COMMISSION STAFF WORKING DOCUMENT IMPACT ASSESSMENT Accompanying the document Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL laying down common rules on securitisation and creating a European framework for simple and transparent securitisation and amending Directives 2009/65/EC, 2009/138/EC, 2011/61/EU and Regulations (EC) No 1060/2009 and (EU) No 648/2012 and Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Regulation (EU) No 575/2013 on prudential requirements for credit institutions and investment firms
Date: 2015-09-30
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union, European Commission
Subjects: banking, credit, financial institution, financial market, financial requirements, investment, investment company, monetary crisis

EN 

   EN 

   EUROPEAN COMMISSION  Brussels, 30.9.2015  SWD(2015) 185 final   COMMISSION STAFF WORKING DOCUMENT  IMPACT ASSESSMENT  Accompanying the document Proposal for a  REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL laying down common rules on securitisation and creating a European framework for simple and transparent securitisation and amending Directives 2009/65/EC, 2009/138/EC, 2011/61/EU and Regulations (EC) No 1060/2009 and (EU) No 648/2012   and   Proposal for a  REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL  amending Regulation (EU) No 575/2013 on prudential requirements for credit institutions and investment firms {COM(2015) 472 final} {COM(2015) 473 final} {SWD(2015) 186 final}  
 
 
Contents 

1) INTRODUCTION .......................................................................................................... 4 

2) PROCEDURAL ISSUES AND CONSULTATION OF INTERESTED PARTIES ... 10 

2.1) Procedural issues ........................................................................................................ 10 
2.2) External expertise and consultation of interested parties ........................................... 10 

3) PROBLEM DEFINITION ............................................................................................ 11 

3.1) Problem drivers .......................................................................................................... 11 
3.1.1) Investor stigma ........................................................................................................ 11 
3.1.2) insufficient risk-sensitivity of the regulatory framework ....................................... 13 
3.1.3) Lack of consistency and standardisation ................................................................. 17 
3.2) Problems  18 
3.2.1) Low demand for securitisation products ................................................................. 18 
3.2.2) Simple and transparent securitisation products disadvantaged ............................... 18 
3.2.3) High operational costs for investor and issuers ...................................................... 19 
3.3) Consequences ............................................................................................................. 21 

4) OBJECTIVES ............................................................................................................... 22 

4.1) General, specific and operational objectives ............................................................. 22 
4.2) Consistency of the objectives with other EU policies ............................................... 22 
4.3) Consistency of the objectives with fundamental rights ............................................. 22 
4.4) Subsidiarity and proportionality ................................................................................ 23 

5) POLICY OPTIONS ...................................................................................................... 26 

6) ANALYSIS OF IMPACTS .......................................................................................... 28 

6.1) Section 1 - STS differentiation .................................................................................. 28 
6.1.1) Policy option 1.1: No further EU action (baseline scenario) .................................. 28 
6.1.2) Policy option 1.2: EU soft law ................................................................................ 30 
6.1.3) Policy option 1.3: EU legislative initiative to specify applicable STS criteria ....... 31 
6.1.4) Impact summary and conclusion ............................................................................ 32 
6.2) Section 2 - Scope of the STS definition ..................................................................... 33 
6.2.1) Policy option 2.1: Cover only term securitisation .................................................. 34 
6.2.2) Policy option 2.2: - cover term and ABCP securitisations ..................................... 36 
6.2.3) Policy option 2.3: cover term, ABCP and synthetic securitisations ....................... 38 
6.2.4) Impact summary and conclusion ............................................................................ 39 
6.3)  Section  3  -  Ensuring  compliance  with  STS  criteria  and  consistency  in 

implementation ........................................................................................ 41 
6.4) Section 4 - Banking and insurance prudential treatment ........................................... 49 
6.4.1) Option 4.1: - no change to the existing securitisation framework as set out in the CRR

 ................................................................................................................... 51 

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6.4.2) Option 4.2: - develop a preferential capital treatment for STS securitisations ....... 52 
6.4.3) Option 4.3 – baseline: no further action .................................................................. 55 
6.4.4) Option 4.4 – modify treatment for senior tranches only ......................................... 56 
6.4.5) Option 4.5 – modify treatment for senior and non-senior tranches ........................ 57 
6.4.6) Impact summary and conclusion ............................................................................ 58 
6.5) Section 5 - Standardisation and harmonisation .......................................................... 60 
6.5.1) Option 5.1 – Baseline - No EU action .................................................................... 60 
6.5.2)  Option  5.2  –  Establishing  a  single  consistent  EU  securitisation  framework  and 

encouraging market participants to develop further standardisation ........ 61 
6.5.3 Option 5.3 – Adopting a comprehensive EU securitisation framework .................. 63 
6.5.4) Impact summary and conclusion ............................................................................ 65 

7) THE RETAINED POLICY OPTIONS AND INSTRUMENT .................................... 67 

8) MONITORING AND EVALUATION ........................................................................ 70 

ANNEX 1 – GLOSSARY ................................................................................................. 71 

ANNEX 2 – STYLISED FACTS ON SECURITISATION MARKETS ......................... 73 

ANNEX  3  –  BCBS-IOSCO  SURVEY  ON  "IMPEDIMENTS  TO  SUSTAINABLE 

SECURITISATION MARKETS" ............................................................ 74 

ANNEX 4 – STS CRITERIA IN THE LCR AND SOLVENCY II DELEGATED ACTS75 

ANNEX 5 - SYNTHETIC SECURITISATION ............................................................... 81 

ANNEX 6 - FINANCING SMES WITH THE SECURITISATION TOOL .................... 85 

ANNEX  7  –  SUMMARY  OF  RESPONSES  TO  THE  COMMISSION'S  PUBLIC 

CONSULTATION ON SECURITISATION ............................................ 87 

ANNEX 8 – FINDINGS FROM THE COM QUESTIONNAIRE TO FSC MEMBERS ON 

SECURITISATION ................................................................................ 122 

ANNEX 9 – BIBLIOGRAPHICAL REFERENCES ...................................................... 130 

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1) INTRODUCTION 

1.1) Creditless recoveries and the need to repair financial market intermediation  

In  deep  recessions  such  as  the  one  triggered  by  the  global  financial  crisis,  credit  to  firms  and 
households drops steeply. Without credit growth recovering, GDP and employment are also much 
less  likely  to  recover  (see  ECB  (2011)  and  Abiad  et  al.  (2014)).  Furthermore,  even  when  such 
creditless  recoveries  do  materialize,  they  tend  to  be  slower  and  weaker.  GDP  growth  is  on 
average 30% lower in creditless recoveries than in "normal" ones (i.e. in those where credit growth 
goes  back  to  pre-crisis  rates  quickly).  Creditless  recoveries  tend  to  follow  after  credit  booms  and 
banking crises, to depress investment and to affect disproportionally those industries that are more 
dependent  on  external  finance.  All  this  suggests  that  impairment  in  financial  intermediation 
contributes to the below-average GDP performance.  

Europe's  current  situation  is  one  of  a  creditless  recovery:  six  years  after  the  collapse  of  Lehman 
Brothers  credit  to  the  private  sector  and  GDP  growth  are  still  subdued  (see  Chart  1)  and  so  is 
investment. The percentage of unemployed workers is still higher than before the crisis. Moreover, 
all this follows a credit boom and banking crises in various jurisdictions.  

Chart 1 – credit to EU non-financial corporations, % year-on-year growth rate 

Source: ECB 

If employment and growth are to recover, it is thus pivotal to tackle the frictions still present in the 
financial system and  restart the flow of credit to  European firms and households on a sustainable 
basis.  Much  has  already  been  done  to  strengthen  the  EU  financial  system  and  the  recent 
improvement  in  credit  dynamics  are  a  testimony  to  this.  Nonetheless,  European  banks  are  still 
deleveraging  and  do  so  by  reducing  credit  to  the  private  sector.  With  relatively  small  capital 
markets, bank deleveraging is thus slowing recovery in Europe.  

4 

-10%-5%0%5%10%15%20%2003Q12004Q12005Q12006Q12007Q12008Q12009Q12010Q12011Q12012Q12013Q12014Q1Credit to EU non-financial corporations, YoY% 
 
 
 
 
While  deleveraging  and  negative  credit  growth  do  not  need  to  go  together  (credit  to  the  private 
sector represents only 28% of EU banks assets), any mechanism helping banks to deleverage in a 
sustainable way without reducing  credit provision would help substantially the recovery of credit, 
investment and job creation in Europe.    

1.2) The role of securitisation 

Securitisation,  a  mechanism  by  which  credit  institutions  package  loans  they  have  granted  into  a 
security and sell this to investors, can provide a useful tool to transfer risk to other institutions 
and  raise  cheaper  funding.  By  allowing  banks  to  sell  some  of  their  assets  to  investors, 
securitisation  provides  them  with  a  tool  to  deleverage  (i.e.  reduce  their  balance  sheets)  without 
cutting  credit  provision  to  the  private  sector.  Since  banks  provide  the  overwhelming  majority  of 
credit  to  EU  firms  and  households,  securitisation  could  help  break  the  link  between  deleveraging 
and  credit  decline  in  a  material  way.  Securitisation  could  thus  support  bank  credit  provision 
and allow for a faster recovery. 

Chart 2 – Issuance of securitised products in the EU – placed and retained 

Source: SIFMA/AFME quoted in EBA 2014 

Since  2008,  the  issuance  of  securitised  product  in  Europe  has  fallen  by  88%  (see  Fig.2). 
Outstanding  amounts  have  declined  accordingly  (see  Fig.3).  This  notwithstanding  the  fact  that 
European securitised products have proven remarkably safe during the crisis, generating near-zero 
losses (Fig. 5 and 6, see also EBA 2014 and BoE-ECB 2014). It was the exposure to US securitised 
product  that  caused  significant  losses  to  European  banks1.  However,  unrelated  products  such  as 
securitisations  based  on  EU  SME  loans  and  residential  mortgages  suffered  significant  declines  in 
issuance. 

1 US issuance has instead restarted growing after a substantial drop in 2008.  US 2014 issuance was still less than half 
than in 2007 but a positive trend is clearly visible. This is mostly ascribable to public guarantees from state agencies 
(Fannie Mae, Freddie Mac and Ginnie Mae), which cover the vast majority of the market.  

5 

 
 
 
 
 
                                                            
Chart 3 –Outstanding amounts of securitised products in the EU 

Source: SIFMA/AFME  

Securitisation can also provide important benefits to investors, giving them access to assets they 
could  not  otherwise  access.  This  is  particularly  beneficial  for  institutional  investors  such  as 
pension  funds  and  insurance  companies  that  have  long-term  liabilities  and  are  therefore  natural 
buyers  of  long-term  assets  such  as  mortgages.  The  majority  of  institutional  investors  cannot 
underwrite  mortgages  directly  but  they  could  gain  access  to  them  buying  securitised  mortgages. 
Greater  investment  opportunities  would  be  particularly  beneficial  in  the  EU  context,  where  high 
GDP per capita and relatively small capital markets imply high demand but limited supply of long 
term assets. 

It is not easy to provide a reliable estimate on the additional provision of loans a revival of the 
securitisation  market  could  provide.  This  depends  indeed  on  a  multitude  of  factors:  a)  monetary 
policy,  b)  demand  for  credit,  c)  developments  in  alternative  funding  channels  (covered  bonds, 
unsecured credit to name a few). All of these are likely to change through time, affecting the final 
outcome. With these caveats in mind, one can say however that, all things equal, if the securitisation 
market  would  go  back  to  pre-crisis  average  issuance  levels,  banks  would  be  able  to  provide  an 
additional €157bn of credit to the private sector (see issuance data graphed in Figure 2). This would 
represent a 1.6% increase in credit to EU firms and households. The latter is still 4.7% below its 
peak.  Therefore,  while  one  must  be  realistic  and  recognise  a  revival  in  the  securitisation  market 
would  not  by  itself  solve  all  problems  in  the  EU  financial  markets,  it  could  provide  a  material 
contribution  in  improving  the  banking  sector  ability  to  provide  credit  and  help  alleviating  the 
negative effects of the credit less recovery on jobs and growth.  

Additional  to  these  short-term  benefits,  restarting  a  safe  securitisation  market  could  have 
further  long  term  benefits.  The  macroeconomic  scenario  currently  prevailing  in  the  EU  hinders 
securitisation activity in various ways: by reducing credit activity and thus the need to fund it; by 
delivering an environment of abundant and cheap central bank funding and finally by lowering the 
best credit rating achievable by securitisation deals in many EU jurisdictions because of sovereign 
rating  caps  (discussed  in  section  3.2.2).  All  these  factors  constitute  powerful  disincentives  to 

6 

05001000150020002500 
 
 
 
 
securitisation  activities  that  will  weigh  on  the  sector  until  the  situation  normalises.  Nonetheless, 
once the macro situation normalises and the above impediments subside, having a safe and thriving 
securitisation  market  already  in  place  will  allow  it  to  reach  its  full  potential.  This  could  lead  to 
more  balanced  funding  structure  for  the  EU  economy,  with  both  banking  and  non-banking 
credit stably available for borrowers. This is therefore both a short term and a long term project. 

The revival of a safe securitisation market could have  different effects across Member  States. On 
the one hand, countries with more developed securitisation markets would be more likely to benefit 
from  it.  As  the  chart  below  shows2,  the  United  Kingdom  and  the  Netherlands  are  the  biggest 
markets  as  of  today,  representing  half  of  the  outstanding  securitisations.  On  the  other  hand,  the 
countries  where  the  funding  of  banks  and  the  credit  provision  in  general  tends  to  be  more 
problematic could also benefit from a revived funding channel. Italy, Spain, Ireland, Portugal and 
Greece  would  fall  under  this  category.  Also,  a  single  and  harmonised  framework  for  EU 
securitisation  could  lay  the  foundations  for  developing  securitisation  markets  where  these  are 
currently not developed, like for instance in Member States in Central and Eastern Europe.  

Chart 4 – Outstanding amounts of EU securitised products by country – end 2014 

Source: SIFMA/AFME 

2 The chart shows outstanding balances by country of collateral. This is a proxy for country of issuance. Precise and 
complete data on the latter are unfortunately not available. 

7 

0.01%0.03%0.06%0.09%0.16%0.16%1.91%2.67%2.78%5.44%5.50%5.67%12.26%13.42%19.38%30.45%0%5%10%15%20%25%30%35% 
 
 
 
                                                            
1.3) The need to avoid past errors 

The financial crisis showed also how, if not properly structured, securitisation can magnify financial 
instability  and  inflict  serious  damage  to  the  wider  economy.  Unsoundly  structured  securitisation 
products  were  central  in  transforming  a  relatively  local  problem  such  as  the  slowdown  in  US 
housing  prices  into  a  near-meltdown  of  the  global  financial  system  in  2008  (see,  among  others, 
BCBS-IOSCO (2009), Gorton (2008), Shin (2009), Coval et al. (2009)). The box below provides a 
summary of what went wrong in securitisation markets during and before the global financial crisis 
(see next page). 

In  order  to  avoid  the  errors  of  the  past,  it  is  thus  paramount  to  foster  only  a  well-functioning 
securitisation  market  whose  features  are  conductive  to  financial  stability,  healthy 
intermediation and growth. To do so, the Commission can rely also on the substantial amount of 
work that EU and international organisations have already invested in identifying the characteristics 
associated with safe and performing securitisations. 

1.4) International dimension/relation with previous work 

A  substantial  amount  of  work  has  already  been  devoted  to  such  a  goal  by  a  number  of 
European  and  international  institutions.  The  European  Commission  has  already  introduced 
incentives  for  properly  structured  securitisation  in  the  Delegated  Regulations  for  Solvency  II 
(2015/35) and the Liquidity Coverage Ratio (henceforth LCR - 2015/62), adopted in October 2014. 
The ECB and the BoE have carried out work on the topic. International standards to identify simple, 
transparent and comparable securitisations are being developed by a Task  Force led by the BCBS 
and IOSCO, while the European Banking Association (EBA) has carried out a similar exercise for 
European banking standards. 

Fostering the market for simple, transparent and standardised securitisation is also a central part of 
the wider effort launched by the Commission to support investment and growth in Europe. As 
such  it  is  a  continuation  of  the  work  started  with  the  Communication  on  long-term  financing 
published in March 2014 and it is a central element of the Capital Markets Union  project and the 
Investment  Plan  for  Europe  launched  in  November  2014.  This  impact  assessment  draws  on  this 
work  and  assesses  the  different  options  available  to  support  the  re-emergence  of  a  securitisation 
market conductive to growth and stability. 

8 

 
 
 
 
 
 
 
 
 
 
 
 
Role of Securitisation in the 2007-2008 financial crisis 

Securitisation  played  a  role  in  amplifying  systemic  risk  by  facilitating  excessive  leverage  and 
risk concentration across the financial sector. The chart below presents a stylized model of the 
four key elements of the self-reinforcing securitisation chain: 
i) poor underlying loan origination practices; 
ii) unprecedented issuance of complex and opaque securitised products;  
iii) over-reliance on credit rating agencies,  
iv) leveraged and unleveraged investors. 

9 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2) PROCEDURAL ISSUES AND CONSULTATION OF 
INTERESTED PARTIES 

2.1) Procedural issues 

The first meeting of the impact assessment steering group took place on 10 April 2015. The second 
meeting took place on 19 May 2015 and the third one on 8 June 2015. DGs involved in the steering 
group  were  ECFIN,  GROW,  SG,  LS,  JUST  and  COMP.  The  meeting  of  the  Regulatory  Scrutiny 
Board (RSB) took place on 15 July 2015. 

The RSB gave a positive opinion and recommended the following changes: 

  The report should go beyond the EU level to also explain the situation in the Member States. In 
particular,  it  should  provide  an  overview  of  the  situation  of  loan  and  securitisation  markets 
across Member States and their likely evolution in the absence of EU intervention. Moreover, it 
should show the differentiated impact of the policy options in Member States. 

  The report should clearly link the objectives of the initiative with the identified problems. To this 
end,  the  report  should  describe  the  larger  macroeconomic  context  and  indicate  the  relative 
importance  of  a  revival  of  the  securitisation  market  as  one  of  the  instruments  to  improve  the 
situation  of  the  banking  sector,  increase  the  provision  of  bank  credit  and  prop-up  economic 
activity. 

  The  analysis  of  the  impacts  should  provide  a  balanced  overview  of  the  pros  and  cons  of  each 
policy  option  and  discuss  possible  risks  that  may  prevent  the  attainment  of  the  objectives.  It 
should also describe existing and future risk mitigation instruments. 

These comments have been addressed and incorporated in this final version.  

2.2) External expertise and consultation of interested parties 

Stakeholder consultation 

A  public  consultation  on  a  possible  EU  framework  for  simple,  transparent  and  standardised 
securitisation was carried out between 18 February and 13 May 2015. 121 replies were received. On 
the whole, the consultation indicated that the priority should be to develop an EU-wide framework 
for simple, transparent and standardised securitisation (see summary of replies in Annex 7). 

Respondents generally agreed that the much stronger performance of EU securitisations during the 
crisis compared to US ones needs to be recognised and that the current regulatory framework, needs 
modification. This would help the recovery of the European securitisation market in a sustainable 
way  providing  an  additional  channel  of  financing  for  the  EU  economy  while  ensuring  financial 
stability. 

External expertise 

The  Commission  has  gained  valuable  insights  through  its  participation  in  the  discussions  and 
exchange  of  views  informing  the  BCBS-IOSCO  joint  task  force  on  securitisation  markets.  The 

10 

 
 
 
 
Commission has also attentively followed the work relating to key aspects of securitisation carried 
out  by  the  Joint  Committee  of  the  European  Supervisory  Authorities  (ESAs)  as  well  as  by  its 
members  separately  (EBA,  ESMA,  EIOPA).  Three  public  consultations,  carried  out  in  2014  by 
ECB-Bank  of  England  (BoE),  Basel  Committee  for  Banking  Supervision  (BCBS)  -  International 
Organisation  of  Securities  Commissions  (IOSCO)  and  EBA  respectively,  have  gathered  valuable 
information  on  stakeholders'  views  on  securitisation  markets.  In  its  own  consultation,  the 
Commission  has  built  on  these,  focusing  on  gathering  further  details  on  key  issues.  Fruitful 
meetings and exchange of ideas with European central banks and the IMF have enriched the debate 
and  understanding  of  the  issues  at  stake.    On  the  whole,  these  international  level  consultations 
confirm  the  views  expressed  in  the Commission’s  own  consultation,  and  provide  some  additional 
feedback on the relative merits of some of the proposed policy options. 

3) PROBLEM DEFINITION 

3.1) Problem drivers 

3.1.1) Investor stigma 

A comparison between default rates in securitised products issued in the US and in the EU shows 
immediately the different performance of the two asset classes during the crisis. Looking at AAA-
rated securities, US products backed by residential mortgages (RMBS) reached default rates of 16% 
(subprime)  and  3%  (prime).  By  contrast,  default  rates  of  EU  RMBS  never  rose  above  0.1%  (see 
chart 5).  

Chart 5 – Default rates of AAA-rated securitised products, EU vs. US3  

Source: EBA  – See glossary annex for acronyms explanation 

3 The chart shows all data provided in the EBA study, which covers the 2001-2010 period. Throughout the impact 
assessment the full time-span of data available has been shown. 

11 

 
 
 
 
 
 
 
                                                            
The  divergence  is  even  bigger  for  BBB-rated  products  where  US  RMBS'  default  rates  peaked  at 
62% and 46% (subprime and prime, respectively) while EU products' default rates peaked at 0.2% 
(see  Chart  6).  Consequently,  as  noted  in  the  introduction,  losses  generated  by  US  products  are  a 
multiple of those generated by EU securitisations (see Chart 7). 

