EBA publishes final Guidelines on implicit support for securitisation transactions

The European Banking Authority (EBA) published today its final Guidelines on implicit support for securitisation transactions. The objective of these Guidelines is to clarify what constitutes arm’s length conditions and to specify when a transaction is not structured to provide support for securitisations. The Guidelines will contribute towards the successful implementation of the Commission’s securitisation package under the Capital Markets Union reform, giving clarity on the matter to credit institutions.

The Capital Requirements Regulation (CRR) sets out restrictions on the provision of implicit support to securitisations, as this raises supervisory concerns and undermines the achievement of significant risk transfer. If originator or sponsor institutions fail to comply with the relevant requirements, they shall, at a minimum, hold own funds against all of the securitised exposures as if such exposures had not been securitised.

These Guidelines propose an objective test for the definition of arm’s length conditions and for assessing when a transaction is not structured to provide support. Furthermore, guidance is provided on the notification requirements applicable to such transactions and provisions are included to avoid a scenario whereby support is provided on behalf of the originator by another entity.

The final Guidelines take into account the feedback received during the public consultation and should be read in conjunction with the Guidelines on significant risk transfer.

Legal basis and background

The final Guidelines have been developed pursuant to Article 248 CRR, which lays down restrictions on sponsor institutions and originator institutions providing support to securitisations beyond their contractual obligations. In particular, Article 248(2) of the CRR sets out a specific mandate for the EBA to issue guidelines on what constitutes arm’s length conditions and when a transaction is not structured to provide support.

Lavanya Rathnam

Lavanya Rathnam is an experienced technology, finance, and compliance writer. She combines her keen understanding of regulatory frameworks and industry best practices with exemplary writing skills to communicate complex concepts of Governance, Risk, and Compliance (GRC) in clear and accessible language. Lavanya specializes in creating informative and engaging content that educates and empowers readers to make informed decisions. She also works with different companies in the Web 3.0, blockchain, fintech, and EV industries to assess their products’ compliance with evolving regulations and standards.

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