Overview

On 12 April 2022, following the EBA publishing its EBA Draft RR RTS¹ and their submission to the European Commission (the Commission), the Commission published the Commission Draft RR RTS on 7 July 2023.²

This brings new risk retention regulatory technical standards to be applied under the Regulation (EU) 2017/2402 (the EU Securitisation Regulation) a step closer following five years of applying the risk retention regulatory technical standards under the Capital Requirements Regulation (Delegated Regulation (EU) 625/2014) (the CRR RR RTS) as a transitional measure.

Key Developments

Largely, the Commission Draft RR RTS tracks the EBA Draft RR RTS, subject to certain cosmetic non-material changes. However, there are a couple of changes worthy of note.

Sole purpose

A more significant change contained in the Commission Draft RR RTS compared to the EBA Draft RR RTS is with respect to the factors to consider in assessing compliance with the "sole purpose" test set out in the second sub-paragraph of Article 6(1) of the EU Securitisation Regulation. Article 2(7) of the Commission Draft RR RTS still contains the two elements to the test contained in the EBA Draft RR RTS i.e. consideration of whether the relevant entity has: (a) the strategy/assets to meet a broader business model outside the relevant securitisation; and (b) a management body with the necessary experience to pursue the established business strategy. However, whereas previously these factors were to be "taken into account", the Commission Draft RR RTS now makes it clear that an entity will not be considered to have been established or to operate for the sole purpose of securitising exposures "where all of" the two factors apply. The obvious concern would be to those securitisations where a view had been taken that the "sole purpose" test was met, notwithstanding that the originator holding material net economic interest in the securitisation does not fulfil both of the criteria.

Securitisation of own debt

Additionally, a new provision (Article 16 – Fulfilment of the retention requirement in securitisations of own-issued debt instruments) has been inserted into the Commission Draft RR RTS that does not feature in the EBA Draft RR RTS. This provision allows for an automatic compliance with the risk retention requirements of Article 6(1) of the EU Securitisation Regulation where an entity securitises its own-issued debt instruments (including covered bonds) and the underlying exposures of the securitisation comprise exclusively those own-issued debt instruments.

Next Steps

The Commission Draft RR RTS has now been sent to the European Parliament and Council for review. However, it is anticipated that the Commission Draft RR RTS will be passed unamended. Once approved by the European Parliament and Council, the final text will be published in the Official Journal and will enter into force on the 20th day of its publication. It is anticipated, on the assumption of a 2-3 month scrutiny stage by the European Parliament and Council, that the final risk retention regulatory standards will come into force during Q4 2023 or Q1 2024. Upon entering into force, the approved and published final risk retention regulatory standards will replace those of the CRR RR RTS.

1. https://www.eba.europa.eu/sites
2. https://ec.europa.eu/transparency