Notwithstanding their strong performance during the crisis, EU securitisation markets have suffered 
a  significant  reduction  in  issuance  since  2008  and  have  not  recovered  yet.  Furthermore,  a  much 
higher  part  of  this  issuance  is  still  not  being  placed  to  investors,  but  retained  by  issuers  instead. 
There is a strong consensus among European and international supervisors, regulators, central banks 
and market participants that the post-crisis reputation of securitised products issued in Europe was 
severely  tarnished  by  practices  and  events  taking  place  in  the  US.  In  the  summer  of  2014,  the 
BCBS-IOSCO task force in charge of reviewing developments in securitisation markets conducted 
a survey among market participants. The survey asked contributors which were, in their views, the 
factors determining market developments since the crisis. The most common factor mentioned was 
investor  perception  (see  Annex  3).  This  led  BCBS-IOSCO  to  conclude:  "investors'  confidence  in 
securitisation  has  eroded.  From  the  onset  of  the  crisis,  securitisations  were  perceived  as  too 
complex  and  subject  to  too  many  conflicts  of  interest  and  asymmetry  of  information  among 
securitisers, originators and investors". 

Chart 6 - Default rates of BBB-rated securitised products, EU vs. US 

Source: EBA – See glossary annex for acronyms explanation 

In a similar fashion, the first impediment to EU securitisation markets listed by EBA is "post-crisis 
stigma" (see EBA 2014). The regulatory authority points out that high level of defaults and losses in 
US  markets  have  contributed  "to  the  spreading  of  the  stigma  attached  to  bad  performing  asset 
classes  also  on  those  instruments  that  passed  the  test  of  the  crisis  with  relatively  good 
performances"  

The same issues are highlighted by the ECB and the Bank of England: "Potential impediments to its 
[the securitisation market's] revival include a mix of temporary factors, such as the current interest 
rate environment and the stigma attached to securitisation, and more structural factors" (see ECB-
BoE  2014).  The  two  central  banks  also  notice  how  the  EU  securitisations'  reputation  has  been 
tarnished  by  practices  mostly  prevalent  in  the  US  (poor  underwriting  standards,  complex 
structures).  

12 

 
 
 
 
3.1.2) insufficient risk-sensitivity of the regulatory framework 

Set  in  the  wake  of  the  US  securitisation  markets  crash,  capital  requirements  for  exposures  to 
securitisation  have  been  calibrated  on  such  markets'  performance.  These  have  however  been  the 
worst performers in terms of default and losses generation. Indeed, as shown by Chart 7, the vast 
majority  of  losses  in  securitisation  markets  globally  arose  in  US  subprime  mortgage-backed 
securities and collateralised debt obligations (CDOs).   

Chart 7 – Losses generated in 2000-2013 by securitised products, by geographical area 

Source: Fitch quoted by EBA – See glossary annex for acronyms explanation 

The implications of this regulatory approach are stated clearly by EBA in its latest assessment of the 
capital treatment of securitised products in Europe: "Calibrating capital requirements following a 
one-size-fits-all  approach  led  to  a  focus  on  the  crisis  performance  of  the  worst  segments  of  the 
market  (US  Subprime  and  CDOs).  The  consequence  is  an  unduly  conservative  treatment  of 
relatively  less  risky  securitisations,  showing  a  very  good  historical  performance  during  the  crisis 
years,  in  terms  of  both  observed  defaults  and  losses.  […]  the  substantially  different  performance 
across jurisdictions and asset classes has led the current framework to be less risk sensitive". (EBA 
2015) 

The limited risk sensitivity of the current regulatory capital framework (i.e. the detachment between 
the risk profile of a securitisation deal and the capital charges imposed on it) comes from the fact 
that  the  framework  differentiates  among  securitised  products  almost  exclusively  on  their  credit 
rating4.  In  other  words,  two  AAA-rated  securitisation  deals  will  generate  the  same  capital 
requirements  irrespective  of  key  characteristics  such  as  the  homogeneity  of  the  assets  underlying 

4  One  of  the  weaknesses  of  the  securitisation  framework  revealed  during  the  global  financial  crisis  is  the  fact  that  the  capital 
requirements  framework  for  securitisation  places  undue  mechanistic  reliance  on  external  ratings.  The  G20  Leaders  called  on 
jurisdictions  to  address  adverse  incentives  arising  from  the  use  of  credit  rating  agency  (CRA)  ratings  in  the  regulatory  capital 
framework (communiqué available at www.g20.utoronto.ca/2010/to-communique.html) 

13 

 
 
 
 
                                                            
the  deal,  the  transparency  and  completeness  of  the  underlying  assets'  credit  history  and  the 
simplicity of the deal's structure5.  

These  characteristics  have  however  determined  the  performance  of  securitisation  deals  during the 
crisis, with simpler and more transparent products generating losses substantially smaller than more 
complex and opaque products. The difference is shown neatly in a recent study of the EBA, who 
split  the  securitisation  universe  in  two  (see  EBA  2014).  On  one  side  the  products  that  applied 
principles of alignment of interest between originators of the loans and investors (i.e. risk retention), 
simple  structures  (no  re-securitisation  such  as  CDO-squared)  and  no  maturity  transformation  (i.e. 
EU RMBS or auto loans ABS); on the other side the rest. EBA has then compared the default rate 
of securitisations with the same credit rating but belonging to the two groups.  

Looking  at  AAA-rated  deals,  while  those  applying  the  above  principles  of  simplicity  and 
transparency  never  showed  on  average  a  default  rate  higher  than  0.1%,  the  others'  default  rate 
peaked  at  11.8%.  The  difference  was  even  bigger  among  BBB-rated  deals,  where  "principled" 
securitisations' default rates peaked at around 1% while the others peaked at 42% (see charts 8-9).   

The very different default performance of these securitisation groups is reflected in the losses they 
generated.  Asset  classes  following  the  principles  above  (EU  RMBS  and  ABS)  generated 
respectively 0.2% and 0.1% losses in 2000-2013. In the same period, the other assets such as US 
RMBS and CMBS6 generated losses in the 6-10% range. More complex, structured credit products 
such as US CDOs and CDO-squared7 generated 28.2% losses (see structured credit "SC category" 
in Chart 7 above). 

Even leaving out the most complex structures (such as CDOs) and focusing on some of the most 
common mortgages backed securities (e.g. RMBS), requiring the same capital charges for investing 
in an RMBS respecting the principles of simplicity and transparency and another not fulfilling them 
would be an insufficiently risk sensitive approach.  

Chart 8 – Default rates of AAA-rated securitised products, qualifying vs. non-qualifying 

Source: EBA  

5 The only key exception being re-securitised products (such as CDOs, CDO-squares), which have higher capital requirements due to 
their more complex structure. 
6 Commercial Mortgage-Backed Securities (ABS backed by commercial mortgages) 
7 CDO stands for Collateral Debt Obligations; "CDO-squared" are CDOs of CDOs  

14 

 
 
 
                                                            
The  current  capital  prudential  framework  is  however  mostly  based  on  the  securitisation  rating. 
Investing  in  an  AAA-rated  RMBS  will  require  today  a  capital  allocation  of  0.56%  to  1.7%, 
depending on the approach followed in the Capital Requirement Regulation (CRR) (575/2013) used 
by the issuing bank (standardised and internal-rating based) and the seniority of the tranche bought. 
These charges are a multiple of the losses generated by EU RMBS throughout the crisis, whatever 
their rating. Similar arguments can be applied on BBB-rated deals, where the same capital charges 
are  currently  imposed  on  EU  products  with  an  historical  1%  default  rate  and  US  products  with  a 
default  rate  42  times  higher.  The  "one-size-fits-all"  approach  to  capital  requirements  implies  that 
charges are quite disconnected from the risk profile of the products they are imposed on.  

Chart 9 – Default rates of BBB-rated securitised products, qualifying vs. non-qualifying 

Source: EBA  

Supporting this statement, the ECB and BoE have run an exercise similar to EBA's with a different 
procedure  and  reached  the  same  conclusions.  The  central  banks  have  compared  the  risk  weights 
proposed in the new (Basel III) framework for senior tranches of securitisations (light blue columns 
in  Fig.  9)  with  the  weights  that  would  have  covered  the  losses  generated  during  the  crisis 
securitisations (dark blue columns in Fig. 9). They found that the proposed weights are a multiple of 
those sufficient to cover losses generated by EU products but are still considerably lower than the 
weights needed to cover US-generated losses.  

15 

 
 
 
 
 
 
 
 
 
 
 
Chart 10 – Risk weights covering losses and risk weights proposed by Basel Committee  

Source: ECB-BoE  

Low risk sensitivity appears also in other aspects of the  capital regulatory framework. Comparing 
the  charges  imposed  on  a  securitisation  deal  with  those  imposed  on  the  assets  underlying  such 
product,  if  held  directly,  shows  that  the  former  is  a  multiple  of  the  latter.  In  other  words,  the 
prudential  capital  a  bank  will  be  required  to  hold  for  a  portfolio  of  its  loans  is  a  fraction  of  the 
capital that will be required to  investors in  a securitisation of the same portfolio of loans. This is 
termed "non-neutrality" of the capital treatment. 

As securitisation adds a layer of risk in the form of complexity and model uncertainty, the capital 
charges for a securitised product should be higher than for its underlying assets (i.e. neutrality is not 
justified).  Nevertheless,  the  degree  of  non-neutrality  (i.e.  the  additional  capital  requirements 
imposed  on  the  securitisation  deal)  does  not  appear  fully  proportionate  by  the  increase  in  risk 
introduced by the securitisation process. EBA calculates, for example, that the capital imposed on a 
representative EU RMBS is between 1.7 and 2.4 times higher than the capital required to hold the 
same portfolio of mortgages unsecuritised (see EBA 2014).  

The  multiple  becomes  even  higher  for  RMBS  or  SME  loans-backed  securitisations  issued  in 
countries with low sovereign credit ratings. The EBA has calculated that holding the representative 
Spanish  and  Portuguese  RMBS  requires  more  than  5  times  the  capital  required  to  hold  the 
underlying portfolios directly (see Fig. 10 below – pink columns represent capital requirements for 
holding  the  mortgages  directly,  the  multi-coloured  columns  represent  capital  requirements  for 
holding the same mortgages securitised; the square represent the ratio between the two). Similarly, 
holding  the  representative  Spanish  and  Italian  securitisation  backed  by  SME  loans  requires  more 
than  3  times  the  capital  required  to  hold  the  underlying  SME  loans  directly.  Additional  risks 
introduced by  securitisation's  complexity  and model  uncertainty  are  unlikely  to  multiply  potential 
losses  by  a  factor  of  3  or  even  5.  While  the  presence  of  non-neutrality  is  justified,  it  is  thus  the 
degree  of  it  that  does  not  seems  so.  The  consequence  is,  again,  a  lack  of  proportionality  in  the 
relationship between the riskiness of the securitisation bought and the capital charges required to do 
so.  

16 

 
 
 
 
Chart 11 – Capital charges on residential mortgages pools – securitised vs. underlying  

Source: EBA 

One  last  consideration  to  be  made  is  on  the  consistency  of  capital  charges  required  for  different 
types of investors being exposed to the same product. Substantial differences (between the capital 
treatment of banks and insurance companies investing in the same product) have been documented. 
In a comparative study of the current Basel 2.5 and Solvency II frameworks for banks and insurance 
prudential  capital  regulations,  the  authors  conclude  that  there  exists  "considerable  differences  in 
required capital for the same type and amount of asset risk, burdening insurers with almost twice as 
high capital requirements than banks." (see Laas and Siegle, 2014).  

3.1.3) Lack of consistency and standardisation  

In  recent  months  the  Joint  Committee  of  the  European  Supervisory  Authorities  carried  out  an 
assessment  of  the  existing  EU  framework  regarding  the  requirements  relating  to  disclosure,  due 
diligence,  supervisory  reporting  and  risk  retention.  The  Committee's  objective  was  to  assess 
whether the existing framework has been set up in a consistent manner across the many pieces of 
legislation  regarding  securitisation  introduced  after  the  crisis.  The  Committee's  work  highlighted 
how  current  due  diligence  requirements  show  substantial  differences  depending  on  the  investors 
involved  (banks,  insurers,  alternative  investment  funds,  etc.)  while  common  requirements  can  be 
justified for some investor types (see JC 2015). It also highlighted the importance of accompanying 
due diligence requirements with disclosure requirements that render the due diligence feasible and 
not  too  onerous  for  investors.  The  importance  of  giving  investors  access  to  standardised  loan-by-
loan  data  is  another  area  where  further  work  is  necessary.  Finally,  on  top  of  differences  and 
inconsistencies in  the EU regulatory framework, there are national differences in a variety of key 
aspects affecting securitisation.  

Limited  standardisation  of  information  is  particularly  detrimental  to  the  securitisation  of  SME 
loans.  It  makes  it  harder  for  prospective  investors  to  conduct  risk  assessments,  compare  the  risk-
return characteristics between comparable products, making them less attractive. In addition, credit 
rating agencies typically require 3-5 years of financial performance and credit history when rating a 
securitised  product.  This  includes  information  on  outstanding  balances,  collections,  collateral, 
delinquencies, write-offs, recoveries, to estimate the probability distribution of losses that may be 
generated by the pool. If information is missing or inadequate, as is often the case for small and new 
companies, this probability distribution cannot be reliably estimated and credit rating agencies may 
17 

 
 
 
 
refrain  from  providing  a  rating.  This  immediately  excludes  potential  investors  constrained  by 
mandates to only invest in rated products. 

3.2) Problems 

3.2.1) Low demand for securitisation products 

As  noticed  above,  issuance  of  securitised  products  in  the  EU  has  dropped  88%  since  the  crisis 
began.  While  in  2007  70%  of  the  issuance  volume  was  publicly  placed  to  investors,  only  a  year 
later  that  percentage  had  dropped  to  13%  (see  AFME  2014).  The  subprime  crisis  had  changed 
drastically investor perception of securitised products and issuers were unable to place most of it, 
being thus forced to retain it. While some improvement has taken place since, the situation is still 
far from normalisation. Notwithstanding the reduction in issuance seen since 2008, its vast majority 
(67% in 2014) is still retained by issuers and used for central bank refinancing operations. Demand 
for EU securitisation products is thus a fraction of what it used to be before the crisis. Yet this has 
little  to  do  with  the  performance  of  EU  securitisation  itself.  The  events  in  the  US  (and  their 
damaging  effects  on  EU  investors)  have  altered  the  perception  of  the  latter  with  regard  to  all 
securitisation  products,  without  geographical  or  asset  class  distinctions.  This  is  in  line  with  the 
BCBS-IOSCO questionnaire ranking investor perception as the most important factor contributing 
to the decline of securitisation markets since the crisis. 

3.2.2) Simple and transparent securitisation products disadvantaged 

EBA, BoE and ECB work shows that the capital charges in the current regulatory framework are 
multiples of those that would have covered the losses generated by EU securitised products during 
the global financial crisis. It is clear that these products are being disadvantaged by the regulatory 
framework. This is one of the key reasons behind the persistent subdued state of EU securitisation 
issuance.  As  EBA  put  it,  the  consequence  of  the  capital  regulation's  scarce  differentiation  among 
securitised  products  is  "an  unduly  conservative  treatment  of  relatively  less  risky  securitisations, 
showing  a  very  good  historical  performance  during  the  crisis  years,  in  terms  of  both  observed 
defaults and losses." 

The negative effects of the scarce risk-sensitivity in the regulatory treatment are exacerbated by its 
interaction  with  sovereign  caps  employed  by  some  credit  rating  agencies.  The  conservative 
regulatory  framework,  combined  with  its  mechanistic  reliance  on  credit  ratings,  interacts  with 
sovereign  rating  caps  and  renders  the  regulatory  treatment  of  securitised  products  issued  in  low-
rated countries punitive and sometimes disconnected from the product's risk profile. This is because 
securitisation products  can have  higher credit rating than that of the country the issuer  resides in. 
The  difference  is  however  "capped"  (i.e.  it  cannot  be  more  than  a  certain  number  of  steps).  It 
follows that securitisation products issued in countries with low sovereign ratings are bound to have 
low ratings and punitive capital charges, no matter how safe, simple and transparent these products 
may  be  (see  Chart  12).  This  puts  all  securitisations  issued  in  the  periphery  at  huge  disadvantage, 
irrespective of their risk profile, as discussed in section 3.1.2.   

18 

 
 
 
 
 
 
 
 
Chart 12 – Country sovereign ratings and maximum achievable securitisation ratings  

Source: Barclays – See glossary annex for acronyms explanation 

Credit rating reliance also introduces "cliff edge" risks as downgrades may translate into substantial 
harshening of the regulatory treatment of a securitisation deal. This results from the overreliance on 
external  credit  ratings  in  the  capital  treatment  of  securitisations,  leading  to  fire-sales  and  such 
instruments  by  financial  market  participants  to  pre-empt  higher  capital  charges  in  the  case  of  a 
downgrade. Again, this is particularly damaging when a securitisation deal has its rating capped by 
a  sovereign  rating.  In  this  case,  a  downgrade  of  the  sovereign  translates  in  a  securitisation 
downgrade and thus a substantial tightening of the regulatory treatment. Furthermore, credit rating 
agencies link the securitisation rating with that of the many agents present in the securitisation deal 
(the  so-called  "ancillary  services",  for  example  providers  of  interest  rate  swaps  or  guaranteed 
investment accounts). This implies that the tightening of the regulatory treatment can be triggered 
by a downgrade of an ancillary service as well.  

3.2.3) High operational costs for investor and issuers 

The  availability  of  data  on  underlying  assets  and  monitoring  metrics  varies  considerably  between 
securitisation deals. This lack of standardisation is also reflected in different structures, availability 
and form of legal documentation, reporting practices and types of assets. The lack of standardisation 
increases the costs of implementing due diligence and credit analysis for investors. These costs may 
also  be  unnecessarily  increased  by  the  implementation  mechanism  currently  envisaged  for  risk 
retention rules. These risk retention rules hold investors responsible for ensuring the issuer complies 
with the rules but do not ensure the data necessary to prove compliance are disclosed to the investor 
in a standardised and consistent way.    

On top  of this,  not always  justified differences in  disclosure and due diligence requirements have 
been identified across different parts of the EU legislation on securitisation (as discussed in section 
3.1.3  above).  The  situation  is  further  complicated  by  the  specific  European  context,  where 
substantial differences across jurisdictions exist on all these aspects and on others such as the tax 
and  accounting  treatment  of  securitised  products,  as  well  as  the  legal  frameworks.  This  lack  of 
standardisation  increases  the  costs  of  due  diligence  for  investors.  These  in  turn  reduce  the 
attractiveness  of  cross-border  investment  in  securitisation,  limiting  the  scope  for  EU  market 
integration  and  economies  of  scale.  Issuers  face  additional  set-up  and  disclosure  costs  because  of 
the need to adapt these differences. This argument is put forward by the ECB and the BoE in their 
joint paper quoted above (see ECB-BoE 2014).  

19 

 
 
 
 
 
All these considerations are even more important in the context of SME loans securitisation. This is 
generally more expensive than securitising other more standard types of loans such as mortgages. In 
order  to  be  pooled,  a  portfolio  of  loans  must  indeed  satisfy  some  key  conditions  such  as  a  credit 
history,  clarity  on  collateral  and  its  availability,  and  sectoral  diversification.  From  a  bank’s 
perspective,  building  a  portfolio  with  such  characteristics  is  more  difficult  with  SME  loans  than 
with  residential  mortgages,  where  there  is  more  uniformity  of  loans,  longer  maturity  tenors,  and 
regularity  of  payment  streams  due  to  amortisation  (see  IMF  2014b).  Once  a  suitable  portfolio  of 
SME  loans  is  built,  the  bank  faces  also  higher  than  average  costs  of  setting  up  and  operating  the 
securitisation  structure.  For  example,  the  granular  information  and  variety  of  collateral  related  to 
SME  loan  portfolios  require  the  creation  of  expensive  IT  systems  and  these  are  then  used  for 
portfolios  that  tend  to  be  smaller  in  SME  than  in  other  securitisations.  The  same  is  true  for  legal 
costs and documentation.  

While  these  characteristics  are  intrinsic  to  SME  loans  securitisation  and  thus  unavoidable,  their 
negative effect is exacerbated by limited standardisation or outright lack of data on SME loans. As 
the IMF notes: "operational constraints, such as a lack of uniform reporting standards and credit 
scoring, make securitization of SME-related claims more costly than, for example, mortgages" (see 
IMF  2014b).  From  an  investor  point  of  view,  the  lack  of  data  and  the  heterogeneity  of  the 
underlying  loans  make  it  at  best  time-consuming  and  costly  and  at  worst  impossible  to  carry  out 
own credit analysis and due diligence. This view is shared by the ECB and BoE who affirm in their 
joint  paper:  "facilitating  investors’  access  to  credit  data  could  be  especially  beneficial  for 
securitisations  of  asset  classes  such  as  SME  loans  where  the  level  of  historical  performance 
information available between incumbents and new entrants is most obviously uneven and generally 
lacking" (see ECB-BoE 2014). 

With set-up and operational costs higher than for other types of securitisations and generally lower 
returns on the underlying assets8, structuring an SME securitisation that is profitable for the issuer 
and  at  the  same  time  guarantees  a  satisfactory  return  to  the  investor  is  often  unfeasible.  This  is 
shown by an IMF study estimating the return an investor (bank or insurance company) would obtain 
at different market return rates  by investing  in a securitised SME deal or  holding the  portfolio of 
SME  loans  directly.  The  Fund  finds  that  "investment  in  highly  rated  senior  [SME  ABS]  bonds 
would  result  in  a  Return  on  equity  (RoE)  of  about  11.5  percent  for  banks  and  4.5  percent  for 
insurers. This is well below the RoE that banks and insurers would earn by simply holding the SME 
loan  on  their  books  (14.5  percent  and  7.5  percent,  respectively)".  In  jurisdictions  where  the 
sovereign rating cap binds securitised product into low credit ratings, the disadvantage in investing 
in SME securitisation is even bigger, rendering SME securitisation even more uneconomical. 

The  specificity  of  SME  loans  has  been  dealt  with  by  market  participants  developing  dedicated 
instruments  (such  as  ABCP  –  asset-backed  commercial  papers)  and  structuring  techniques  (so 
called  "synthetic"  securitisations).  While  these  instruments  or  techniques  may  be  better  suited  to 
certain  types  of  SME  loans  securitisation,  their  specificities  do  not  fit  in  the  current  regulatory 
framework,  impacting  on  operational  costs  and  limiting  the  products'  attractiveness  (please  see 
Annex 5 for a detailed analysis of synthetic securitisation. Annex 6 provides a detailed analysis of 
the problems affecting SME loans' securitisations and the solutions proposed within this initiative. 

