, categories asset category enabling investor to assess the underlying risks on Exposures reflecting the basis of common • (Closed) list of relevant (at least methodologies and risk factors one) risk factors parameters RTS on the homogeneity of underlying exposures in securitisation, Public Hearing, 19 February 2018 4

Asset categories Residential loans secured with mortgage on residential immovable property and residential loans fully guaranteed by an eligible protection Underlying • exposures falling Commercial loans secured with a mortgage on under one asset commercial immovable property, including offices category and other commercial premises Non-exhaustive • Credit facilities to natural persons list of categories, reflecting securitisation Credit facilities to SMEs and corporates market practice Auto loans and leases High-level • definitions, allowing cross- Credit card receivables sectoral application Trade receivables RTS on the homogeneity of underlying exposures in securitisation, Public Hearing, 19 February 2018 5

Risk factors: list • natural person, SME borrower, non-SME corporate borrower, financial Type of obligor institution, and public sector entity, regional government and local authority Collateral •collateralised claims and un-collateralised claims • credit claims with higher ranking liens on the property or collateral, and Seniority on liquidation of the credit claims with no higher ranking liens on a different property or a property/collateral different collateral Type of credit facility •loan, lease, purchase, hire and revolving credit •a utomobile vehicles, nautical vehicles, aircraft, railcars, satellites, fleet, Object of financing equipment, real estate, commodities, financing for general consumption purposes, and financing for business purposes Type of immovable property •income-producing and non-income producing properties Type of repayment or •fully amortising exposures, exposures with balloon amortisation amortisation and exposures with bullet amortisation Industrial sector of the seller Jurisdiction of the immovable property/or residency of the obligor Governing law RTS on the homogeneity of underlying exposures in securitisation, Public Hearing, 19 February 2018 6

Risk factors: mapping Underlying Residential Commercia Credit Credit exposures loans l loans facilities facilities Auto Credit Trade that all do secured secured to to SMEs loans card receivabl Risk factor / not fall with with natural and and receivabl es under the Asset category mortgages mortgages persons corporate leases es asset categories s Type of Already To be Already Already To be To be Already To be reflected considered reflected reflected considered considered reflected considered obligor Already Already To be To be Already Irrelevant Already To be Collateral reflected reflected considered considered reflected reflected considered provided To be To be To be To be To be Irrelevant Already To be Seniorityon considered considered considered considered considered reflected considered collateral Type of credit Already Already To be To be To be Already Already To be reflected reflected considered considered considered reflected reflected considered facility Already Already To be To be Already Irrelevant Irrelevant To be Object of reflected reflected considered considered reflected considered financing To be To be Irrelevant Irrelevant Irrelevant Irrelevant Irrelevant To be Type of immovable considered considered considered property To be To be To be To be To be Already Already To be Type of repayment/ considered considered considered considered considered reflected reflected considered amortisation Industrial sector of the Irrelevant Irrelevant Irrelevant Irrelevant Irrelevant Irrelevant To be To be considered considered seller Jurisdiction To be To be To be To be To be To be To be Irrelevant considered considered considered considered considered considered considered of property/ obligor Governing To be To be To be To be To be To be Irrelevant To be considered considered considered considered considered considered considered law RTS on the homogeneity of underlying exposures in securitisation, Public Hearing, 19 February 2018 7

Alternative approach to homogeneity Main proposal Alternative proposal Reflection of Similar underwriting Similar underwriting all risk factors standards standards / disclosure Uniform servicing Uniform servicing procedures procedures One asset category One asset category Application of relevant (at least one) risk factors / disclosure RTS on the homogeneity of underlying exposures in securitisation, Public Hearing, 19 February 2018 8

Questions Does the approach to definition of homogeneity provides sufficient clarity and certainty, taking into account the basic assumptions? Should the underwriting criterion be further specified? Do you agree with the list of asset categories? Do you agree with the list of risk factors? Which of the two approaches – main approach and alternative approach – provides more clarity and certainty? RTS on the homogeneity of underlying exposures in securitisation, Public Hearing, 19 February 2018 9

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