EBA Consults on Draft Guidelines on Implicit Support for Securitization Transactions
On January 20, the EBA published a consultation paper (EBA/CP/2016/01) on draft guidelines on implicit support for securitization transactions under Article 248(2) of the Capital Requirements Regulation (Regulation 575/2013) ("CRR").
Examples of implicit support include the purchase of deteriorating credit risk exposures from the underlying pool, improving the quality of credit enhancements, the sale of discounted credit risk exposures into the pool of securitised credit risk exposures, the purchase of underlying exposures at above market price, ad hoc credit enhancements or an increase in the first loss position according to the deterioration of the underlying exposures. The provision of implicit support undermines the achievement of significant risk transfer, hence, under Article 248 of the CRR, there are restrictions on providing implicit support to securitisations. The draft guidelines recognise the fact that implicit support should not cover support that institutions are contractually obliged to provide. Such explicit support is assessed under guidelines EBA/GL/2014/05 on significant risk transfer.
Originator institutions and sponsor institutions which have failed to comply with the relevant requirements shall, at a minimum, must hold own funds against all of the securitised exposures as if they had not been securitised. Article 248(2) of the CRR sets out a mandate for the EBA to issue guidelines on what constitutes arm's length conditions and when a transaction is not structured to provide support. A transaction is not considered to provide support if it is executed at arm's length conditions and is taken into account in the assessment of significant risk transfer.
The draft guidelines include (i) the conditions to be satisfied in order to determine that a relevant transaction is not structured to provide support, depending on whether the relevant transaction is entered into by a sponsor institution or by an originator institution, (ii) an objective test for assessing whether a relevant transaction is entered into at arm's length terms, (iii) clarifications regarding the notification requirements for relevant transactions and (iv) further guidance on how the conditions for assessing whether a transaction is structured to provide support, including the factors set out in points (a)-(e) of Article 248(1) CRR, should be assessed.
To ensure that the test is applied correctly, the assessment is to be made with due regard to the information available to each of the parties at the time when the transaction is entered into, and not to such information that is available at a later date.
The EBA will hold a public hearing on the draft guidelines on February 18, 2016.
European Commission Letter to ESMA on Application of AIFMD Passport
On January 19, ESMA published a letter it has received from the European Commission relating to the application of the EU passport under the Alternative Investment Fund Managers Directive (2011/61/EU) ("AIFMD") to non-EU alternative investment fund managers ("AIFMs") and alternative investment funds ("AIFs").
The Commission stated that with regard to the advice on granting the AIFMD passport to managers and funds established in third countries, it agrees that the country-by-country approach adopted by ESMA is correct. It noted that the nature of the test set out in Article 67 of the AIFMD may result in different outcomes depending on the regulatory and supervisory framework of the third countries in which non-EU AIFMs and funds are established.
The Commission stated that it will take a decision [as to whether the AIFM Directive passporting regime should be extended to the management and marketing of AIFs by non-EU AIFMs, and to the marketing of non-EU AIFs by EU AIFMs] when a sufficient number of countries have been appropriately assessed.
The Commission invites ESMA to:
-
Complete, by June 30, 2016, the assessment of the USA, Hong Kong, Singapore, Japan, Canada, Isle of Man, Cayman Islands, Bermuda and Australia.
-
Provide a more detailed assessment of the capacity of supervisory authorities and their track record in ensuring effective enforcements, including in those countries looked at in the first wave of countries.
-
Provide a preliminary assessment of the expected inflow of funds by type and size into the EU from relevant third countries.
The letter concludes with the Commission agreeing with ESMA's suggestion that it produces another opinion on the functioning of the passport and national private placement regimes once the AIFMD is fully transposed in all member states and there is more experience on the functioning of the framework. (An accompanying press release explains that ESMA suggested it produce another opinion because the delay in implementing the AIFMD, together with the delay in its transposition in some member states, made it difficult for ESMA to provide a definitive assessment by July 2015, the initial legislative deadline).
|