8 SME loans tend to have lower returns than, for example, credit card receivables. 

20 

 
 
 
                                                            
3.3) Consequences 

Before  the  crisis  the  securitisation  market  was  a  growing  channel  of  alternative  funding  to  banks 
and  the  European  economy.  In  addition  its  loss  performance  during  the  crisis  showed  good 
resilience.  As  a  consequence  of  the  problems  highlighted  in  this  chapter,  as  well  as  the  subdued 
macroeconomic  environment  described  in  the  introduction,  this  market  is  now  moribund.  A 
financing  channel  for  the  EU  economy  is  impaired,  with  substantial  detriment  to  potential 
contribution  to  growth  and  employment.  Without  securitisation,  banks'  ability  to  reduce  their 
balance  sheet  by  selling  assets  is  indeed  constrained.  As  a  consequence,  the  current  need  for 
deleveraging  imposes  banks  to  shrink  their  balance  sheets  by  reducing  credit  provision.  In  the 
European  context,  where  80%  of  financial  intermediation  takes  place  through  banks,  the 
implications for growth are relevant.  

From  a  long  term  perspective,  the  moribund  state  of  the  securitisation  market  deprives  the  EU 
economy of a capital market that could provide additional funding when the banking channel cannot 
because of its own dynamics.  

These dynamics are less relevant in the US where issuance has restarted growing after a substantial 
drop in 2008.  US 2014 issuance was still less than half than in 2007 but a positive trend is clearly 
visible.  This  is  however  mostly  ascribable  to  public  guarantees  from  state  agencies  (Fannie  Mae, 
Freddie  Mac  and  Ginnie  Mae),  which  cover  the  vast  majority  of  the  market.  Such guarantees  are 
however  not  feasible  in  Europe  where  an  EU-level  shared  guarantee  fund  many  times  the  size  of 
currently existing supranational guarantors would be needed. It would also not be advisable as such 
schemes  transfer  risk  from  mortgage  markets  to  the  public  sector,  as  recently  highlighted  by  the 
IMF (see IMF 2014). 

A financing channel and 
risk transfer tool for the 
EU economy is lost, in 
particular for SMEs, 
leading to slower credit 
recovery, growth and 
job creation 

Chart 13 - Drivers, problems and consequences chart 

Investor stigma 

Low demand for 
securitisation products 

Insufficient risk-
sensitivity in the 
regulatory framework 

Simple and transparent 
securitisation products 
disadvantaged 

Lack of consistency and 
standardisation 

High operational costs 
for investors and issuers 

21 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4) OBJECTIVES 

4.1) General, specific and operational objectives 

In light of the analysis of the problems above, the general objective is to revive a safer securitisation 
market  that  will  improve  the  financing  of  the  EU  economy,  weakening  the  link  between  banks 
deleveraging needs and credit tightening in the short run, and creating a more balanced and stable 
funding structure of the EU economy in the long run. This should in turn benefit end users of credit 
intermediation: households, SMEs and larger corporations.  

Reaching these  general objectives  requires  the achievement  of  the  following  more  specific  policy 
objectives: 

Remove stigma from investors and regulatory disadvantages for simple and transparent securitisation 
products (tackling problems 1 and 2 described in sections 3.1.1 and 3.1.2) 

Reduce/eliminate unduly high operational costs for issuers and investors (tackling problem 3 described in 
section 3.1.3) 

These in turn require the attainment of the following operational objectives: 

Differentiate simple, transparent and standardised securitisation ('STS' henceforth) products from more 
opaque and complex ones. This objective will be measured against the difference in price of STS versus 
non-STS products. If this objective is achieved, this difference should increase. This should also trigger an 
increase in the supply of STS products, reason for which the achievement of this objective will also be 
measured with the growth in issuance of STS products versus non-STS ones. 

Support the standardisation of processes and practises in securitisation markets and tackle regulatory 
inconsistencies. This objective will be measured against: 1) STS products' price and issuance, 2) The degree 
of standardisation of marketing and reporting material and 3) feedback from market practitioners on 
operational costs' evolution.  

4.2) Consistency of the objectives with other EU policies 

The identified objectives are coherent with the EU's fundamental goals of promoting a harmonised 
and sustainable development of economic activities, a high degree of competitiveness, and a high 
level of consumer protection, which includes safety and economic interests of citizens (Article 169 
TFEU). 

4.3) Consistency of the objectives with fundamental rights  

Future  legislative  measures  on  securitisation,  including  appropriate  sanctions,  need  to  be  in 
compliance  with  relevant  fundamental  rights  embodied  in  the  EU  Charter  of  Fundamental  Rights 
("EU  CFR"),  and  particular  attention  should  be  given  to  the  necessity  and  proportionality  of  the 
legislative  measures.  Only  the  protection  of  personal  data  (Article  8),  the  freedom  to  conduct  a 

22 

 
 
 
 
 
business (Art. 16) and consumer protection (Art. 38) of the EU Charter of Fundamental Rights are 
to some extent relevant. Limitations on these rights and freedoms are allowed under Article 52 of 
the  Charter.  The  objectives  as  defined  above  are  consistent  with  the  EU's  obligations  to  respect 
fundamental rights. However, any limitation on the exercise of these rights and freedoms must be 
provided  for  by  the  law  and  respect  the  essence  of  these  rights  and  freedoms.  Subject  to  the 
principle of proportionality, limitations may be made only if they are necessary and genuinely meet 
the  objectives  of  general  interest  recognised  by  the  Union  or  the  need  to  protect  the  rights  and 
freedoms of others. 

In  the  case  of  the  securitisation  legislation,  the  general  interest  objective  which  justifies  certain 
limitations  of  fundamental  rights  is  the  objective  of  ensuring  the  market  integrity  and  financial 
stability. The freedom to conduct a business may be impacted by the necessity to follow certain risk 
retention  and  due  diligence  requirements  in  order  to  ensure  an  alignment  of  interest  in  the 
investment  chain  and  to  ensure  that  potential  investors  act  in  a  prudent  manner.  As  regards 
protection  of  personal  data  the  disclosure  of  certain  loan  level  information  may  be  necessary  to 
ensure  that  investors  are  able  to  conduct  their  due  diligence.  It  is  however  noted  that  these 
provisions are currently already in place in EU law. As regards the new securitisation legislation it 
should not impact on consumers, since the instrument are not intended for consumers. However, for 
all  classes  of  investors  STS  securitisation  would  enable  better  analyse  the  risks  for  the  products 
which  contributes  to  investor  protection.  We  have  focused  our  assessment  on  the  options  which 
might limit these rights and freedoms 

4.4) Subsidiarity and proportionality 

According to the principle of subsidiarity (Article 5 (3) of the TEU), action on EU level should be 
taken only when the objectives of the proposed action cannot be achieved sufficiently by Member 
States  alone  and  can  therefore,  by  reason  of  the  scale  or  effects  of  the  proposed  action,  be  better 
achieved by the EU. The objective of the initiative is to revive a safe securitisation market that will 
improve the financing of the EU economy and ensures financial stability and investor protection. 

Securitisation  products  are  part  of  EU  financial  markets  which  are  open  and  integrated. 
Securitisation links  different financial institutions from different  Member States and non-Member 
States:  often  banks  originate  the  loans  that  are  securitised,  while  financial  institutions  such  as 
insurers and investment funds invest in these products and they do so across European borders, but 
also across the Atlantic. The securitisation market is therefore European/international in nature. 

Individual  Member  State  action  will  not  be  able  to  remove  the  stigma.  The  EU  has  advocated  at 
international level for standards to identify simple, transparent and standardised (STS) securitisation 
that  performed  well  during  the  financial  crisis.  Such  standards  will  help  investors  to  identify 
categories  of  securitisations  that  have  performed  well  during  the  financial  crisis  and  which  allow 
them to analyse the risks involved. 

Although implementation of these international standards could be done by Member States, it could 
lead to divergent approaches in Member States, which would hamper the removal of the stigma and 
would create a de facto barrier for investors which would have to enter into the details of the each 
Member State's framework. As regards the insufficient risk-sensitivity of the regulatory framework, 
the  relevant  framework  is  currently  laid  down  in  EU  law,  in  particular  the  Capital  Requirements 

23 

 
 
Regulation  for  banks  and  in  the  Solvency  II  Directive  for  insurers9.  Making  the  regulatory 
framework more risk-sensitive can thus only be achieved by amending these EU legal acts and thus 
only by EU action. It should also be noted that to be able to define a more risk-sensitive regulatory 
treatment  for  STS  securitisation  requires  the  EU  to  define  what  STS  securitisation  is,  since 
otherwise the more beneficial regulatory treatment would in different Member States be available 
for  different  types  of  securitisations.  This  would  lead  to  an  un-level  playing  field,  to  regulatory 
arbitrage  which  in  the  end  could  work  against  the  objective  to  remove  the  stigma  attached  to 
securitisation.  As  regards  the  lack  of  consistency  and  standardization  EU  law  has  already 
harmonised a number of elements on securitisation, in particular rules on disclosure, due diligence, 
supervisory reporting and risk retention. Those provisions have been developed in the framework of 
different  legal  acts  (CRR,  Solvency  II,  UCITS,  CRA  Regulation,  and  AIFMD)  which  has  led  to 
certain  discrepancies  in  the  requirements  that  apply  to  different  investors.  Increasing  their 
consistency and further standardisation of these provisions can only be done by EU action. 

The  action  proposed  would  give  a  clear  and  consistent  signal  throughout  the  EU  that  certain 
securitisations performed well even during the financial crisis, that they can be useful investments 
for  different  types  of  professional  investors  for  which  regulatory  barriers  (lack  of  an  appropriate 
prudential treatment, inconsistent treatment across financial sectors) will be taken away. 

Therefore, the objectives of the proposed action cannot be achieved by action of the Member States 
and can be better achieved by action by the Union. 

The options analysed below will take full account of the principle of proportionality, being adequate 
to  reach  the  objectives  and  not  going  beyond  what  is  necessary  in  doing.  The  retained  policy 
options are compatible with  the  proportionality principle,  taking  into  account  the  right  balance of 
public  interest  at  stake  and  the  cost-efficiency  of  the  measure.  The  proposed  action  will  create  a 
simple,  clear  and  consistent  framework  for  investments  in  securitisation  based  on  uniform 
definitions,  including  of  simple,  transparent  and  standardised  securitisation.  The  prudential 
treatment will be carefully calibrated on the basis of extensive historical data, so to ensure that the 
treatment  is  proportionate  to  the  risks  involved  and  neither  over-  nor  underestimates  the  risks  of 
securitisation. 

The options retained will be implemented by as closely as possible alignment with the existing EU 
definitions  and  provisions  on  disclosure,  due  diligence,  risk  retention  and  definition  of  STS 
securitisation  in  the  LCR  and  Solvency  2  delegated  acts.  This  will  ensure  that  the  market  can 
continue  to  function  as  much  as  possible  on  the  basis  of  the  existing  legal  framework,  so  to  not 
unnecessarily  increase  costs  and  create  regulatory  disruption,  thereby  also  continuing  to  ensure 
investor  protection,  financial  stability,  while  contributing  to  the  maximum  extent  possible  to  the 
financing of the EU economy. 

9 Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential 
requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012 (1):  OJ L 176, 
27.6.2013 and Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the 
taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II) (1): OJ L 335,17.12.2009 

24 

 
 
 
                                                            
 
25 

 
 
 
5) POLICY OPTIONS 

In order to meet the first operational objective, this impact assessment analyses 14 different policy 
options.  For  ease  of  reference,  these  options  have  been  grouped  into  different  headings,  such  as 
options  on  product  differentiation,  scope  of  the  differentiation,  compliance  mechanism  and  the 
prudential treatment (see table below).  

Option 

Description 

Simple Transparent and Standardised criteria 

No action on 
differentiation 
Soft law by EU 

EU legislative initiative 
to specify STS criteria 

Take no further action at EU level to introduce STS criteria 

Codes of conduct, guidelines or recommendations to encourage 
Member States to set up specific provisions for STS products 
and/or endorsement or support to private initiatives 
Introduction of a legal instrument specifying a set of criteria for 
STS securitisation products 

Scope of differentiation 

Same scope as LCR and 
S2 
2.1 + ABCP 

2.2 + synthetics 

The scope of STS securitisations would only cover 'term' 
securitisation (ABS with medium to long term maturity) 
Additional criteria for identifying STS types of short term 
securitisations 
Introduce criteria for both ABCP and synthetic securitisations 

Compliance mechanism 

Introduce a self-
attestation mechanism 
3.1 + 3rd party 
assessment 
3.1 + ex-ante supervisory 
approval 

Responsibility for compliance with the criteria will lie with the 
originator of the securitisation 
Self-attestation by the originator complemented by assessment  
provided by an independent third-party 
Self-attestation by the originator complemented by ex-ante 
supervisory approval.  

Prudential treatment 

1.1 

1.2 

1.3 

2.1 

2.2 

2.3 

3.1 

3.2 

3.3 

Banking prudential treatment 

4.1 

4.2 

No change to the 
existing securitisation 
framework  
Develop a preferential 
capital treatment for STS 
securitisations  

All securitisations (both STS and non-STS) continue to be subject 
to the same prudential treatment set out in CRR 

Amend the existing requirements in the CRR with a new 
framework that would differentiate between STS and non-STS 
securitisations with a preferential treatment for the former 

26 

 
 
 
 
  
Insurance prudential treatment 

No further action on 
Insurance prudential 
treatment 
Modify treatment for 
senior tranches of STS 
products 
Modify treatment for all 
tranches of STS products 

4.3 

4.4 

4.5 

Solvency 2 standard formula for capital charges unchanged 

Refine existing approach - without changing the scope of the 
differentiated approach (i.e. improve the risk-sensitivity of the 
calibrations for senior tranches only). 
Extend the differentiated approach to insurers' investments in non-
senior tranches of STS securitisation deals and refine the existing 
approach   

In order to meet the second operational objective, a total of three different policy options has been 
analysed  in  this  impact  assessment  (see  table  below).  Notice  that,  while  options  aiming  at  the 
achievement  of  the  first  objective  refer  to  the  regulation  of  STS  products,  options  aiming  at  the 
achievement of the second objective aim at setting the optimal provisions that will  apply onto all 
securitisation products, STS and non-STS alike. 

B)   Options aiming at fostering the standardisation of processes and practises and tackling 
regulatory inconsistencies 

5.1  No further action at EU level 

5.2  Establish a single EU 

securitisation framework and 
encourage market participants 
to develop standardisation 

5.3  Adopt a comprehensive EU 

securitisation framework 

Finalise implementation of  agreed reforms and address some 
remaining issues 
Establish a single EU securitisation legislative framework 
defining securitisation, transparency, disclosure, due diligence 
and risk retention rules. 

Complementing option 5.2 with an EU securitisation 
framework harmonising Member States' legal frameworks for 
securitisation vehicles 

27 

 
 
 
 
 
 
6) ANALYSIS OF IMPACTS 

This section assesses the impacts of each of the policy options, measured against the criteria of their 
effectiveness in achieving the specific objectives (differentiating STS deals from more opaque and 
complex  ones;  fostering  standardisation  of  processes  and  practises  and  tackling  regulatory 
inconsistencies)  and  their  efficiency  in  terms  of  achieving  these  objectives  for  a  given  level  of 
resources or at lowest cost. Impacts on relevant stakeholders and the coherence of the options with 
EU policies are also considered. The retained policy options should be those scoring the highest for 
the  relevant  specific  objective  while  imposing  the  smallest  costs  and  impacts  on  stakeholders.  At 
the  end  of  each  section  of  options  assessment  and  before  the  impact  summary  the  views  of 
respondents to the public consultation are presented in the "Stakeholder View" boxes.  

6.1) Section 1 - STS differentiation 

Box 1: What is simple, transparent and standardised securitisation?  

The discussions on setting criteria to distinguish between different types of securitisation 
start with the principles of simplicity, transparency and standardisation. These features are 
relevant across the whole financial system and form the foundation criteria (see footnote 9, 
page 30 for links to the criteria list of BCBS-IOSCO and EBA). As a second step, these 
features  can  be  supplemented  with  additional  criteria  based  on  specific  risks  and  for 
specific  prudential  requirements  in  a  given  sector.  By  taking  a  'modular  approach',  this 
allows for increased consistency across the system and, at the same time, can help address 
sector specific risks. 

n
o
i
t
a
d
n
u
o
F

a
i
r
e
t
i
r
c

p
u
p
o
T

l

s
e
u
d
o
m

Simple 

Transparent 

Standardised/ 
Comparable 

Risk Factors 

6.1.1) Policy option 1.1: No further EU action (baseline scenario) 

This option would imply no further EU action aimed at defining criteria to identify STS products 
and distinguish them from other securitisation products. A distinction between the two is however 
already included in the provisions of the LCR and the Solvency 2 EU delegated acts. 

28 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
 
 
Box 2: The current differentiation between STS and non-STS securitisation 

The LCR delegated act requires all EU banks to hold at any point in time liquid assets enough to 
cover the cash outflows the bank can suffer in a stressed situation lasting 30 days. "Liquid assets" 
are defined as assets that that can be sold on private markets with no or little loss of value even in 
stressed conditions. 

The  LCR  delegated  act  specifies  what  types  of  assets  can  be  considered  "highly  liquid"  and  be 
included  on  the  banks  liquidity  buffer.  To  be  eligible  in  the  buffer  (as  "Level  2B"  instruments), 
these  instruments  have  to  meet  certain  criteria  (cf.  annex  4).    All  securitisation  products  not 
satisfying the criteria are instead excluded and cannot be accounted as cover for the LCR. Similar 
criteria  identify  securitisations  that  enjoy  lower  prudential  requirements  under  Solvency  2 
delegated  acts  for  insurance  companies'  exposures.  Notably,  these  lower  prudential  requirements 
are achievable only by the most senior tranche of a qualifying securitisation deal. 

Furthermore, some EU jurisdictions have national legislative frameworks dedicated to securitisation 
and some of these frameworks include provisions aimed indirectly at promoting the development of 
simple and transparent instruments. 

Finally,  the  market  has  started  to  independently  develop  differentiation  mechanisms.  The  Prime 
Collateralised Securities (PCS), for example, aims at defining standards of transparency, simplicity 
and liquidity in the securitisation market. It does so with the PCS Label, which can be awarded to 
securitisation deals meeting certain criteria. These criteria have similarities to those identifying STS 
securitisation  in  the  LCR  and  Solvency  2  delegated  acts.  The  PCS  Label  is  designed  to  assist 
investors and market participants in understanding key aspects of the labelled securities that make 
them simple, transparent  and standardised: the simplicity  of the structure, the homogeneity  of the 
assets packaged in the security, the rules incentivising proper underwriting standards and so on. A 
similar initiative, True Sale International, has developed in Germany.  

 (a) Effectiveness - ensuring differentiation of STS deals from more opaque and complex ones 

Recognising  the  specific  features  of  STS  securitisation  instruments  and  adjusting  accordingly  the 
prudential treatment these instruments are subject to, the two delegated acts introduce an important 
differentiation  in  the  market.  However,  beyond  banks'  liquidity  and  insurance  companies'  capital 
charges, STS and non-STS securitisations are indistinct. Therefore, the current differentiation is a 
preferential  treatment  granted  to  some  qualifying  products  in  some  limited  and  specific  aspects, 
rather  than  the  existence  of  a  product  immediately  recognisable  by  all  types  of  investors  (banks, 
insurance companies, pension funds, UCITS, AIFs). It follows that the problem of stigma would not 
be efficiently tackled.  

On top of this, the regulatory disincentives currently hindering securitisation (see introduction and 
section 6.4) would not be removed.  

Market-developed differentiating mechanisms such as PCS and TSI are unlikely to fight stigma as 
they  would  rely  on  market  associations'  opinions  that  have  not  been  tested  by  events  (i.e.  PCS-
labelled  securitisation  were  never  tested  in  a  stressed  scenario).  More  importantly,  even  if  these 
differentiating  mechanisms  between  securitisation  products  would  be  successful  in  achieving 
differentiation  and  fighting  stigma,  they  could  not  adjust  the  prudential  treatment  attached  to 

29 

 
 
 
 
securitisations  and  thus  improve  the  economics  of  EU  deals.  Furthermore,  the  current 
inconsistencies in EU legislation would continue to affect these markets.  

In  absence  of  any  EU  intervention,  deals  are  thus  likely  to  remain  uneconomical  and  the  current 
state of the securitisation market would be unlikely to be reversed: low issuance and fragmentation 
would persist.  

The absence of macroeconomic factors currently hindering securitisation (see introduction) may be 
a necessary condition for the full development of the securitisation markets potential but it hardly is 
a  sufficient  condition.  When  the  macroeconomic  environment  will  improve,  without  a  more  risk 
sensitive  prudential  framework  banks  will  cover  their  increasing  funding  needs  with  other 
sources/channels  such  as  covered  bonds  or  subordinated  debt  that  will  remain  cheaper  than 
securitisation.  Also,  non-bank  investors  such  as  insurance  companies  will  not  find  attractive  to 
invest in securitisation markets as current capital charges for them, compared with other available 
investments,  are  very  onerous.  As  a  consequence,  a  funding  and  investment  diversification 
opportunity will not be exploited. 

(b) Efficiency and impact on stakeholders 

A recognisable product, guaranteeing a high level of simplicity, transparency and standardisation of 
the securitisation structure and its underlying assets, and allowing for a clear understanding of the 
risks intrinsic in the transaction, is however what is needed to overcome stigma and inspire investor 
confidence.  Such a product  must  be recognisable and relevant  for all  investors  beyond banks  and 
insurance companies (e.g. UCITS, AIFM...) and across the European Union, reason for which the 
limited  and  differing  differentiation  incorporated  in  some  national  legislative  frameworks  are 
unlikely to be an efficient means to the end of rebuilding trust and fighting stigma.  

Similar  considerations  hold  for  market-led  initiatives.  While  beneficial  in  rebuilding  trust  and 
fighting stigma, they are unlikely to be sufficient because, without the involvement of supervision, 
investors are unlikely to trust privately-awarded labels. Alone, the LCR and Solvency 2 delegated 
acts,  national  frameworks  and  private  initiatives  are  thus  unlikely  to  lead  to  the  emergence  of  a 
clearly identifiable STS product for EU investors and issuers, able to overcome the stigma against 
securitisations. 

