EBA publishes final draft technical standards on the performance-related triggers for non-sequential amortisation systems in STS on-balance-sheet securitisations

The European Banking Authority (EBA) today published its final draft Regulatory Technical Standards (RTS) specifying the minimum performance-related triggers for simple, transparent and standardised (STS) on-balance-sheet securitisations that feature non-sequential amortisation.  The Capital Markets Recovery Package amended the Securitisation Regulation in several aspects, including creating a specific framework for STS on-balance-sheet securitisation to ensure that the Union securitisation framework provides for an additional tool to foster economic recovery in the aftermath of the COVID-19 crisis.

With the purpose of standardisation, the amended Securitisation Regulation sets out that sequential amortisation shall be applied to all tranches of STS on-balance-sheet securitisations. However, as a derogation, STS on-balance-sheet securitisation might feature non-sequential amortisation to avoid disproportionate costs of protection, as long as some minimum performance-related triggers determine the application of sequential amortisation. This will ensure that tranches providing credit protection have not already been amortised when significant losses occur at the end of the transaction.

These draft RTS further specify the minimum backward and forward-looking triggers and establish criteria to be fulfilled by the parties involved in the securitisation in order to set the level of the triggers. For this purpose, in the case of the minimum backward-looking triggers, the parties involved in the securitisation shall test the effectiveness of the trigger in a back-loaded loss distribution scenario taking into account the losses expected over the maturity of the transaction at inception.

Finally, these RTS contains transitional provisions in respect of STS on-balance-sheet securitisations, which include triggers related to the performance of the underlying exposures in accordance with Article 26c (5) of  of the Securitisation Regulation, and which were notified to ESMA before the entry into force of this Regulation.

Legal basis and background

The draft regulatory technical standards have been developed in accordance with Article 26c(5) of Regulation (EU) 2017/2402 (the Securitisation Regulation ) as amended by the Regulation (EU) 2021/557 of 31 March 2021  (as part of the Capital Markets Recovery Package), which requests the EBA to develop regulatory technical standards i) to specify the minimum performance-related triggers for simple, transparent and standardised on-balance-sheet securitisations; and (ii) “where relevant”, to calibrate them.