6.1.2) Policy option 1.2: EU soft law 

The  Commission  could  use  soft-law  instruments  such  as  codes  of  conduct,  guidelines  or 
recommendations  to  Member  States  in  order  to  build  on  the  existing  delegated  acts,  national 
frameworks  and  market initiatives (PCS, TSI,  DSA). These  soft law instruments could encourage 
Member  States  to  set  up  specific  provisions  or  to  encourage  STS  within  their  securitisation 
frameworks. They could also be used to foster further differentiation via endorsement or support to 
private  initiatives  such  as  the  PCS  and  TSI  labels  and  other  initiatives  to  raise  awareness  of  STS 
products. 

(a) Effectiveness - ensuring differentiation of STS deals from more opaque and complex ones 

An  advantage  of  this  option  is  that  it  could  be  implemented  quickly  so  that  the  international 
consensus  on  STS  criteria  could  be  swiftly  promoted  among  Member  States  and  market 
participants.  In a creditless recovery, such as the one currently experienced by the EU, where there 

30 

 
 
 
 
is  urgency  to  restart  credit  flows  to  firms  and  households,  this  would  certainly  be  an  important 
advantage.  

Offsetting  the  advantage  of  speed  there  is,  however,  a  major  drawback:  limited  coordination.  It 
would be up to Member States and market organisations to decide whether and how to implement 
the recommendation/guidelines. Without a coordinated effort, national initiatives are more likely to 
develop in different ways, potentially creating a set of different provisions and STS standards across 
the  EU.  This  would  change  little  from  the  current  situation,  falling  short  of  introducing  the 
recognisable STS product needed. Timing would also potentially be an issue. Until the number of 
countries with a differentiating securitisation framework has reached a critical mass, the effect on 
the market will be negligible. This could  take years. Choosing this option would then most likely 
lead  to  the  creation  of  different  STS  products,  implemented  at  different  times  or  not  even 
implemented.  The  same  stands true for  market–led  initiatives,  which  could  create  a  set  of  similar 
and  overlapping  STS  labels.  Finally,  the  limitations  of  market-led  initiatives  highlighted  in  the 
previous section are equally valid under this option. 

 (b) Efficiency and impact on stakeholders 

Soft law would entail small costs in terms of administrative burden for  EU authorities and market 
participants alike. However, low costs would be accompanied by low effectiveness in achieving the 
differentiation  objective,  thereby  suggesting  this  option  would  be  scarcely  efficient.  Even  if 
Member States were to react quickly and introduce national legislation identifying STS deals, a soft 
law action would limit considerably the scope and depth of the initiative. This would impact market 
participants  depriving  them  of  a  recognisable  STS  product,  thus  changing  little  from  the  current 
situation.  The  change  would  be  even  more  negligible  in  the  event  of  slow  and  non-harmonised 
implementation of STS product introduction by Member States.   

6.1.3) Policy option 1.3: EU legislative initiative to specify applicable STS criteria 

Under  this  option,  a  harmonised  legal  framework  specifying  a  set  of  criteria  for  STS  products 
generally applicable across financial sectors would be established. Extensive work to identify what 
features render a securitisation and the risks it entails clearly understandable and, furthermore, what 
features have empirically been associated with smaller losses during the crisis has been carried out 
by  a  host  of  authorities  and  organisations  (EBA,  BCBS-IOSCO).  An  international  consensus  has 
been  reached  and  a  set  of  agreed  key  criteria  has  been  identified10.  The  STS  definition  would 
therefore be based on this set. 

 (a) Effectiveness - ensuring differentiation of STS deals from more opaque and complex ones 

With  the  introduction  of  a  single  legal  instrument  defining  STS  products,  two  important  goals 
would  be  achieved  that  would  otherwise  not  be  not  achievable  by  the  status  quo  or  via  soft  law. 
First,  it  would  provide  a  STS  product  that,  accompanied  by  an  appropriate  level  of  supervision, 
could  be  relevant  and  trusted  for  all  categories  of  investors,  thereby  overcoming  stigma  and 
fostering  a  finer  distinction  among  securitised  products  than  the  one  currently  prevalent  in  the 

10 BCBS-IOSCO criteria are available at http://www.bis.org/bcbs/publ/d304.pdf; EBA criteria at 
https://www.eba.europa.eu/documents/10180/950548/EBA+report+on+qualifying+securitisation.pdf 

31 

 
 
 
 
                                                            
market. Investors would not, however, be relieved from their responsibility to conduct due diligence 
and credit risk analysis for STS products (cf. chapter 4).  Secondly, it would provide a harmonised 
definition  of  STS  products  applicable  across  all  EU  jurisdictions  and  financial  sectors,  thereby 
fostering  cross-border  harmonisation  without  conflicting  with  national  frameworks,  which  would 
not be impaired/hindered. 

 (b) Efficiency and impact for stakeholders 

The  single  legal instrument  envisaged  in  this  option  would  have  limited  costs.  These  consist  of  a 
longer EU legislative procedure (compared to a soft law initiative) and the need to revisit various 
pieces of legislation and technical standards, some only recently adopted. Market participants would 
also incur administrative costs in adapting to the new legislation. These would, however, be more 
than offset by the advantages of creating a more transparent and sustainable market for securitised 
products,  giving  market  participants  another  source  of  funding  and  investment  and,  in  so  doing, 
creating another safe channel of financing for the European economy. 

Stakeholders'  view  -  Respondents to  the  Commission's  public consultation  support  strongly 
the  introduction  of  a  differentiation  instrument  based  on  the  modular  approach.  Criteria 
developed by EBA/BCBS/IOSCO were seen as a natural and authoritative base for the criteria. 
Respondents  support  a  differentiation  not  including  credit  risk  elements  and  applying  to  all 
tranches of a deal, since differentiation is about the originating and structuring procedure. The 
importance of avoiding a proliferation of criteria/definitions/regimes in EU legislation (CRR, 
Solvency II, LCR) was highlighted as a key reason for introducing a unified instrument for the 
definition of STS criteria. These views were equally held across all categories of respondents 
(e.g. industry associations, market participants, supervisors as well as think tanks). Please see 
Annex 7 for an extensive summary of responses to the public consultation. 

6.1.4) Impact summary and conclusion 

Options 1.1 and 1.2 fall short of the need to introduce a recognisable product. Differentiation would 
be limited to that existing in current EU legislation or, in the case of option 1.2 being chosen, to that 
eventually introduced by Member States and/or market participants. No guarantee of a standardised 
EU product setting unified criteria for simple, transparent and comparable criteria that are relevant 
and recognised by all types of investors would be there. As such, the incentive to issue and invest in 
STS products would remain limited to certain banks and insurance companies. 

By contrast, introducing an STS product that is relevant and, with effective supervision, trusted by 
all  categories  of  investors  is  achievable  under  option  1.3.  The  STS  products  should  create  a 
harmonised definition of securitisation products whose intrinsic risks can be appropriately analysed, 
understood  and  priced  by  investors.  Such  a  definition  would  be  applicable  across  all  EU 
jurisdictions  and  financial  sectors.  In  this  way,  investors  should  be  able  to  recognise  simple, 
transparent  and  standardised  products  and  the  indiscriminate  stigma  against  all  securitisations 
should  be  reduced.  Fostering  the  development  of  simpler,  more  transparent  and  standardised 
structures,  option  1.3  would  allow  investors,  credit rating  agencies  and  supervisors  to  assess  with 
more  precision  the  risk  involved  in  the  assets  contained  in  a  securitisations,  thereby  reducing 
mechanistic reliance on credit rating to evaluate a deal's riskiness. 

32 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
In  the  comparison  table  below,  each  option  is  rated  between  "--"  (very  negative),  ≈  (neutral)  and 
"++" (very positive) based on the analysis in the previous sections. The benefits are, however, very 
difficult to quantify in monetary terms. The costs should be understood in a broad sense, not only as 
compliance costs but also against all the other negative impacts on stakeholders and on the market 
of alternative options. This is why we have assessed the options based on the respective costs and 
benefits in relative terms.  

In view of the above analysis and the opinion  of stakeholders in the public consultation, option 3 
(an EU legislative initiative to specify applicable STS criteria), is the preferred option.  

Option 

Effectiveness 

Efficiency 

Impact on 
Stakeholders 

1.1  No  action  on 

differentiation 

(=) 
Differentiation 
limited  to  existing  EU 
legislation.  

(=) 

(=) Market participants 
remain  deprived  of  a 
STS 
recognisable 
product,  thus  changing 
little  from  the  current 
situation 

1.2  Soft law by EU 

1.3  EU 

legislative 
to 
STS 

initiative 
specify 
criteria 

Limited 

(-) 
coordination 
potentially  creating  a 
different 
set 
provisions  and  STS 
standards  across 
the 
EU.  

of 

that 

(++) Introduction of an 
STS  product 
is 
relevant and trusted for 
of 
categories 
all 
investors  

(++)  Creation  of  a 
STS 
harmonised 
applicable 
definition 
EU 
across 
all 
jurisdictions 
and 
financial sectors 

(=) Market participants 
remain  deprived  of  a 
recognisable 
STS 
product,  thus  changing 
little  from  the  current 
situation  

(=)  Small  costs 
in 
terms of administrative 
burden 
EU 
authorities  and  market 
participants, 
but 
limited effectiveness 

for 

(+) 
implementation 
procedure 

Fast 

(++)  Creation  a  more 
transparent 
and 
sustainable  market  for 
products 
securitised 
more 
offsets 
than 
limited costs 

Longer 

EU 
(-) 
legislative 
procedure  
and  the  need  to  revisit 
of 
various 
legislation 
and 
standards, 
technical 
some  only 
recently 
adopted.  

pieces 

Administrative 
(-) 
costs 
for  market 
participant  in  adapting 
to the new legislation.  

6.2) Section 2 - Scope of the STS definition 

During  the  financial  crisis  different  asset  types  within  the  global  securitisation  market  performed 
very differently. This raises a question about the scope of securitisations that should be eligible for 
33 

 
 
 
 
 
the  STS  category.  This  section  considers  three  main  policy  options  for  the  scope  of  STS 
securitisation.  The  first  option  is  to  limit  the  scope  of  STS  criteria  to  'term'  securitisations  (asset 
backed securities with maturities longer than one year) currently included in the LCR and Solvency 
2  criteria.  The  second  option  would  extend  this  also  to  ABCP  securitisations.  The  third  option 
would allow term, ABCP and synthetic securitisations to be included in the scope. 

6.2.1) Policy option 2.1: Cover only term securitisation 

This option is the baseline and builds on the existing differentiation approaches developed by the 
BCBS-IOSCO working group as well as in the Solvency II and LCR Delegated Acts. The scope of 
STS  securitisations  would  only  be  open  to  'term'  securitisation.  Furthermore,  to  be  considered  as 
STS, securitisations would require an effective transfer of ownership of the underlying assets from 
the originator of such assets to a dedicated and legally separate Special Purpose Vehicle that issues 
the  securitisation.  In  other  words,  only  "true  sale"  or  "cash  securitisations"  will  be  eligible, 
according to BCBS-IOSCO and EBA criteria, thus keeping synthetic securitisations out of the scope 
of  the  criteria.  This  option  would  also  be  consistent  with  the  ECB  framework  for  refinancing 
operations, where synthetics are not accepted as collateral by the central bank.  

The non-inclusion of ABCP would be in line with the developments of the BCBS-IOSCO task force 
as specific criteria are still under development. However, EBA has already prepared a set of specific 
criteria which adjust the term criteria for specificities of short-term products11.  

Chart 14: overview of options 

11 These are available at 
https://www.eba.europa.eu/documents/10180/950548/EBA+report+on+qualifying+securitisation.pdf 

34 

 
 
 
 
 
 
 
 
 
                                                            
(a) Effectiveness - ensuring differentiation of STS deals from more opaque and complex ones 

The criteria set out in the Solvency II and LCR Delegated Acts exclude securitisations containing 
structured  products  or  derivatives  not  used  for  hedging  purposes  on  the  basis  that  this  adds  an 
additional layer  of complexity  and risk (including counterparty credit risk).  There is also a list of 
eligible underlying assets, which covers: residential mortgages; loans to SMEs; auto-loans; leasing; 
consumer  finance  and  credit  card  receivables.  This  list  includes  only  instruments  which  fulfil  the 
identification criteria. For instance, instruments without common types of underlying assets (such as 
CDOs),  or  instruments  involving  important  refinancing  operations  during  the  lifetime  of  the 
transaction (such as CMBS) cannot qualify. In the latter case it means in practice that investors in 
the  securitisation  instrument  should  be  repaid  before  the  underlying  loans  mature.  This  implies  a 
need to refinance the underlying assets and thus a significant degree of uncertainty. This feature was 
the  cause  of  significant  losses  during  the  crisis  (CMBS  generated  losses  20  times  higher  than 
RMBS – see chart below) 

The decision to include or exclude certain asset classes in the LCR and Solvency II delegated acts 
was  based  on  EU/international  standards  and  market  practices  (cf.  PCS  Label  scope),  which  was 
based  in  turn  on  a  historical  assessment  of  their  credit  performance.  The  credit  performance  of 
CDOs (except Collateralised Loan Obligations, CLOs) and CMBS during the crisis was very poor 
compared  to  consumer  ABS  and  RMBS  (see  Chart  15  and  discussion  in  the  'problem  definition' 
section). The BCBS-IOSCO working group and EBA advice continue to follow the same approach. 
This would clearly be effective in achieving differentiation and in fighting stigma. 

Chart 15: European securitisation losses 2000-2014, by market segment 

Note:  The  chart  shows  total  cumulative  expected  and  realised  losses  on  all  Fitch  rated  European 
securitisation deals between 2000 and 2014. Source: Fitch Ratings 

35 

 
 
 
 
 
(b) Efficiency and impact for stakeholders 

This  option  would  not  impose  additional  administrative  costs  nor  require  substantial  legislative 
effort  from  EU  authorities.  For  investors,  the  exclusion  of  securitisations  that  generally  did  not 
perform  well  during  the  financial  crisis  can  have  a  positive  impact  on  the  trust  they  have  in  STS 
securitisations. Moreover, since these excluded asset types (CMBS, CDOs) have a relatively small 
issuance in the EU (each represented 3% of 2014 EU issuance), it would not have a major impact on 
the market.  

Chart 16: European term securitisation issuance, by product type 

Source: SIFMA – See glossary annex for acronyms explanation 

6.2.2) Policy option 2.2: - cover term and ABCP securitisations 

In addition to criteria for term securitisations, this option would also set out additional criteria for 
identifying  the  simplest  and  safest  types  of  short  term  securitisations,  taking  into  account  the 
specificities of the ABCP securitisation technique.  

ABCP is a type of bond that is typically issued by a conduit sponsored by a bank. The commercial 
paper  issued  by  the  conduit  is  collateralised  by  the  pool  of  assets.  The  maturity  on  ABCP  is 
typically  short  (30-90  days),  and  the  liabilities  are  refinanced  at  regular  intervals.  ABCP  can  be 
backed  by  a  variety  of  collateral  types  but  represents  a  sufficiently  distinct  structure  from  term 
securitisations that it warrants separate consideration. ABCP is a key source of short-term financing 
for  a  variety  of  underlying  loan  types  (Chart  17).  According  to  AFME,  the  European  market  for 
ABCP conduits was just over EUR 80 billon as at the end of Q4 2014. ABCP conduits provide a 
key alternative to bank funding for European SMEs. 

36 

 
 
 
 
 
 
 
 
 
 
Similar  to  term  securitisations,  the  outstanding  volume  and  issuance  of  ABCP  have  dropped 
significantly post-crisis. According to BCBS-IOSCO,12 at the end of 2013, outstanding ABCP in the 
US amounted to about a fifth of its 2007 peak. In Europe and Australia, the declines have been even 
more  significant,  with  the  outstanding  volumes  about  an  eighth  to  a  tenth  of  the  2007  peaks. 
However, there has been some modest recovery in 2014 (Chart 18). 

Chart 
breakdown: Q4 2014 

17:  European  ABCP 

asset 

Chart  18:  Historical  quarterly  European 
ABCP issuance, 2005-2014. 

Source: Moody's 

Source: AFME 

(a) Effectiveness - ensuring differentiation of STS deals from more opaque and complex ones 

ABCP constitute an important source of short-term financing for European companies, particularly 
SMEs.  The  question  is  whether  it  is  possible  to  distinguish  between  different  types  of  ABCP 
structures and identify ABCP which may be deemed eligible to qualify as simple, transparent and 
standardised securitisations. 

Complex and opaque ABCP structures such as arbitrage conduits and some SIV had a role in the 
global financial crisis. These structures tended to invest in securitisations of risky assets, rather than 
"real economy" assets, therefore representing complex re-securitisations. By contrast, simple ABCP 
structures  have  "real  economy"  assets  such  as  trade  receivables  from  SME  companies,  which 
performed  well  during  the  crisis.  Thus,  it  appears  possible  to  separate  out  those  ABCP  structures 
that  are  more  stable,  transparent  and  beneficial  for  the  economy.  Recognising  this,  the  EBA  is 
currently  working  on  the  identification  of  criteria  able  to  achieve  such  a  goal  in  order  to  isolate 
simple,  transparent  and  standardised  ABCP  structures.  This  indicates  that,  as  for  term 
securitisations,  there  is  scope  to  reduce  stigma  in  the  ABCP  markets,  through  introducing  STS 
criteria developed to the specific characteristics of this market. 

(b) Efficiency and impact for stakeholders 

The  cost  of  introducing  dedicated  criteria  for  ABCP  is  likely  to  be  minimal.  Inclusion  of  ABCP 
criteria should support SME and broader corporate financing. Simple and transparent conduits have 

12 http://www.bis.org/bcbs/publ/d304.pdf  

37 

 
 
 
 
 
 
 
 
 
                                                            
become a valuable short-term financing option in various Member States. Introducing them in the 
scope of STS would allow them to play a key role in alleviating the credit crunch currently suffered 
by European SMEs.  

Strengthening a complementary funding channel for SMEs additional to banks would help protect 
vulnerable SMEs from experiencing problems relating to the banking sector in periods of financial 
stress.  This  is  particularly  important  if  one  recalls  that  SMEs  are  typically  short  of  funding 
alternatives  to  bank  credit.  From  a  financial  stability  perspective,  a  set  of  robust  and  detailed 
identification  criteria  need  to  be  developed  with  the  objective  of  avoiding  the  resurgence  of 
arbitrage and leveraged structures such as SIVs. 

6.2.3) Policy option 2.3: cover term, ABCP and synthetic securitisations 

This  option  would  widen  the  scope  of  STS  securitisation  and  introduce  differentiated  criteria  for 
both  ABCP  and  synthetic  securitisations.  At  present,  synthetic  structures  do  not  qualify  for 
preferential  treatment  under  the  LCR  and  Solvency  II  delegated  acts.  The  policy  and  regulatory 
work  to  date  at  EU  (delegated  acts/EBA  advice)  and  global  level  (BCBS-IOSCO)  also  excludes 
synthetics  structures  from  the  scope.  This  has  also  been  the  approach  of  private  sector  initiatives 
such  as  the  PCS  label.  However,  as  some  synthetic  structures  may  be  used  for  supporting 
infrastructure  and  SME  financing,  this  option  is  worth  exploring  (see  also  Annex  5  for  further 
details on synthetics).  

(a) Effectiveness - ensuring differentiation of STS deals from more opaque and complex ones 

Synthetic  structures  mimic  the  transfer  of  ownership  of  the  underlying  assets/loans  from  the 
originating  banks  to  the  securitisation  vehicle  with  a  derivative  contract,  such  as  a  credit  default 
swap  (CDS).  This  introduces  an  additional  counterparty  credit  risk.  The  drafting  of  the  CDS  is 
usually  not  standardised  and  defines  what  risks  are  transferred  and  under  what  conditions.  This 
introduces legal uncertainty and risks. Synthetic structures are therefore not simple or transparent. 
Their  inclusion  in  the  STS  framework  could  be  seen  as  contradicting  the  basic  principles  of  the 
simple, transparent and standardised approach. This, together with the widely known role synthetic 
securitisation had in exacerbating the crisis (synthetic CDOs were the most common structure used 
to securitise subprime US mortgages in the run-up to the crisis), could undermine the credibility of 
the differentiation exercise and its ability to reduce the stigma surrounding securitisation. 

Available data also suggests that EU synthetic securitisation has been substantially more likely to 
default  than  securitisation  considered  within  the  scope  of  STS.  Synthetic  CDOs  have  shown  a 
default rate 19 times higher than STS products in 2007-2013. Even high-quality synthetics such as 
those issued by the EIF have generated 4 to 8 times higher losses than STS products. 

For  these  reasons,  international  institutions  (EBA,  BCBS,  IOSCO)  have  excluded  synthetic 
products from the scope of STS securitisation and did not carry out work to identify specific criteria 
for synthetics. While in principle it may be possible to isolate a set of criteria that would allow a 
distinction between structures used for arbitrage and those intended for proper risk mitigation13, the 
additional complexity of such products requires further work in setting up this criteria.  

13 The deals with an arbitrage purpose are normally sold by investment banks to replicate exposures to certain assets 
that they do not own and to give investors an indirect exposure to those assets. In deals with proper risk mitigation 

38 

 
 
 
 
 
 
                                                            
 
Crucially,  choosing  this  option  would  require  the  EU  to  move  ahead  of  the  global  work  and  to 
disregard  the  advice  received  by  the  EBA  sub-group  on  securitisation.  EBA  stated  that  it  has 
reached the consensus to keep synthetic transactions out of the scope of the currently proposed STS 
framework,  as  more  time  is  needed to  develop  criteria  isolating  simple  and  transparent  synthetics 
from  the  rest.  The  subgroup  acknowledged  the  relevance  of  this  segment  of  the  securitisation 
market for banking in the EU and is willing to engage in further work and analysis, for the potential 
development  of  an  STS  synthetic  securitisation  framework,  after  the  technical  advice  on  STS 
‘traditional’ securitisation has been finalised and submitted. By contrast, international work on term 
and ABCP securitisations is mostly concluded and consensual criteria have been identified. 

Considering  the  complexity  of  the  structures  involved,  the  data  available,  the  lack  of  work  on 
identifying criteria, and the high degree of consensus among supervisors and regulators, including 
synthetics in the STS framework would not be an effective option for fighting stigma and achieving 
differentiation in the securitisation markets. 

(b) Efficiency and impact for stakeholders 

On SMEs: originating banks often find that their SME customers do not want the bank to sell on 
their loans, so a traditional cash securitisation is not possible. Enabling synthetic transactions could 
in  theory  enable  more  investors  to  gain  exposure  to  SMEs,  which  may  in  turn  support  SME 
financing. However, such exposure can be achieved via ABCPs.  

On  investors:  as  discussed,  including  synthetic  structures  within  the  scope  of  STS  securitisation 
may send a mixed message, diluting the STS differentiation. In addition, synthetic structures do not 
allow investors to take control of the underlying assets in enforcement scenarios and they allow the 
risk  of  the  underlying  asset  to  be  multiplied  many  times.  This  option  may  lead  to  less  investor 
clarity and protection, with negative effects for overcoming stigma. 

On issuers: while synthetic structures tend to be cheaper to set up than "true sale" securitisations, 
they provide only capital relief but no funding to the issuer. Therefore, only the revival of a "true 
sale"  securitisation  market  would  provide  issuers  with  a  tool  to  achieve  both  capital  relief  and 
funding.  

Stakeholders' view – Two thirds of respondents consider criteria for short term securitisations 
should be developed. Most feel this criteria should differentiate between those structures devoted 
to  real economy  financing (e.g.  multi-seller ABCP conduits) and those used  for arbitrage (e.g. 
SIVs).  Importantly,  these  views  were  expressed  by  the  majority  of  investors  (banks  and  non-
banks) in securitisation as well as issuers and supervisors. 

6.2.4) Impact summary and conclusion 

Option  2.1  would  build  on  the  international  work  already  carried  out  and  include  in  the  scope  of 
The majority of respondents (74%) agreed that synthetics may be currently excluded by the STS 
STS  securitisation  only  term  products  satisfying  internationally-agreed  criteria  and  with  strong 
framework.  The  majority  of  respondents  from  industry  associations  (73%)  and  private 
credit performance during the crisis. This would clearly be effective in achieving differentiation and 
companies (68%) are also of this view. Other categories (regulators, legislators, NGOs, private 
fighting stigma. Nonetheless, two important sources of funding for EU companies and, in particular, 
individuals)  showed  bigger  majorities  in  favour  of  the  exclusion.  Annex  5  and  7  provide  a 
detailed breakdown of replies by category of respondents.  

intentions the owners of the reference assets are instead typically the originator and the assets are normally those 
originated as part of its ordinary business. 

39 

 
 
 
 
 
 
 
 
 
 
 
 
                                                                                                                                                                                                     
SMEs  would  remain  out  of  the  scope:  ABCP  and  synthetic  securitisations.  Their  importance 
suggests attention should be paid to their possible inclusion. 

There  are  marked  differences  between  these  two  products  on  a  number  of  aspects  important  for 
their  regulation.  First,  identifying  simple,  transparent  and  standardised  ABCP  conduits  used  to 
finance "real economy" assets such as SME loans seems to be an achievable goal. Indeed, EBA's 
work  in  this  area  is  almost  concluded;  criteria  for  STS  ABCP  should  be  available  before  the 
summer.  On  the  contrary,  as  discussed  above,  identifying  STS  synthetics  is  a  harder  task  and  no 
work  on  criteria  has  been  done  so  far.  Also,  synthetics  are  intrinsically  more  complex  products, 
meaning that a very strong case must be made to include them in the STS framework if the power 
of  differentiation  is  to  be  preserved.  Finally,  available  data  shows  EU  synthetic  products 
underperformed traditional STS securitisation. For these reasons, option 2.2 is preferable to option 
2.3. 

In  view  of  the  above,  option  2.3  (include  term  and  ABCP  securitisations)  is  the  preferred 
option.  More  evidence  should  be  put  forward  before  developing  specific  criteria  for  synthetic 
securitisations. However, the Commission would welcome further work to promote STS synthetic 
structures going forward. 

Option 

Effectiveness 

Efficiency 

Impact on 
Stakeholders 

2.1  Same  scope  as 
LCR and S2 

(=) 

(=) 

(=) 

2.2  2.1 + ABCP 

2.3  2.2 + synthetics 

in 

(+)  Stigma 
the 
ABCP  market  reduced 
introducing  STS 
by 
to 
criteria  developed 
specific 
reflect 
as 
characteristics, 
provided by EBA 

its 

anti-
(-)  Reduced 
effect  with 
stigma 
of  more 
inclusion 
complex 
synthetic 
products;  may  be  seen 
as  contradicting 
the 
basic  principles  of  the 
STS approach  

(-)  Lack  of  data  and 
international  work  on 
criteria  reinforcing  the 
problem 

(=)  Minimal  costs  of 
introducing  criteria  for 
ABCP.  

Simple 

become 

(+) 
transparent 
have 
valuable 
financing  option 
various 
States.  

and 
conduits 
a 
SME 
in 
Member 

Enable  more 
gain 

(+) 
investors 
exposure to SMEs 

to 

(+)  Introducing  ABCP 
criteria  may  play  an 
role 
important 
in 
the  credit 
alleviating 
crunch 
currently 
suffered  by  European 
SMEs 
at  minimal 
costs. 

Reduced 

(-) 
differentiation 
the 
achieved  with 
of 
introduction 
more 
products 
complex  in  nature  and 
widely  seen  as  central 
in  the  global  financial 
crisis 

40 

 
 
 
 
6.3)  Section  3  -  Ensuring  compliance  with  STS  criteria  and  consistency  in 
implementation 

This  chapter  describes  and  assesses  three  policy  options  to  ensure  compliance  and  consistency  in 
the implementation of the criteria for STS instruments. Compliance will be crucial to the success of 
this initiative, as differentiation will only work if investors trust these new instruments. Irrespective 
of the decision taken on the options described in this chapter,  five general principles must apply 
and contribute to the proper implementation of STS securitisation.  

a)  Ensuring  investors'  due  diligence  (investors'  responsibility).  The  compliance  mechanism  is 
not intended to provide an opinion on the level of risk embedded in the securitisation. The scope of 
the  compliance  assessment  should  be  strictly  limited  to  criteria  establishing  the  'foundation 
approach', namely applying to the structure of the instrument. Investors should continue performing 
careful  due  diligence  of  STS  instruments  before  investing.  The  financial  crisis  has  shown  that 
investor  reliance  on  external  credit  ratings  was  excessive  (cf.  section  1.3.1).  This  trend  led  to  a 
general relaxation of due diligence efforts by investors, notably in wrongly AAA-rated tranches.  

The main purpose of this initiative is to reassure investors, giving them the transparency needed to 
assess STS products, without leading to any relaxation of their vigilance. This principle is essential 
to avoid 'moral hazard' situations where investors would be incentivised to reduce their scrutiny in 
assessing risks. The STS criteria are intended to make securitisation easier to analyse but not to be a 
substitute for due diligence.  Increasing transparency and simplicity of the securitisation products, 
the STS initiative should allow investors, credit rating agencies and supervisors to assess with more 
precision  the  risk  involved  in  the  assets  contained  in  securitisations.  It  follows  that  mechanistic 
reliance on credit rating to evaluate a deal's riskiness should be reduced.   

Chart on the assessment's scope 

b) Responsibility to comply is first on originators. Originators of STS instruments should be the 
first  responsible  in  ensuring  that  a  product  fulfils  the  criteria.  They  will  have  to  attest  that  the 
product is meeting all STS criteria. The onus would remain on originators as they are in possession 
of  the  most  complete  information  regarding  the  transactions  and  are  the  best  placed  to  make  the 
determination on the characteristics of the instruments. In addition, if the originator is found liable 
for  misleading/false  attestation,  sanctions  on  originators  would  be  much  more  effective  than 
sanctions on the ad hoc securitisation vehicle itself.  

41 

 
 
 
 
 
c) Sanctions should be in place for non-compliance. There is a need for appropriate sanctioning 
measures for participants in the STS market to set the right incentives. For originators, the measures 
would refer to normal supervisory sanctioning powers. Sanctions should be both proportionate and 
dissuasive to prevent investors being misled and could range from pecuniary fines to a prohibition 
against issuing new STS securitisation for a pre-determined period of time. There is also a need to 
consider the implications on investors (e.g. what happens if a securitisation is re-qualified as non-
STS). Investors would no longer benefit from incentives attached to the 'STS category'. In this case, 
a  transitional  period  could  be  foreseen  for  investors  to  prevent  fire  sales  and  pro-cyclical  effects 
(avoiding 'cliff-edge' effects). Specific sanctions should also be applied to independent third parties 
involved in the process. 

d)  Appropriate  public  oversight.  In  the  course  of  their  regular  assessments  of  prudential 
requirements  (e.g.  onsite/off-site  examination  of  solvency  requirements),  supervisors  will  verify 
that  STS  instruments  fulfil  the  criteria.  This  monitoring  is  important  to  ensure  the  accuracy  of 
prudential  ratios  as  'STS'  instruments  may  benefit  from  a  differentiated  prudential  treatment. 
Specific  monitoring  arrangements  should  also  be  defined  for  originators  of  STS  instruments  – 
especially if they are not banking entities – and for potential third parties.     

e)  The  EU  STS  market  should  not  be  fragmented.  The  vast  majority  of  stakeholders  (broadly 
represented  in  all  categories  –  see  annex  7)  emphasise  the  need  to  ensure  a  consistent 
implementation of the STS criteria throughout the EU. To ensure investors' confidence and to avoid 
divergences  across  financial  sectors  and  Member  States,  the  set  of  criteria  should  be  defined  as 
clearly  and  objectively  as  possible.  The  credibility  of  this  initiative  should  not  be  undermined  by 
leaving  the  possibility  to  originators  of  entering  into  regulatory  arbitrage  or  'forum  shopping' 
strategies.  Thus  an  effective  coordination  mechanism  involving  the  ESAs  needs  to  ensure  a  clear 
and consistent interpretation of the criteria and of the prudential consequences. A potential 'race to 
the bottom' – as to attract new issuing structures in a given jurisdiction  – would be detrimental to 
the  whole  project.  This  would  in  turn  reinforce  the  current  stigma  and  contribute  to  the 
fragmentation  of  the  EU  market.  To  ensure  clarity  and  comparability  for  investors,  transparency 
requirements should be applied to all securitisations. 

– 

6.3.1)  Option  3.1  -  Establishing  a  compliance  mechanism  based  on  self-
attestation 

Under this option, the responsibility for determining compliance with 'STS' criteria would lie with 
originator firms, which would be legally liable for attesting that all criteria were met. They would 
be  required  to  disclose  this  attestation  in  the  offer  documents  after  an  appropriate  assessment  of 
each of the criteria. Ex-post oversight would be carried out as in normal supervisory activities, the 
STS status of a securitisation (and its corresponding prudential treatment) would therefore still be 
subject  to  supervisory  checks.  Having  the  final  word  on  the  prudential  treatment  applied  to  a 
securitisation deal, the supervisor would also have the final word on the STS status of a deal.  

42 

 
 
 
 
 
 
 
Chart for option 3.1 

(a) Effectiveness - ensuring differentiation of STS deals from more opaque and complex ones 

The  attestation  would  establish  legal  liabilities  for  originators,  thus  affecting  positively  investors' 
views on STS securitisation. This approach would not eliminate investors' concerns about conflicts 
of  interest  that  may  affect  the  objectivity  of  originators  in  making  their  attestation.  Originators 
would in fact have incentives to attest a deal is STS in order to reassure potential investors of its 
quality and allow them to enjoy a less burdensome prudential treatment. Misleading self-attestation 
is  therefore  the  main  risk  of  this  approach.  Nonetheless,  false  self-attestation  would  have  serious 
consequences  if  unveiled:  the  sanctions  and  reputational  damage  suffered  by  the  originator  who 
attested  a  deal  as  STS  while  this  has  been  rejected  by  the  supervisor  would  provide  a  powerful 
incentive to comply.  

This approach would also introduce detailed due diligence requirements by the part of investors on 
the underlying exposure packaged in the securitisation as well as on its structure. This would give a 
strong incentive to investors to take full responsibility for their investment decisions and thoroughly 
perform  their  due  diligence,  which  is  a  key  ingredient  to  a  safe  and  sustainable  market.  Due 
diligence failings, which led to a mechanistic reliance of investors on credit ratings were indeed a 
key ingredient in the US subprime securitisation crash.    

Supervisory  checkes  on  STS  deals  would  continue  to  be  performed  on  a  regular  basis,  thus 
provisind  the  overarching  guarantee  to  the  correct  functioning  of  the  system.  As  already  pointed 
out, the final word on the STS status of a deal would be that of the supervisors. 

This approach does not limit in any way the recourse to validation by third parties of a deal's STS 
status. If the latter will provide value added to investors and originators, they will require it and a 
market  will  arise.  Giving  third  parties  effective  regulatory  power  (their  decision  would  indeed 
impact profoundly the prudential treatment of deals) would require third parties to be regulated. It 
seems therefore more effective to regulate and supervise directly the securitisation deals than third 
parties "labelling" the latter.   

Since securitisation transactions will likely involve banks, insurance companies and asset managers 
from different countries, in both the issuing and investing side of the deal, a number of supervisors 
will  have  to  collaborate  in  the  supervision  work  on  securitisations.  In  some  cases  it  may  be  the 
supervisor  responsible  for  the  issuer  that  may  challenge  an  STS  self-attestation.  In  other  cases,  it 
may be the supervisor responsible for the investor in such deal. In any case, the first check will be 
that of the investor, which will perform its due diligence on the STS criteria.  

43 

 
 
 
 
 
 
With  a  vast  number  of  supervisors  involved,  it  is  important  to  limit  legal  uncertainty,  ensuring 
consistency  and  speed  of  implementation  of  compliance  decisions.  With  this  aim,  guidelines  and 
technical  standards  will  accompany  the  legislative  initiative.  These  should  ensure  consistent 
interpretation  and  application  of  the  STS  criteria  throughout  the  EU  and  its  different  financial 
sectors. Furthermore, in case of disagreement between supervisors on a specific securitisation deal, 
a mechanism of binding mediation by ESMA is envisaged.  

(b) Efficiency and impact for stakeholders 

This  option  would  increase  originators'  liability  in  case  of  wrongdoing.  Originators  have  indeed 
shown in the responses to the public consultation (see "stakeholders' view" box on page 47) a strong 
preference  for  a  system  where  responsibilities  for  STS  attestation  are  shared  with  other  parties 
(supervisors, independent third parties). In the absence of external checks on STS criteria, investors 
would  have  more  incentives  to  perform  robust  and  detailed  assessments  before  investing.  This 
option  would  limit  moral  hazard  concerns  as  supervisors  would  only  be  involved  ex  post  when 
reviewing  prudential  requirements.  In  addition,  third  parties  could  anyhow  be  involved  in  the 
compliance mechanism  if the markets values  such an involvement and  is  therefore willing to  pay 
for  it.  This  option  will  therefore  not  limit  in  any  way  the  development  of  third  party  validation 
schemes. If these will provide value added to investors, these should require it and issuers should 
adapt.   

This  approach  would  have  limited  financial  implications  for  investors  and  public  budgets,  as 
originators  would  have  to  support  the  self-attestation  costs.  In  the  absence  of  an  ex-ante  public 
intervention,  this  approach  would  not  eliminate  regulatory  risks  for  investors  as  self-attested  STS 
instruments could be re-qualified at a later stage. This option is seen as the most suitable by some 
supervisory authorities and central banks as long as appropriate public oversight is maintained.  

– 

6.3.2) Option 3.2 - Option 3.1 with the involvement of third-parties 

Similar to option 3.1, option 3.2 would rely on self-attestation by originators. It would however be 
complemented  by  the  mandatory  involvement  of  a  third  party,  for  certification  and/or  for 
management  purposes.  As  investors  may  have  concerns  with  the  objectivity  of  the  assessment 
performed  by  originators,  they  might  view  self-attestation  as  not  sufficient  to  rebuild  trust  and 
overcome stigma. A control system relying on independent third parties could thus be established to 
prevent the issuance of non-compliant STS instruments.  

This option could build on EU procedures in place to establish labelling in other areas14. 'Control 
bodies'  could  be  designated  to  perform  specific  checks  to  assess  compliance  with  STS  criteria. 
These bodies would in turn respect requirements defining the nature, frequency and conditions of 
their controls. Potential conflicts of interest would need to be identified and managed carefully from 
the  outset.  Thus  a  specific  oversight/licensing  regime  would  have  to  be  developed  in  order  to 
authorise and monitor these independent bodies.  

14 For instance for organic products (i.e. Council Regulation n°834/2007) 

44 

 
 
 
 
 
                                                            
Chart for option 3.2 

(a) Effectiveness - ensuring differentiation of STS deals from more opaque and complex ones 

Under option 3.2, the self-attestation would be complemented by an independent review of the STS 
criteria. This approach would help address objectivity concerns related to originators' assessments. 
An independent assessment of the securitisation would provide additional confidence to investors. 
These independent entities would have to fulfil requirements and detailed procedures to assess the 
STS  instruments  correctly.  Appropriate  safeguards  would  also  be  needed  to  prevent  and  address 
potential  conflicts  of  interests  with  originators  especially  if  third  parties  were  to  rely  on  "issuer-
pays" models. 

If properly informed and performed, third-party review would give additional assurance to investors 
in STS products. This would obviously increase effectiveness of the option. Nonetheless, the third-
party  review  may  induce  lower  scrutiny  and  due  diligence  by  investors.  This  is  precisely  what 
happened in the build-up phase of the US subprime bubble.  

(b) Efficiency and impact for stakeholders 

This  option  would  rely  on  private  sector  entities  to  perform  independent  assessments  of  STS 
securitisations. Several entities may enter into this market and competition could limit the costs for 
issuers. Involving private entities would make the mechanism more flexible and scalable to market 
activities. However, it would also imply additional costs.  

The fees currently charged by "labelling" entities may offer a proxy for potential prices here (e.g. 
initial  fees  to  award  a  label  are  typically  around  EUR  12  000  plus  annual  maintenance  fees  of 
around EUR 6 000). In addition, these entities would need to act under public oversight. Setting up 
such an oversight process would also imply additional costs. If oversight were to be done at national 
level, there would be costs for national supervisors, plus for ESAs for the necessary coordination. If 
oversight were to be organised at EU level, it would be more efficient, but would still need adding 
resources to the existing and constrained agencies.  

45 

 
 
 
 
 
Also, choosing third party validation as an option would not avoid the need for coordination among 
supervisors.  In  fact,  with  or  without  mandatory  third  party  validation,  securitisation  transactions 
will likely involve banks, insurance companies and asset managers from different countries, in both 
the  issuing  and  investing  side.  As  such,  a  number  of  supervisors  will  have  to  collaborate  in  the 
supervision work on securitisations. The mechanism of binding mediation envisaged in the previous 
option would be need under this option as well. 

This  approach  would  have  similarities  with  other  EU  policy,  in  particular  the  procedures  for  EU 
labelling. Public oversight of the independent entities could also build on the approach developed 
for the registration and oversight of credit rating agencies. It is important to note that this approach 
may  present  similar  issues  and  risks  causing  'overreliance'  on  third  parties  such  as  credit  rating 
agencies.  Originators  and  investors  are  globally  supportive  of  this  option  though,  if  they  would 
share  part  of  the  liabilities  with  third  parties.  However,  as  the  latter  would  often  have  limited 
activities  and  resource  ("not  for  profit"),  involving  their  liability  may  be  an  issue.  In  addition, 
investors  would  never  get  full  regulatory  certainty  as  the  final  prudential  determination  would 
remain in their hands. 

– 

6.3.3) Option 3.3 - Option 3.1 complemented by ex-ante supervisory checks 
on each issuance 

Similar to option 3.1, option 3.3 would rely on the self-attestation of originators, complemented by 
ex-ante checks by supervisory authorities. This option would offer a higher degree of credibility due 
to the specific status of supervisory authorities. Furthermore, prudential authorities benefit from a 
wider overview of market practices and are less likely to be subjected to 'asymmetry of information' 
issues. Moreover, with no "issuer-pays" model, no conflicts of interest should arise. 

This approval mechanism would be developed for each securitisation instrument. This would ensure 
that each individual instrument meets the STS criteria. Compared to the previous options it would, 
however, imply higher compliance costs for issuers as they would have to request that all issuances 
are checked. In this case, securities regulators would be better placed to perform this task.  

Alternatively, an 'issuer-based approach' could be developed. This would mainly focus on processes 
implemented by originators/sponsors to ensure compliance with the STS criteria. This would result 
in a kind of license granted by authorities. The initial licensing/approval would be comprehensive 
and  detailed  but  it  would  reduce  the  compliance  costs  for  large  originators  as  they  would  not  be 
required to renew approval for every new transaction. 

 (a) Effectiveness - ensuring differentiation of STS deals from more opaque and complex ones 

Instead of relying on independent third parties, supervisors would directly assess the compliance of 
STS securitisation. This approach would be the most powerful to ensure investors' confidence and 
overcome  current  stigma.  This  option  would  contribute  to  a  sustainable  development  of  the  STS 
market while preventing the emergence of new financial stability risks.  

However,  reliance  on  supervisors  would  reduce  substantially  investors'  incentives  to  perform  a 
thorough  due  diligence.  Also,  this  would  reduce  the  responsibility  of  issuers,  as  supervisory 
approval would  be necessary. To counterbalance this, supervision would have  to  be very detailed 
and vigilant for every deal issued in the EU. This would require substantial new resources and EU 
coordination  for  supervisors  relevant  in  the  securitisation  markets.  While  supervisory  approval  is 
necessary  for  prospectuses,  because  they  concern  products  sold  to  retail  investors,  securitisation 
products would only be sold to institutional investors. 

46 

 
 
(b) Efficiency and impact for stakeholders 

This  option  would  be  the  most  efficient  in  terms  of  ensuring  the  credibility  of  differentiation 
between  different  types  of  securitisation.  However,  it  would  require  considerably  greater  public 
resources as supervisory authorities would have to establish new teams and develop new expertise 
to carry out these new tasks. A supervisory approach relying on a large number of authorities would 
generate  risks  of  diverging  interpretations  and  forum  shopping  in  the  absence  of  a  strong 
coordination mechanism.  

Supervisory authorities gave  limited support  for this option  as  they may face additional  liabilities 
and are concerned with moral hazard issues. Investors and originators expressed appreciation for the 
legal certainty associated with a supervisory review, but a majority of them expressed concern with 
potential delay and a lack of timely reaction from public entities during the issuance process. 

Chart for option 3.3 

47 

 
 
 
 
 
 
Stakeholders'  view  -  Almost  all  respondents  emphasise  the  importance  of  having  appropriate 
enforcement  and  compliance  mechanisms  in  place  to  build  a  sustainable  STS  securitisation 
market in Europe.  Views are split on the best ways to ensure this objective.  

Some  respondents  (most  regulators  and  the  supervisory  community)  argue  that  the  onus  of 
ensuring compliance with the STS criteria should be mainly on originators and investors. They 
argue that originators should self-attest that a given instrument meets the identification  criteria. 
They consider this approach as the best way to avoid excessive reliance on assessments delivered 
by  third  parties,  to  reduce  "moral  hazard"  risks  and  ensure  proper  due  diligence  by  investors. 
Indeed, the vast majority of respondents underline the importance that investors make their own 
creditworthiness  assessment  and  do  not  rely  mechanistically  on  external  credit  ratings.  Credit 
ratings should be only one element amongst other to be considered in the overall assessment.  

Other stakeholders (mostly market participants and industry associations) argue that recourse to 
external parties is essential to overcome the current stigma attached to securitisations and to build 
investors'  confidence  in  STS  instruments.  Within  this  category,  some  suggest  that  public 
authorities could be directly involved in providing this assessment, while a significant number of 
respondents support the involvement of private bodies acting as "certifiers" or "control bodies". 

A  number  of  stakeholders  across  all  categories  emphasise  the  importance  of  consistent 
interpretation  of  the  STS  criteria  in  all  EU  Member  States,  especially  given  the  mobility  of 
securitisation structures and originators. The responsibility for determining whether a particular 
instrument  complies  with  STS  criteria  needs  to  be  clearly  assigned.  The  mechanism  should 
ensure consistency in its application. A consistent EU approach has to be implemented in order 
to  ensure  a  single  market  for  STS.  In  order  to  achieve  such  objectives,  several  respondents 
suggest that STS assessment/certification should involve a European authority (e.g. an ESA).  

– 

6.3.4) Impact summary and conclusion  

The  attestation  by  originators  (option  3.1)would  ensure  that  originators  remain  liable  for  issuing 
instruments  meeting  STS  criteria  and  should  incentivise  investors  to  perform  appropriate  due 
diligence. Issuers should face appropriate sanctions if they make wrong declarations. This approach 
would be combined with option 2 but on a non-mandatory  basis. Originators would still have the 
possibility to ask for a review by an independent third party if they consider that this would provide 
added value. 

In addition, to ensure a clear and consistent interpretation of the STS criteria and of the prudential 
consequences attached to this category, an effective coordination mechanism between supervisory 
authorities,  involving  binding  mediation,  is  needed  at  EU  level  (ESMA,  EIOPA  and  EBA).  This 
would  help  ensure  a  high  degree  of  consistency  and  lead  to  a  common  EU  approach  in  the 
interpretation of STS standards. 

48 

 
 
 
 
 
 
 
a 

3.1  Establishing 
compliance 
mechanism  based  on 
self-attestation 
by 
originators 

3.2  Option  3.1  with  the 
of 

involvement 
third-parties 

Compliance mechanism 

(+) Limited  costs for 
public  finance  and 
public 
authorities 
resources.  

(+) Higher flexibility 
and scalability of the 
process 
(-)  Additional  costs 
for  originators  and 
need 
introduce 
public  oversight    for 
3rd parties 

to 

(=)  Stigma  would  be 
slightly  reduced  and 
trust 
on 
based 
issuer 
reputation  of 
and 
potential 
sanctions 

(++)  Reduced  "moral 
hazard" 
as 
for  due 
incentives 
diligence remain high 

risks 

(+)  Stigma  would  be 
as 
reduced 
independent 
assessment  of  STS 
be 
criteria 
available 

will 

risks 

(--)  Increased  "moral 
as 
hazard" 
to 
incentives 
investors' 
due 
diligence are weaker 

3.3  Option 

3.1 
by 
complemented 
ex-ante  supervisory 
checks 
each 
on 
issuance 

(++) 
and 
Strong 
positive  effects  on 
current stigma  

Implication  on 
authorities 

(-) 
public 
resources  

risks 

(--)  Increased  "moral 
as 
hazard" 
to 
incentives 
investors' 
due 
diligence are weaker 

(+)  Better  alignment 
incentives  
of 
beetween originators 
investors 
and 
for 
(liability 
risks) 
potential 
(-)  Investors  would 
not  benefit 
from 
external  support  in 
STS 
assessing 
products. 

(+)  Would  provide 
additional 
confidence 
investors 
assessing 
intsruments 

to 
in 
STS 

(-)  Even  with  3rd 
involved, 
parties 
prudential 
final 
would 
decisions 
a 
remain 
for 
competence 
supervisors 

(=)  Greater 
legal 
for 
certainty 
investors-originators 
but  concerns  on  the 
and 
scalability 
timeliness  of 
the 
mechanism 
(-) 
Potential 
reputation  risks  for 
public authorities 

6.4) Section 4 - Banking and insurance prudential treatment 

This section examines the effectiveness of the identified options in achieving the specific objective 
of ‘differentiating STS products from more opaque and complex ones’ as well as the general and 
the specific policy objectives.  

49 

 
 
 
 
 
 
The  current  framework  for  credit  institutions  investing  in  securitisations  has  been  in  force  since 
2007, implementing the ‘Basel II’ Accord. It has only been subject to small targeted changes in the 
2013  Capital  Requirements  Regulation  ("CRR"),  which  provides  for  specific  credit  risk  capital 
charges for exposures to these instruments.  

Under the CRR, a "securitisation" is defined by reference to two key features: the stratification or 
tranching  of  the  credit  risk  associated  with  a  pool  of  assets  and  the  subordination  between  the 
securitisation  "tranches"  such  that  the  performance  (and  risk)  of  the  tranched  securitisation 
exposures  is  dependent  upon  that  of  the  underlying  pool  of  asset  and  the  relative  position  of  the 
tranche in the payment waterfall.   

These  two  key  characteristics  are  the  main  drivers  for  the  dedicated  capital  treatment  for 
securitisation  exposures.  Other  specific  features  that  the  current  framework  takes  into  account 
include the so-called "model risk" which is more relevant for securitisations than for other types of 
transactions  because  of  the  specific  aspects  of  the  securitisation  structure  (e.g.  the  correlations  of 
underlying exposures, bespoke cash-flow waterfalls, trigger mechanisms that can alter cash flows, 
etc.).  

The  calculation  of  capital  requirements  is  underpinned  by  the  following  key  features  of  the 
framework: 

there are two overarching types of approaches: the standardised and the internal ratings based approach. 
For their investments in securitisations, banks have to use the same type of approach that they are allowed 
to use to calculate credit risk for direct investments in the relevant underlying securitised asset;  

within each type of approach, there is in turn a so-called "hierarchy of approaches". This hierarchy requires 
banks to always apply a "ratings based approach" where the securitisation tranches have been given an 
external rating. The framework allocates capital requirements on the basis of the external rating given to 
each tranche, which for the highest rated senior tranches must be no less than 0.56 Euro per 100 exposure 
under the Internal Ratings Based Approach and 1.60 Euro under the standardised approach. For mezzanine 
and junior tranches, risk weights increase as ratings lower, down to full deduction (100 Euro capital for 100 
Euro of exposure); this is typically required for the "first loss piece" or most junior tranche.  

for unrated securitisation tranches or positions (which is very often the case of the first loss piece in a rated 
transaction), the investor bank must either deduct its investment from capital or, if certain conditions are 
met, may be able to apply one of the alternative approaches to avoid deduction. For example, banks using 
the internal ratings based approach may use the "supervisory formula", in which the input to the 
calculation of capital requirements is determined by a formula provided for by the framework itself which 
has regard to the capital that must be held in relation to the underlying assets before being securitised. 
However, the conditions to allow the use of the supervisory formula are fairly stringent and require 
previous permission of the bank's supervisor. 

The current framework, hence, treats all securitisation transactions in the same manner, relying on 
the  tranche  external  rating  (and  regardless  of  the  structural  features  of  the  transaction)  as  the  key 
factor to allocate regulatory capital requirements.  

However, certain securitisation transactions characterised by complex structures, bad underwriting 
practices,  excessive  leverage  and  maturity  transformation  performed  significantly  worse  than  the 
models  underlying  the  external  rating  calibrations  had  assumed  at  their  inception.  These 

50 

 
 
securitisation  transactions  suffered  heavy  and  sudden  downgrades  during  the  2007-08  financial 
crisis which resulted in a rapid increase of capital requirements for banks that had invested in them. 
Although STS securitisations performed strongly compared to those more complex transactions, the 
market as a whole became tainted and stigmatised and issuance levels slowed down to a fraction of 
the pre-crisis levels from which it has not recovered yet.  

In  December  2014,  the  BCBS  adopted  a  revision  of  the  securitisation  framework  with  a  view  to 
addressing some shortcomings of the Basel II standards15.  As part of that work, the Committee is 
discussing the merits of a dedicated framework for STS products reflecting their lower complexity 
and  greater  transparency.  Quantitative  work  on  a  potential  calibration  for  STS  securitisations  is 
ongoing and the Committee might at best disclose available options for public consultation by the 
third quarter of 2015. The calibration of STS securitisation is also being explored at EU level and 
the EBA is expected to finalise their advice to the Commission in the coming weeks. The industry 
has  singled  out  regulatory  capital  treatment  of  securitisations  as  the  most  influential  factor  in  the 
efforts by public authorities to encourage a recovery of these markets. 

For  the  purposes  of  this  Impact  Assessment,  we  have  assumed  the  following  two  policy  options 
regarding the regulatory capital treatment for STS securitisations:  

6.4.1) Option 4.1: - no change to the existing securitisation framework as set out in the CRR 

Under this option, no changes would be made to the current securitisation framework in the CRR. 
Accordingly, all securitisations (both STS and non-STS) would continue to be subject to the same 
prudential treatment. 

(a) Effectiveness - ensuring differentiation of STS deals from more opaque and complex ones 

The  disadvantage  of  maintaining  the  status  quo  would  be  that,  as  noted  above,  the  current 
securitisation framework has proved to be insufficiently risk sensitive to take into account properly 
the risks that materialised during the crisis for non-STS securitisations. The absence of a framework 
setting a clear distinction between STS and non-STS transactions would not help remove the stigma 
currently attached to all securitisations.  

(b) Efficiency and impact for stakeholders 

This  option  would  have  the  benefit  of  not  imposing  transitional  costs  or  additional  burden  on 
market players. Banks would avoid the costs of having to adapt to a new regulatory environment, 
while supervisors would not have to adopt new supervisory approaches. 

15 These evolutions address especially i) the mechanistic reliance on external ratings, ii) increase risk weights for highly-rated 
securitisation exposures;  iii) reduce risk weights for low-rated senior securitisation exposures; iv) reduce cliff effects; and v) 
enhance the risk sensitivity of the  framework. See http://www.bis.org/bcbs/publ/d303.htm  

51 

 
 
 
 
 
 
                                                            
6.4.2) Option 4.2: - develop a preferential capital treatment for STS securitisations 

The Commission would amend the existing requirements in the CRR differentiating between STS 
and non-STS securitisations for regulatory capital purposes, with a risk-sensitive treatment for the 
former (e.g. lower capital requirements) relative to the latter. The new prudential treatment would 
be based on the advice to the Commission provided by EBA on July 6, 2015. 

On  the  basis  of  both  theoretical  arguments  and  empirical  evidence  over  the  default  and  loss 
performance  of  different  securitisation  instruments  throughout  the  crisis  period,  the  EBA  advises 
the Commission to re-calibrate the new Basel 2014 Securitisation Framework for STS securitisation 
positions in the following way: 

lower the risk-weight floor (i.e. the minimum capital requirement) for senior STS securitisation positions 
from 15% (1.20 Euro per 100.00 Euro) value to 10% (0.80 Euro per 100.00 Euro)16; and 

reduce the capital requirements under all 3 approaches of the new Basel framework (IRBA-ERBA-SA) 
reflecting the greater transparency and simpler structure of STS securitisations.  

Focusing  on  the  approaches  based  on  external  ratings,  the  table  below  compares  the  capital 
requirements  of  the  current  CRR/Basel  II  with  the  capital  requirements  under  the  new  Basel 
framework  and  the  EBA  approach  for  STS  securitisations.  It  is  worth  noting  that  the  new  Basel 
framework (and accordingly, the EBA approach) gives priority (and provides incentives) to the use 
of the IRBA approach whenever possible. However, IRBA capital requirements cannot be directly 
compared with the current CRR/Basel 2 capital requirements since these mainly depend on external 
ratings. 

Table 1: Examples of capital requirements in Euro per 100.00 Euro of securitisation exposure 
(senior position) 

CRR/Basel II 

Basel new 

SA banks 

IRB banks 

(ERBA) 

(all banks) 

EBA 
for SST (ERBA) 

approach 

(all banks) 

Rating 

Capital  charge 

Capital charge 

Capital Charge 

Capital charge 

AAA 

A+ 

BBB+ 

BB+ 

B+ 

1.60 

4.00 

8.00 

28.00 

100.00 

0.56 

0.80 

2.80 

20.00 

100.00 

1.20 

3.20 

6.00 

11.20 

20.00 

0.80 

2.00 

4.40 

8.40 

16.80 

16  

For non-senior tranches under the ERBA the floor would be lowered from 20% to 15% 

52 

 
 
 
 
 
 
                                                            
Under all three approaches (IRBA-ERBA-SA) the lowest possible capital requirement (80 cents per 
100 Euro of exposure) remains slightly above the current CRR levels under the IRB approach (56 
cents per 100 Euro of exposure/tranche rated AAA and 64 cents per 100 Euro of exposure/tranche 
rated AA). However, it should be noted that: 

- this is in line with the capital requirements of 80 cents per 100 Euro of exposure for AAA rated 
covered bonds under the CRR and would ensure a level playing field between comparable funding 
instruments, as advocated by the majority of market participants as well as regulators;  

- such increase would be largely compensated by the substantial reduction of capital charges for less 
well-rated  tranches.  For  instance,  the  ERBA  capital  requirement  for  BB+  rated  tranches  capital 
requirements  would be more than halved when compared with  capital requirements under current 
CRR/Basel II. This would also mitigate the risk of (pro-cyclical) cliff effects; and 

-  finally,  in  all  cases  where  banks  are  allowed  by  their  supervisor  to  use  the  IRBA,  they  would 
benefit from generally lower requirements than under the ERBA, although the 0.80/100 Euro floor 
would apply in any case. According to EBA calculations on a sample of securitisations issued in the 
EU in the period 2000-2014, the use of the IRBA for STS would imply a reduction (on average) of 
the magnitude of 83% when compared to the current CRR treatment (IRB approach). 

The  increase  in  capital  charges  for  non-STS  securitisations  which  results  from  the  revised  Basel 
framework  relative  to  the  current  CRR  would  enable  the  Commission  to  address  the  consensus 
among  supervisors  about  the  insufficient  conservativeness  of  the  current  framework  for  non-STS 
securitisations. From the industry’s perspective, this increase would be largely compensated by the 
decrease  of  capital  charges  for  STS  securitisations  (which  is  the  large  majority  of  current  and 
the  alleged  excessive 
prospective  EU  securitisations)  and  address  concerns 
conservativeness of the new Basel framework for these securitisations only.  

regarding 

Accordingly, adopting the approach proposed by the EBA would strike the right balance between 
the  need  to  protect  financial  stability  and  to  encourage  economic  growth  through  a  safer,  more 
transparent and sustainable securitisation market and therefore it is suggested as the way forward to 
implement option 4.2. 

(a) Effectiveness - ensuring differentiation of STS deals from more opaque and complex ones 

A  framework  that  provided  for  a  clear  distinction  between  STS  and  non-STS  securitisations  by 
giving  a  preferential  capital  treatment  to  the  former  would  have  a  number  of  positive  effects, 
namely:  

the resulting securitisation framework would be more risk-sensitive and better balanced: preferential 
capital requirements would be available for more transparent and simpler structures, which are less risky 
and typically back the flow of long term finance to the real economy (as opposed to highly risk and 
speculative investments); 

capital requirements would incentivise banks to comply with differentiated STS criteria; such criteria would 
promote better behaviour and market discipline at all stages of securitisation transactions (e.g. structuring, 
execution...), thus reducing overall risk in the system and strengthening financial stability. Indeed, the STS 
criteria are designed to encourage simple, transparent and comparable securitisation structures with a 
sound and robust execution by all parties involved, features which the current framework fails to address;  

53 

 
 
 
investors would be encouraged to re-enter the securitisation market, as a differentiated framework would 
send a clear signal that risks are now better calibrated and, therefore, the likelihood of a systemic crisis 
reoccurring would have been reduced; 

this option would reduce the negative effects of sovereign rate caps (see section 3.2.2 for a discussion of 
the problem). This is because for STS products the capital charges would be lower for all ratings and 
increasing more gradually as the rating declines. Therefore, an STS securitisation issued in a country where 
a sovereign rating cap is having an impact at present would face a smaller capital charge than it does 
currently. 

(b) Efficiency and impact for stakeholders 

A preferential regulatory capital treatment for STS securitisations would require a recalibration of 
the  current  capital  requirements,  which  the  EBA  is  currently  assessing  with  a  view  to  putting 
forward a proposal to the Commission in short order. The recalibration could be limited to the most 
senior  tranche  of  each  STS-compliant  transaction,  that  is,  only  such  a  tranche  would  be  STS  for 
regulatory  capital  purposes.  Alternatively,  the  recalibration  could  be  carried  out  across  the  whole 
waterfall  structure,  such  that  all  tranches  of  an  STS-compliant  transaction  would  receive  a 
beneficial regulatory capital treatment compared to non-STS securitisations. The latter option would 
be more likely to encourage the broadening of the investor base for STS securitisations, insofar as 
banks would not be unduly penalised from a regulatory capital perspective for holding mezzanine 
positions.  

The obvious disadvantage of this option would be the transitional costs that would be avoided with 
option 1.  

Prudential treatment of insurers' investments into STS securitisation 

In  the  context  of  the  Solvency  II  standard  formula,  the  following  options  regarding  differentiated 
capital requirements for insurers' STS versus non-STS securitisation positions can be considered: 

option 4.3 (baseline): keep the Solvency II standard formula unchanged, which already provides for a 
tailored treatment of insurers' investments in senior tranches of STS securitisation deals, but treats other 
tranches just as any non-STS securitisation. 

option 4.4 : refine the existing approach, without changing the scope of the differentiated approach (i.e. 
improve the risk-sensitivity of the calibrations for senior tranches only). 

option 4.5: (in addition to the actions in 4.4) extend the differentiated approach to insurers' investments in 
non-senior tranches of STS securitisation deals (so that non-senior tranches of STS securitisation deals are 
not treated like any tranche of non-STS securitisation). 

54 

 
 
 
 
6.4.3) Option 4.3 – baseline: no further action 

The  Solvency  II  delegated  act17  already  includes  a  definition  of  STS  securitisation,  which  affects 
the  amount  of  capital  that  insurers  must  hold  against  the  risk  of  fluctuation  of  prices  of  such 
investments  (spread  risk).  For  the  purpose  of  calculating  capital  requirements,  the  delegated  act 
divides insurers' investments into securitisation in two types: Type 1 securitisation positions, which 
only include the most senior tranches of STS deals, and Type 2 securitisation positions, which cover 
everything else, including non-senior tranches of STS deals and generate significantly more onerous 
capital requirements (see chart below).  

Chart  19:  allocation of tranches  between  the existing Type 1 and Type 2 positions in Solvency II 
(Type 2 is more onerous). 

 (a) Effectiveness - ensuring differentiation of STS deals from more opaque and complex ones 

Stakeholders (bank issuers, insurance companies as well as supervisors) have criticised the existing 
division  for  not  being  risk  sensitive  enough,  and  preventing  insurers  from  fully  supporting  the 
growth of the STS securitisation market, given that insurers would rather be incentivised to invest in 
top tranches.  

Stakeholders  have  nevertheless  welcomed  the  fact  that  capital  requirements  for  Type 1  positions 
were set no higher than those applicable to the typical underlying assets (unrated loans) on the basis 
of  a  look-through  reasoning.  Indeed,  senior  tranches  are  mechanically  less  credit-risky  than  the 
whole  of  the  underlying  pool  of  securitised  assets  if  they  were  held  directly.  But  stakeholders 
complain that the delegated act does not entirely follow the logic of this look-through approach, as 
certain  loans  held  directly,  such  as  residential  mortgage  loans,  would  still  enjoy  a  less  onerous 
treatment than the senior tranche of an STS securitisation backed by the same loans. 

17 Article 177 of Commission Delegated Regulation (EU) 2015/35 

55 

Senior trancheMezzanine trancheEquityRisk increasesfor investorsSenior trancheMezzanine trancheEquitySTC securitisationdealNon-STC securitisationdealType 2 positionsType 1 position 
 
 
 
 
 
                                                            
The limited differentiation present in the current approach (baseline) can therefore be improved in 
two ways: either refine the treatment of Type 1 securitisation (namely by fixing the inconsistencies 
in  the  look-through  approach)  without  changing  the  dividing  line  between  Type  1  and  Type  2  or 
amend the Solvency II delegated act more substantially by providing a differentiated treatment for 
all tranches of STS securitisation. 

6.4.4) Option 4.4 – modify treatment for senior tranches only 

This  policy  option  would  improve  the  risk  sensitivity  of  the  existing  calibration  for  Type  1 
securitisation positions in 3 ways: 

fixing the inconsistencies in the look-through approach between the capital requirements applicable to 
senior STS tranches and the underlying assets; 

introducing some risk-sensitivity regarding external ratings, as the current capital requirement is identical 
for positions rated AA, A and BBB. This results from capping the calibration at the level of that applicable to 
underlying assets (3%) which was decided at the time of adoption of the delegated act18. Risk factors could 
be interpolated between the existing figures for AAA and BBB rated securitisation positions as shown 
below. 

Credit quality step 

0 

1 

2 

3 

Risk factor, per year of duration 

2.1 % 

3 %2.4 %  3 % 2.7 %  3 % 

the increase of risk factors with duration could be mitigated compared to the current proportional 
increase19. The same "kinking" pattern as for the risk factors applicable to corporate bonds could be 
translated in the risk factors for securitisation. However, this amendment may have a limited impact given 
that securitisation instruments are seldom very long-dated.  

(a) Effectiveness - ensuring differentiation of STS deals from more opaque and complex ones 

This option is helpful in fostering differentiation and supporting the development of the market for 
STS  securitisation  products,  but  only  partially:  insurers  would  be  mostly  incentivised  to  invest  in 
senior tranches, with non-senior tranches not enjoying as large an investor base. From the point of 
view of a securitisation issuer, non-senior tranches would remain as hard to place as they are now 

18  See 
http://ec.europa.eu/finance/insurance/docs/solvency/solvency2/delegated/141010-impact-assessment_en.pdf  

the  Solvency 

assessment 

preferred 

section 

impact 

report, 

policy 

5.1, 

II 

option 

#4 

19 The Solvency II capital charges for spread risk on bonds and loans are higher for instruments with longer maturities. 
The charges do not increase linearly with maturity though; instead the additional charge per year of maturity reduces in 
order  to  avoid  excessive  capital  charges  for  longer  maturities.  The  spread  charge  for  securitisations,  in  contrast, 
currently increases linearly with maturity. 

56 

 
 
 
 
 
 
                                                            
(where  the  overwhelming  majority  of  non-senior  tranches  are  retained  by  the  issuer).  Since  the 
almost totality of the risk is borne by non-senior tranches, issuers would continue to be unable to 
transfer risk to investors. Securitisation would therefore remain confined to a tool to raise funding 
but not a risk-transfer tool. With cheaper sources of funding available (central bank repo operations, 
covered bonds..), securitisation will continue to be a scarcely appealing technique for EU issuers.  

(b) Efficiency and impact for stakeholders 

As all the refinement to the calibration under this option can be done relatively quickly, the option 
does not require a major administrative and legislative effort. Nevertheless, in terms of impact, the 
benefits  of  this  option  (namely,  fixing  the  look-though  approach)  would  be  limited  and  accrue 
mostly to the market for residential mortgage backed securities. There is no impact on insurers in 
terms of administrative burden or costs. 

6.4.5) Option 4.5 – modify treatment for senior and non-senior tranches 

This  policy  option  addresses  the  criticism  that  treating  non-senior  tranches  of  STS  securitisation 
deals in the same was as any other non-STS securitisation is not appropriate. It is a more ambitious 
option since it would require calibrating from market data a specific set of risk factors for such non-
senior  STS  tranches.  The  calibration  would  follow  a  look  through  approach  based  on  the  capital 
charge for the underlying exposures increased by a non-neutrality factor to capture the model risk of 
the securitisation.  The capital charges  of the underlying  exposures  would be based on the current 
Solvency II delegated act and the non-neutrality factor would be aligned with  the average  factors 
from the banking approach based on the EBA advice. 

(a) Effectiveness - ensuring differentiation of STS deals from more opaque and complex ones 

By creating a broad investor base for all tranches (not only senior), this option would address the 
concern that if insurers only invest in senior STS tranches, this may not be enough to stimulate the 
development  of  STS  securitisation  deals.  The  problems  for  non-senior  tranches  described  above 
would indeed be tackled. 

Furthermore, since STS structures would present lower modelling risk and thus render all tranches 
(senior  and  non-senior)  less  risky  with  respect  to  similar  tranches  in  non-STS  structures, 
recalibrating  all  tranches  capital  charges  would  better  reflect  the  risk  profile  of  the  securitisation 
deal. 

(b) Efficiency and impact for stakeholders 

By  allowing  STS  securitisation  to  perform  both  of  its  key  roles  (funding  and  risk  transfer),  this 
option would allow the differentiation to have a tangible effect, fostering the emergence of an STS 
market  able  to  attract  (and  transfer  risk  to)  non-bank  investors  as  well,  thus  helping  the  EU 
economy to have a more balanced (bank and non-bank) funding structure. A more balanced funding 
structure would reduce risks to financial stability as the effects of a financial shock on the access to 
credit of EU firms and households would be less immediate and strong.  

57 

 
 
 
 
 
The higher effectiveness of this option compared with the previous offsets the higher costs in terms 
of time and effort required to design a specific calibration for non-senior tranches of STS products. 
There is no impact on insurers in terms of administrative burden or costs. 

Stakeholders' view - With few exceptions, the overwhelming majority of respondents are in 
favour  of  differentiating  the  prudential  treatment  of  STS  securitisations  versus  other 
securitisations.  Two  views  (more  or  less  equally  represented)  were  expressed  as  to  how  to 
achieve  such  differentiation.  A  first  group  led  by  industry  representatives  opposes  the 
transposition  of  the  new  BCBS  framework  and  is  convinced  that  it  would  penalise 
securitisation and unduly discriminate vis-a-vis other debt instruments (e.g. covered bonds). A 
second group (mainly Public Authorities and investor associations) judges positively the use of 
the new BCBS framework (modified with a more favourable treatment for STS securitisations) 
as  baseline  for  the  review  of  CRR  provisions  to  ensure,  inter  alia,  global  consistency.  A 
minority  of  respondents  (mainly  including  issuers/originators  and  investors)  think  that  CRR 
provisions in most cases adequately address risks attached to securitisations and would like to 
see  no  (or  marginal)  amendments  implemented.  In  general  stakeholders  belonging  to  this 
group support a correction of the “one-size-fits-all” approach to take into account the specific 
features of STC securitisations; 

There  is  also  vast  support  for  improving  risk-sensitivity  in  the  Solvency  II  formula  from  all 
categories of respondents (investors, issuers and supervisors). It is widely felt that calibrations 
are too onerous. A vast majority of respondents considers that calibrations applied to "Type 2 
securitisation  positions"  are  punitively  high,  because  they  are  partly  based  on  US  subprime 
data.  It  is  argued  that  such  calibrations  shrink  significantly  the  investor  base  for  STC 
securitisation. It is unanimously felt that STC qualification should apply at transaction level, 
not at tranche level. However, there is a wide variety of (sometimes contradictory) suggestions 
to achieve this. Views are split as to how granular calibrations should be (there are concerns 
about complexity of the standard formula).  

Most stakeholders consider that the introduction of a credible STS framework should in itself 
help expand the institutional investor base for EU securitisation beyond insurance companies. 
Please see Annex 7 for an extensive summary of responses to the public consultation. 

6.4.6) Impact summary and conclusion 

Taking  into  account  the  weaknesses  of  the  current  banking  prudential  framework  to  calibrate 
properly  the  risk  of  non-STS  securitisations  and  the  potential  advantages  of  developing  a 
preferential  capital  treatment  for  STS  transactions,  option  4.2  with  a  full  recalibration  of  all 
tranches, based on the EBA advice received by the Commission on 6 July 2015 should be followed.  

Similar  considerations  are  valid  for  the  capital  treatment  of  insurers'  exposure  to  securitisation. 
While the no action option (4.3) would entail some differentiation of STS products, this would be 
far too limited to render STS products recognisable and economically viable to invest in. As things 
stand,  insurers  would  still  be  incentivised  to  invest  in  top  tranches  alone.  This  problem  would 
therefore not be eliminated by improving the capital treatment of senior tranches of STS deals alone 
(option 4.4). Recognising that simplicity, transparency and standardisation are features of a deal and 
not  just a tranche,  recalibrating  capital  charges for all  tranches  of an STS securitisation  would be 
more justifiable and, even more importantly, it would create a broad non-bank investor base for all 
tranches and allow STS securitisation to perform both of its key roles (funding and risk transfer). 

58 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
This option is more effective than the previous one, as it would incentivise insurers to invest in all 
tranches of STS products, depending on their risk appetite, with risk-sensitive calibrations for each 
level of tranches.  

Should  the  recalibration  of  prudential  capital  charges  lead  to  overheating  of  the  securitisation 
market,  macro  prudential  tools  can  be  used  to  reduce  issuance  and  cool  down  the  market.  For 
example,  loan-to-value  limits  could  be  tweaked  for  mortgage  markets.  These  represent  the  vast 
majority of issuance and outstanding amounts in securitisation markets. Slowing down their growth 
would thus go a long way in reducing risks to financial stability arising from eventual overheating. 
As noticed in the introduction, the initiative is likely to impact Member States in different degrees, 
depending  on  the  development  and  structure  of  their  markets,  as  well  as  their  macroeconomic 
environment. For this reason, (if needed) macro prudential tools should be set on a national basis. 

Option 

Effectiveness 

Efficiency 

4.1  No  change  to  the 

existing 
securitisation 
framework  as  set 
out in the CRR  

(--)  the  insufficiently 
risk-sensitive 
framework  will  not 
differentiate  STS  from 
non-STS products  

(=)  

4.2  Develop 

a 

preferential 
capital 
for 
securitisations  

treatment 
STS 

preferential 
(++) 
capital 
requirements  
for  more  transparent 
and simpler structures 

costs 

of 
and 

(+) 
recalibration 
transition 
counterbalanced 
by 
recognition  of  STS 
risk-profile 
in 
prudential treatment 

Impact on 
Stakeholders 

(=)  no 
transitional 
costs  or  additional 
burden 
imposed  on 
market players  

(-)  recalibration  and 
transitional  costs  for 
issuers 
supervisors, 
and investors  

foster 

(+) 
reemergence  of 
STS market 

the 
the 

4.3  No  further  action 
Insurance 

on 
prudential 
treatment 

(=) 

(=) 

(=) 

4.4  Modify  treatment 
for senior tranches 
of STS products 

transfer 

(=) Unable to sell non-
senior tranches, issuers 
continue  to  be  unable 
to 
to 
STS 
investors, 
products  remain  hard 
to 
for 
insurers 

invest 

risk 

in 

(=)  Limited  costs  and 
benefits, 
limited 
accruing  mostly 
to 
RMBS market  

Insurers  further 
(=) 
incentivised  to  invest 
in 
tranches 
only 

senior 

59 

 
 
 
4.5  Modify  treatment 
for  all  tranches  of 
STS products 

(++)  Creates  a  broad 
non-bank 
investor 
base  for  all  tranches 
allowing  securitisation 
to  perform  its  funding 
and risk transfer roles 

Higher 
(+) 
effectiveness 
offsets 
higher costs to design a 
specific  calibration  for 
non-senior  tranches  of 
STS products.  

the 
Fosters 
(+) 
emergence  of  an  STS 
market  able  to  attract 
non-bank  investors  as 
well 

6.5) Section 5 - Standardisation and harmonisation 

This chapter describes and assesses three policy options aiming at fostering the standardisation of 
processes  and  practises  as  well  as  tackling  regulatory  inconsistencies.  The  absence  of 
standardisation  is  frequently  perceived  as  one  of  the  main  obstacles  to  the  development  of 
securitisation markets within and across the EU. The vast majority of stakeholders of all categories 
(see  annex  7)  express  their  support  for  addressing  current  inconsistencies  in  the  regulatory 
framework  and  for  further  standardisation  of  securitisation  in  the  EU.  This  would  increase  legal 
clarity  and  comparability  across  asset  classes,  it  would  ease  investors'  assessments  and  it  would 
facilitate and reduce issuance costs for originators. This standardisation may also help supervisory 
authorities to monitor the risk profile of financial intermediaries and macro-prudential risks. Greater 
standardisation of the instruments would also increase market liquidity and help the development of 
secondary markets.  

Description of policy options to foster standardisation and address inconsistencies  

This  section  considers  three  main  policy  options  to  foster  standardisation  and  address  regulatory 
inconsistencies. The first option is the baseline option, where the EU would not intervene and rely 
solely on reforms adopted in the past years and on what market operators and Member States may 
decide  to  implement.  The  second  option  would  result  in  an  EU  legislative  initiative  setting  up  a 
single  consistent  EU  securitisation  framework  based  on  existing  EU  legislation  defining 
securitisation,  transparency,  disclosure,  due  diligence  and  risk  retention  rules.  Building  on  this 
horizontal 
to  develop  further 
the  EU  would  encourage  market  participants 
standardisation of securitisation documentation. The third option would go further than the second 
option  adopting  –  on  top  of  the  horizontal  legal  instrument  -  an  EU  securitisation  framework 
harmonising  Member  States'  legal  frameworks  for  securitisation  vehicles  (including  modalities  to 
transfer assets to SPVs and the rights and obligations of note holders). 

legislation, 

6.5.1) Option 5.1 – Baseline - No EU action  

Under this option, the main focus would be on finalising the implementation of the agreed reforms 
and  addressing  the  remaining  issues  such  as  completing  some  of  the  missing  pieces  of  the 
securitisation  framework.  It  would  notably  imply  finalising  the  establishment  of  a  centralised 
website  collecting  and  disseminating  detailed  information  of  all  securitisation  instruments  as 

60 

 
 
 
 
 
 
 
 
required by the Credit Ratings Agencies Regulation (CRA3, article 8.b)20. Having this infrastructure 
being  operational  in  a  reasonable  period  of  time  is  key  to  ensure  transparency.  This  option  could 
also include the development of additional templates to collect data of specific securitisation market 
segments which are not yet covered by the CRA3 Regulation.  
Under  this  option,  other  limited  initiatives  would  also  be  envisaged  such  as  implementing  risk 
retention  rules  in  areas  where  this  requirement  is  not  yet  in  place  (for  example  for  mutual  funds, 
under  UCITS)  and  adjusting  the  modalities  of  implementation  (cf.  EBA  recommendations  of 
December 2014). 

(a) Effectiveness - Fostering standardisation and addressing inconsistencies. 

This  option  would  help  in  reducing  some  regulatory  inconsistencies  and  fixing  a  limited  set  of 
issues  such  as  impediments  to  the  development  of  a  centralised  website  for  securitisation 
instruments. The main assumptions beyond this approach are that i) the effects of past reforms (e.g. 
Solvency II, Liquidity  Coverage  Ratio  delegated acts, CRA3) have  still to  materialise and that ii) 
the  market  will  organise  itself  in  the  medium  to  long  term  to  promote  standardisation.  However,  
since  the  agreed  reforms  tackle  only  some  sector-specific  standardisation  issues,  their  effect  in 
reducing inconsistencies across financial sectors and foster standardisation will remain very limited. 
Administrative  burden  associated  with  current  inconsistencies  and  lack  of  standardisation  would 
continue  represting  a  considerable  hindrance  to  a  sustainable  revival  of  securitisation.  Thus,  this 
option scores poorly in achieving the standardisation objective. 

(b) Efficiency and impact for stakeholders 

This approach would imply limited costs for public finance. No budget has indeed been foreseen for 
the  setting  up  of  the  centralised  ESMA  securitisation  website,  casting  doubts  of  the  feasibility  of 
such website. Coordination costs for the private sector are likely to be significant, whereas potential 
long  terms  benefits  would  remain  uncertain.  In  addition,  the  administrative  burden  will  remain 
important  as  most  of  the  current  inconsistencies  will  not  be  tackled  (cf.  current  inconsistencies 
regarding  originators'  disclosure  and  investors'  due  diligence  requirements  as  highlighted  by  the 
ESAs  Joint-Committee  report).  The  expected  impacts  on  stakeholders  will  remain  limited.  Most 
investors/originators  as  well  as  supervisory  authorities  are  concerned  with  existing  overlaps  and 
inconsistencies across financial services regulations and sometimes within the same sector (e.g. on 
disclosure/due  diligence  requirements,  as  highlighted  in  the  Joint-Committee  report).  These 
elements and the lack of standardisation would not be addressed by potential market initiatives.    

6.5.2)  Option  5.2  –  Establishing  a  single  consistent  EU  securitisation  framework  and 

encouraging market participants to develop further standardisation  

Under  this  option,  the  objective  would  be  to  develop  a  uniform  set  of  criteria  and  rules 
underpinning  the  numerous  pieces  of  EU  legislation  dealing  today  with  securitisation.  This 
approach would not be limited to 'STS securitisation' but encompass all securitisation instruments. 
It would notably introduce a list of common definitions (e.g. securitisation, special purpose entities, 

20 As of today, there are important impediments to be fixed in order to have this website effective. Specific efforts 
should notably be performed to make this website economically viable as there is currently no funding to allow this 
website to be developed. 

61 

 
 
 
 
 
 
 
                                                            
originator…)  applying  across  EU  financial  sectors.  This  single  legal  instrument  covering  all 
securitisation  instruments,  would  also  include  common  provisions  governing  transparency, 
disclosure,  due  diligence  and  risk  retention  requirements.  This  horizontal  text  would  build  on 
existing EU rules and address as much as possible current inconsistencies and gaps across financial 
sectors.  Under  this  approach,  corresponding  provisions  in  sector-specific  texts  would  be  repealed 
and  cross-references  to  the  horizontal  act  introduced.  If  the  decision  to  introduce  in  a  general 
manner STS securitisation in EU law were to be taken, this single text would also lay down all STS 
criteria for the EU financial sector. This common set of consistent rules would clarify and simplify 
the  EU  regulatory  framework  for  originators,  investors  and  supervisors.  This  would  help  market 
participants  to  launch  further  standardisation  initiatives.  Building  on  the  positive  outcome  of  the 
Private Placement initiative, the EU could encourage efforts in two specific areas:  

i)  The  development  of  standardised  securitisation  documentation  -  The  reporting 
requirements introduced by several central banks in Europe have been a major achievement to 
standardise loan-level information on securitisation instruments. This has already contributed to 
providing  investors  with  many  more  elements  on  underlying  risks.  However,  this  initiative 
could  be  complemented  by  further  standardisation  efforts.  For  instance  the  lack  of 
harmonisation in definitions within and across Member States is an impediment to assessing and 
comparing instruments. Promising initiatives have been launched in certain Member States such 
as  in  the  Netherland  for  the  RMBS  segment  (e.g.  the  Dutch  Securitisation  Association 
initiative).  

The  Dutch  example  -  The  private  sector  Dutch  Securitisation  Association  (DSA)  has 
developed  a  standard  template  for  Dutch  securitisation  transactions  in  order  to  reduce 
complexity  and  improve  transparency.  The  DSA  was  established  in  October  2012  with  the 
aim  of  promoting  the  interests  of  both  issuers  of  and  investors  in  Dutch  securitisation 
transactions.  In  response  to  the  decline  in  market  activity,  the  originators  of  Dutch  RMBS 
transactions  jointly  started  an  initiative  in  2010  to  improve  transparency  and  reduce 
complexity of Dutch securitisation transactions. This initiative has resulted in the introduction 
of  a  standard  for  Dutch  RMBS  transactions,  in  respect  of  both  investor  reporting  and 
documentation.  According  to  Dutch  authorities,  this  standardisation  and  the  existence  of  a 
template are appreciated by the Dutch financial sector.  

ii) The development of standardised contracts/framework - Some stakeholders also suggest 
developing  standardised  contracts  (e.g.  "master  agreements")  to  be  used  as  a  reference  for 
securitisation issuances. This could constitute the main corpus of securitisation documentation 
and be complemented by ad hoc provisions which may not be applied in all transactions or in all 
Member States. Entities would only need to refer to such agreements instead of reproducing the 
full  list  of  provisions.  Any  deviations  should  be  made  immediately  visible  and  should  be 
explained. The existence of material deviations from the standardised documentation would be 
an indication as to whether the instruments comply or not with the "simplicity, transparency and 
standardised" features. This initiative would rely on the private sector to develop these market 
standards. Similar initiatives as for Private Placement or for Derivatives (ISDA protocol) could 
be used as examples. 

(a) Effectiveness - Fostering standardisation and addressing inconsistencies 

This  option  would  ensure  legal  and  regulatory  clarity  for  originators  and  investors.  This  would 
simplify the current piecemeal approach in EU regulations for originators and investors and tackle 
potential ambiguities generated by the current juxtaposition of sometimes almost identical – but not 
62 

 
 
 
  
 
identical  -  sets  of  rules  in  sector-specific  regulations  (e.g.  on  risk  retention,  disclosure).  This 
approach would also help in addressing some unnecessarily diverging rules across financial sectors 
(e.g.  on  due  diligence  requirements  for  investors).  This  would  also  reduce  risk  arbitrage 
opportunities  and  simplify  monitoring  by  supervisory  authorities  monitoring.  In  addition,  this 
option  would  offer  opportunities  to  address  existing  inconsistencies  or  implementing  problems  of 
adopted  legislation  such  as  for  the  transparency  website.  This  would  allow  increasing  the 
effectiveness  of  already  agreed  reforms  and  interventions  in  the  field  such  as  the  Solvency  II, 
Liquidity Coverage Ratio delegated acts and CRA3. 

This  approach  would  rely  on  market  participants  and  trade  association  to  foster  greater 
standardisation  of  securitisation.  This  bottom-up  approach  will  ensure  greater  consistency  and 
accuracy in the harmonisation process. It would also reflect the best practices and limit the risks of 
introducing provisions which may have unintended consequences on the market. This approach has 
been successful in the Netherlands for the RMBS market. However, the likelihood of reaching an 
agreement at the EU level would be more challenging as national specificities and constraints (e.g. 
contract, property and insolvency law) would be much more important. However, difficulties may 
also be important for some market segments, RMBS being quite standardised instruments.  

(b) Efficiency and impact for stakeholders 

This  approach  would  have  a  limited  impact  on  public  finance.  This  option  will  reduce 
administrative burden for market participants mainly originators and investors as they would obtain 
greater clarity on the applicable rules. It would also reduce their regulatory/compliance risks and it 
would  become  easier  to  standardise  securitisation  on  the  basis  of  the  harmonised  framework. 
Stakeholders generally support the simplification of the current EU framework for securitisation as 
a  single  legal  instrument  could  further  contribute  to  the  development  of  a  robust  securitisation 
market.  

As regards the standardisation of securitisation documentation, this approach may take longer as it 
implies  market  participants  will  need  to  get  organised  and  to  agree  on  a  consensual  set  of  rules. 
Incentives  to  develop  these  frameworks  may  also  be  limited  in  the  short  term.  It  would  imply 
administrative  and  legal  costs  for  the  private  sector  and  the  collective  gains  may  take  time  to 
materialise  ("free  rider"  behaviour).  However,  among  stakeholders  there  is  a  consensus  on  the 
merits  of  encouraging  further  standardisation  in  the  documentation  of  securitisations  without 
imposing a "straitjacket" framework which may not be suitable for certain segments of the market.  

6.5.3 Option 5.3 – Adopting a comprehensive EU securitisation framework  

This  option  would  build  on  option  2  and  be  complemented  by  the  adoption  of  an  EU  legal 
framework  harmonising  Member  States'  frameworks  for  securitisation.  It  would  be  a  wide-
encompassing  initiative  including  notably  common  rules  for  the  setting-up  of  the  special  purpose 
vehicle,  the  modalities  to  transfer  assets  to  SPVs  and  the  rights  and  obligations  of  note  holders. 
While  some  Member  States  have  legal  frameworks  for  securitisation  (cf.  box  and  annex  8), 
important  national  markets  rely  on  contractual  arrangements  (e.g.  UK,  NL).  Introducing  this 
approach  would  result  in  the  adoption  of  an  EU  legal  framework  which  may  supersede  current 
national arrangements or be optional (i.e. a 29th regime).  

For  investors,  such  an  EU  securitisation  structure  could  reduce  unnecessary  burden  in  the  due 
diligence process and save time spent in analysing country-specific securitisation practices. In turn, 
a  harmonised  framework  may  increase  their  confidence  to  invest  in  securitised  instruments.  The 

63 

 
 
 
 
objective would be to establish a structure that helps issuers as well as boosts investor appetite in 
EU securitised products. 

National  regimes  in  the  EU:    A  questionnaire  was  addressed  to  all  Member  States  in  the 
context  of  the  Financial  Services  Committee  in  March  2015  (see  annex  8  for  detailed 
responses). Out of the 15 respondents:  

  Nine  Member  States  (Austria,  Bulgaria,  Croatia,  the  Czech  Republic,  Finland,  Germany, 
the Netherlands and the United Kingdom) indicated that they do not have in place specific 
legislative  provisions  for  securitisation  besides  the  measures  transposing  the  relevant  EU 
legal  acts.  However,  in  some  countries  guidance,  regulations  and  guidelines  relevant  to 
securitisation have been issued by regulators as well as market sponsored bodies. 

  Seven Member States (France, Greece, Italy, Latvia, Portugal, Romania and Spain) noted 

that they have established a legal framework regarding securitisation of debts. 

(a) Effectiveness - ensuring differentiation of STS deals from more opaque and complex ones 

This  option  would  score  very  highly  in  achieving  standardisation  of  securitisation  markets  in  the 
EU. It may contribute to the greater harmonisation of securitisation practices, help create economies 
of  scale,  and  provide  access  to  securitisation  for  smaller  lenders  in  Member  States  where 
securitisation markets are underdeveloped. 

(b) Efficiency and impact for stakeholders 

This  approach  would  have  structural  effects  on  some  Member  States  especially  those  that  do  not 
rely on a legal framework for securitisation. Unintended consequences could be important for some 
local markets which remain active in some segments. A number of stakeholders see the theoretical 
merits  of  such  an  initiative.  However,  most  stakeholders  have  doubts  as  to  the  possibility  of 
developing  an  EU  harmonised  legal  framework  to  support  the  establishment  of  securitisation 
vehicles, the transfer of assets or the subordination among noteholders in the short to medium term. 
The  vast  majority  of  stakeholders  –  especially  from  the  financial  sector  -  highlighted  that  while 
standardisation  efforts  would  be  beneficial  in  the  long  term,  regulators  should  not  jeopardise 
short/medium term benefits by delaying the whole initiative. 

Stakeholders'  view  -  The  importance  of  increased  standardisation  is  underlined  by  the 
majority  of  respondents,  who  are  in  favour  of  a  principle  based  approach  that  is  compatible 
with  the  differing  national  securitisation  regimes.  Market  participants  from  both  the  issuing 
and investing side of the business as well as supervisors think this is a key area of intervention 
in order to revive the securitisation market.  

More than two thirds of respondents (broadly spread across all categories) think that a single 
EU  securitisation  instrument  would  contribute  to  the  development  of  the  EU  securitisation 
market. On the other hand, 7 respondents are not in favour of developing a single instrument, 
while  a  number  of  other  respondents  (4)  have  a  nuanced  position  pointing  out  that  cross-
sectoral  consistency  and  a  level  playing  field  are  more  important  than  creating  a  single  EU 
securitisation instrument. 

64 

Those  stakeholders  that  do  not  support  the  development  of  a  single  instrument  mainly  point 
out  that  the  requirements  in  different  sectors  are  of  a  different  nature  (e.g.  prudential 
requirements, diversity assets, risk profile assets and their duration,); that a single instrument 
would  require  harmonisation  of  property/contract  law  and  would  run  into  legal  and  taxation 
issues,  that  the  market  already  knows  the  existing  Member  State  framework  very  well  and 
above all that it would be very challenging to further harmonise. Respondents also mentioned 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
6.5.4) Impact summary and conclusion 

Option 5.1 would leave the administrative burden associated with current inconsistencies and lack 
of  standardisation  across  financial  sectors  unchanged.  Establishing  a  single  and  consistent  EU 
securitisation  framework  (option  5.2)  would  instead  increase  legal  certainty  for  originators  and 
investors and reduce current regulatory inconsistencies. This would be achieved will limited impact 
on public finances. Option 5.3 would potentially achieve higher standardisation than option 5.2, and 
have similar effects on legal clarity and the reduction of inconsistencies. However, progress on key 
files such as insolvency laws and taxation regimes is likely to be slow and would depend chiefly on 
Member  States  actions,  with  uncertainty  on  the  scope,  depth  and  timing  of  the  initiative.  Such 
uncertainty  is  indeed  shared  by  most  stakeholders  (public  and  private)  that  responded  to  the 
consultation. 

Establishing a clear and consistent EU legal framework for securitisation (option 5.2) would ensure 
greater clarity  for  investors  and  originators.  Having  this  horizontal  EU  instrument  in  place  would 
aid  market  participants  in  launching  initiatives  to  further  standardise  securitisation  frameworks 
especially for harmonising securitisation documentation. This approach is seen as more flexible and 
practicable than the third option, as the final outcome is not depending on standardisation in other 
complex areas such as insolvency law and taxation regimes.  

65 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Option 

Effectiveness 

Efficiency 

5.1  No 

further 
action  at  EU 
level 

(=)  Limited  effects  in 
reducing 
inconsistencies  accross 
financial 
sectors 
impact  on 
(=)  No 
in 
standardisation 
ST/MT 

(=) No additional costs 
on public finances 

5.2  Establishing  a 
and 
single 
consistent  EU 
securitisation 
framework  and 
encouraging 
market 
participants 
to 
develop  further 
standardisation 

(++)  Would  increase 
for 
clarity 
legal 
originators 
and 
investors  and  reduce 
regulatory 
current 
inconsistencies  
(+) 
Foster 
standardisation 
by 
on  market 
relying 
participants' initiatives 

(=)  Limited  impact  on 
finances 
public 
(+) 
Standardisation 
would  take  longer  as 
market  participants  are 
left 
organise 
to 
themselves 

5.3  Adopting 

a 
comprehensive 
EU 
securitisation 
framework  

(++)  Same  effect  as 
legal 
option  2  on 
clarity and reduction of 
inconsistencies. 
(++)  Would  introduce 
a  high  degree  of 
standardisation  of  the 
28 
securitisation 
frameworks 
throughout the EU 

(=)  Limited  impact  on 
finances 
public 
(-)  Uncertainty  of  the 
standardisation  aspects 
as progress depends on 
(e.g. 
other 
files 
insolvency 
law, 
taxation regimes) 

Impact on 
Stakeholders 

(=) Limited impacts on 
stakeholders. 
Administrative  burden 
associated with current 
inconsistencies 
and 
lack  of  standardisation 
would remain 

(++)  Positive  impacts 
and 
investors 
on 
originators 
with 
reduced  administrative 
and  greater 
burden 
flexibility  to  steer  the 
standardisation 
process. 

(=)Lenghty discussions 
generate 
would 
regulatory  uncertainty  
 (-)  Potential  negative 
impacts  on  Member 
States  with  well-
functionning 
securitisation  markets 
(+)  Positive  impact  on 
Member States with no 
national framework for 
securitisation 

66 

 
 
 
 
 
 
 
 
 
 
 
 
7) THE RETAINED POLICY OPTIONS AND INSTRUMENT 

7.1. The retained policy options 

Based on the analysis above, the first objective (to differentiate simple, transparent and standardised 
securitisation products from more opaque and complex ones) is best fulfilled by a combination of 
options 1.3, 2.2, 3.2, 4.2 and 4.5. These are therefore the retained options. These options together 
should introduce an immediately recognisable STS product in EU securitisation markets. Backed by 
an efficient compliance mechanism, STS products will be trusted by investors and can thus provide 
the  legal  basis  for  an  amended  capital  treatment.  This  will  indeed  reflect  more  closely  the  risk 
profile  of  STS  products,  thereby  allowing  investors  and  issuers  to  reap  the  benefits  of  simple, 
transparent and standardised structures.  

The most effective and efficient policy option to achieve the second objective (to foster the spread 
of  standardisation  of  processes  and  practises  in  securitisation  markets,  tackle  regulatory 
inconsistencies) is option 5.2, which is therefore retained.  Establishing a single and consistent EU 
securitisation  framework  and  encouraging  market  participants  to  develop  further  standardisation 
will 
investors  and  reduce  current  regulatory 
inconsistencies. This will in turn positively impact investors' and originators' administrative burden.  

legal  clarity  for  originators  and 

increase 

7.2. The choice of the instrument 

The  proposed  legislative  measures  aim  in  particular  at  creating  a  sustainable  market  for  Simple, 
Transparent and Standardised (STS) securitisation products. To this end the legislative measure will 
stipulate  the  criteria  to  be  met  by  securitisation  products  in  order  to  be  considered  STS,  create  a 
specific  prudential  treatment  for  these  products  and  harmonise  existing  provisions  in  EU  law  on 
securitisation related to risk retention, disclosure and due diligence. 

STS securitisation products will have to meet a number of criteria that should be uniform across the 
EU.  Comparable  criteria  with  a  more  limited  scope  are  currently  in  place  in  two  delegated 
regulations adopted by the Commission (the LCR and Solvency II delegated acts). The prudential 
treatment of securitisation instruments is laid down in the Capital Requirements Regulation (CRR) 
and  the  SII  Delegated  Act.  Finally,  the  substantial  rules  on  disclosure,  risk  retention  and  due 
diligence are laid down in a number of different EU regulations (CRR, Solvency II Delegated Act, 
the CRA delegated Regulation and the AIFM delegated Regulation). 

Article 114(1) TFEU provides the legal basis for a Regulation creating uniform provisions aimed at 
the  functioning  of  the  internal  market.  STS  securitisation  products,  their  prudential  treatment  and 
the  harmonisation  of  the  existing  provisions  in  EU  law  on  securitisation  related  to  risk  retention, 
disclosure and due diligence will underpin the correct and safe functioning of the internal market. A 
directive  would  not  lead  to  the  same  results,  as  implementation  of  a  Directive  might  lead  to 
divergent  measures  being  adopted  at  national  level,  which  are  likely  to  lead  to  distortion  of 
competition and regulatory arbitrage. Moreover, the EU provisions already in place in this area have 
been adopted in the form of Regulations. 

The  creation  of  this  legal  framework  will  require  the  adoption  of  a  number  of  legal  acts.  First,  a 
securitisation  Regulation  that  will  create  uniform  definitions  across  financial  sectors  and 
harmonised rules on risk retention, due diligence and disclosure. The same regulation will stipulate 
67 

 
 
 
 
the  criteria  for  STS  securitisation  for  all  financial  sectors.  This  regulation  should  also  repeal 
provisions  in  sectoral  legislation  that  will  become  superfluous  due  to  the  introduction  of  the 
securitisation  regulation.  Secondly,  legal  acts  for  a  more  risk-sensitive  prudential  treatment  of 
securitisation  for  banks  and  insurers  will  have  to  be  adopted.  For  banks  the  current  prudential 
framework is laid down in CRR and for insurers in the Solvency II delegated act. For the banking 
treatment  a  proposal  for  amending  CRR  should  be  adopted,  while  for  insurers  the  Solvency  II 
delegated  act  will  be  amended  to  revise  the  prudential  treatment  once  the  new  securitisation 
regulation enters into force. 

7.3. The impact on SMEs 

The policy options chosen should have several positive effects on SME financing (see Annex 6 for 
a detailed analysis). First of all, the inclusion of ABCP in the STS framework, with consequential 
improvement in their capital treatment, will foster the growth of this important source of short-term 
SME financing.  

Secondly,  the  initiative  should  provide  banks  with  a  tool  for  transferring  risk  off  their  balance 
sheets. This in turn means that banks should free more capital that can then be used to grant new 
credit. While in recent years banks have tended to use their resources to buy government bonds and 
other debt rather than providing new credit to firms and households, this is more likely to happen 
now  in  an  environment  of  minimal  (if  not  negative)  interest  rates  paid  by  government  bonds  and 
similar assets. As a consequence, freed capital should be increasingly used by banks to provide new 
credit to households and firms, most of which are SMEs in the EU. 

Finally,  by  introducing  a  single  and  consistent  EU  securitisation  framework  and  encouraging 
market participants to develop further standardisation, the initiative should reduce operational costs 
for securitisations. Since these costs are higher than average for the securitisation of SME loans, the 
fall should have an especially beneficial effect on the cost of credit to SMEs. Several respondents to 
the  Commission's  public  consultation  on  securitisation  have  highlighted  the  importance  of 
documentation and product standardisation to render SME securitisation more economically viable 
(see Annex 6). 

7.4. Social impact 

To the extent that the proposed policies will create a new channel of financing for the EU economy, 
one  that  is  less  dependent  on  banking  sector  conditions,  they  will  reduce  the  effect  of  financial 
crises on credit provision and thus on growth and employment. The social costs of such crises will 
be  reduced.  Furthermore,  by  fostering  the  spread  of  securitisation  structures  whose  risks  can  be 
analysed, understood and priced, the policy options will foster a securitisation market conductive to 
better funding of the economy in a context of financial stability.  

7.5. Environmental impact 

Nothing  would  suggest  that  the  proposed  policy  will  have  any  direct  or  indirect  impacts  on 
environmental issues. 

7.6. Impact on third countries 

As  described  in  section  1.4,  the  work  on  securitisation  has  an  important  international  angle. 
International  standards  to  identify  simple,  transparent  and  standardised  securitisations  are  being 
developed by a Task Force led by the Basel Committee on Banking Supervision  (BCBS) and the 
International  Organisation  of  Securities  Commissions  (IOSCO)  and  are  close  to  finalisation.  The 

68 

 
 
criteria  to  be  adopted  in  the  EU  should  be  based  on  this  international  standard,  but  will  be  more 
operational. 

As  described  in  section  3.1.1  there  is  a  strong  consensus  among  European  and  international 
supervisors,  regulators,  central  banks  and  market  participants  that  the  post-crisis  reputation  of 
securitised products issued in Europe was severely tarnished by practices and events taking place in 
the US: US securitisation products performed far worse than EU products.  

At this point of time it is not clear whether other jurisdictions will implement STS standards in their 
legal  frameworks.  The  US,  as  the  largest  securitisation  market  in  the  world,  requires  special 
attention,  because  EU  investors  invest  in  these  US  products  and  are  thus  interested  in  their 
prudential treatment. 

The STS criteria will be based upon international standards developed by BCBS-IOSCO and would 
in principle allow issuers of securitisation products from third countries to comply with the criteria 
and thus be qualified as STS securitisation. The attestation by originators that the products comply 
with the STS criteria will be complemented by a certification by independent third-parties. Those 
third  parties  should  be  supervised  by  a  public  authority  from  the  EU.  Where  third  countries 
implement the criteria in their legal framework, equivalence could be considered for their rules and 
the certification of STS products. 

The  preferential  prudential  treatment  offered  to  EU  bank  and  insurers  investing  in  STS 
securitisation  should  also  be  open  for  non-EU  products,  which  would  ensure  that  no  barriers  are 
created for third countries products. As regards the risk retention, due diligence and disclosure rules 
these would be based on existing EU law provisions. 

The new STS framework may moreover provide third country investors with an interesting category 
of  investments  in  which  to  invest,  while  for  third  country  regulators  it  might  be  an  interesting 
avenue to further develop their own legal frameworks. 

69 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
8) MONITORING AND EVALUATION 

Ex-post evaluation of all new legislative measures is a priority for the Commission. Evaluations are 
planned  about  4  years  after  the  implementation  deadline  of  each  measure.  The  forthcoming 
Regulation will also be subject to a complete evaluation in order to assess, among other things, how 
effective and efficient it has been in terms of achieving the objectives presented in this report and to 
decide whether new measures or amendments are needed. 

In terms of indicators and sources of information that could be used during the evaluation, data on 
the price and characteristics of securitisation deals prevailing in the market will be obtainable from 
the  European  DataWarehouse,  which  already  covers  the  vast  majority  of  the  market  and  whose 
quality is checked preiodically by the ECB. Private financial data providers such as Bloomberg or 
Reuters may also be useful. 

The  most  important  indicator  for  the  achievement  of  the  first  objective  (Differentiate  simple, 
transparent and standardised securitisation products from more opaque and complex ones) will be 
the  difference  in  the  price  of  STS  versus  non-STS  products.  If  the  objective  is  achieved,  this 
difference should increase from today, with STS products being more highly valued and thus more 
highly paid than non-STS ones by investors. Of course, this could and should trigger an increase in 
the  supply  of  STS  products,  reason  for  which  the  achievement  of  this  objective  will  also  be 
measured with the growth in issuance of STS products versus non-STS ones. 

The  second  objective  (Foster  the  spread  of  standardisation  of  processes  and  practises  in 
securitisation  markets,  tackle  regulatory  inconsistencies)  will  instead  be  measured  against  three 
criteria:  1)  STS  products'  price  and  issuance  growth  (since  a  decline  in  operational  costs  should 
translate in higher issuance and/or higher prices for STS products), 2) The degree of standardisation 
of  marketing  and  reporting  material  and  finally  3)  feedback  from  market  practitioners  on 
operational costs' evolution (hard data on this may not be publicly available).  

70 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ANNEX 1 – Glossary 

ABCP:  Asset  backed  commercial  paper.  It  is  a  form  of  commercial  paper  (short-term  credit  to 
companies) that is collateralized by other financial assets.  

ABS:  Asset  backed  security.  A  financial  security  backed  by  a  loan,  lease  or  receivables  against 
assets other than real estate and mortgage-backed securities.  

AFME: Association for financial markets in Europe 

AIFMD: Alternative Investment Fund Managers Directive 

BCBS: Basel committee for banking supervision 

BOE: Bank of England 

CDO: Collateralised debt obligation. A structured financial product that pools together cash flow-
generating assets– such as mortgages, bonds and loans – that are debt obligations themselves. 

CDS: Credit default swap 

CLO: Collateralised loan obligation. A security backed by a pool of debt, usually corporate loans. 

CMBS: Commercial mortgage backed security. A type of mortgage-backed security that is secured 
by the loan on a commercial property. 

CRA: Credit rating agency 

CRA3: Credit rating agency directive 3 

CRR: Capital requirements regulation and directive 

EBA: European banking authority 

ECB: European central bank 

EIF: European investment fund 

ERBA: External rating based approach of the Basel framework for bank  prudential capital regime 
adopted in December 2014 

GDP: Gross domestic product 

IG: Investment grade. A rating that indicates that a bond has a relatively low risk of default. 'AAA' 
and 'AA' (high credit quality) and 'A' and 'BBB' (medium credit quality) are considered investment 
grade. 

IMF: International monetary fund 

IOSCO: International Organization of Securities Commissions 

IRB:  Internal  rating  based  approach  of  the  previous  Basel  framework  for  bank  prudential  capital 
regime 

IRBA:  Internal  rating  based  approach  of  the  Basel  framework  for  bank  prudential  capital  regime 
adopted in December 2014 

LCR: Liquidity coverage ratio 

71 

 
 
 
 
MBS: Mortgage backed security. A type of asset-backed security that is secured by a mortgage or 
collection of mortgages 

PCS: Prime collateral security 

RMBS: Residential mortgage backed security 

SA: Standard approach of both the pre- and post-2014 Basel frameworks for bank prudential capital  

SC: Structured credit 

SF: Structured finance 

SME: Small and medium enterprise  

SPV:  Special  purpose  vehicle.  A  "bankruptcy-remote  entity",  usually  a subsidiary  company,  with 
an  asset/liability  structure  and  legal  status  that  makes  its  obligations  secure  even  if  the  parent 
company goes bankrupt. 

STS: Simple, transparent and standardised 

TSI: True sale international 

UCITS: Undertakings for the collective investment in transferable securities 

WBS: Whole business securitisation. A specific type of synthetic securitisation. 

72 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ANNEX 2 – Stylised facts on securitisation markets 

73 

Chart 1: US securitisation issuanceChart 2: European securitisation issuanceaSource: SIFMASource: SIFMA, Comission ServicesChart 3: US securitisation outstandingChart 4: European securitisation outstandingSource: SIFMASource: SIFMASource: Fitch RatingsSource: Fitch Ratingsaincludes retained issuanceChart 5: Cumulative losses for 2000-2014 securitisation issuances, by region and product typebChart 6: Cumulative losses for EMEA 2000-2014 securitisation issuances, by vintagebbFitch rated deals only; EMEA = Europe, Middle East, Africa; APAC = Asia and Pacific. ABS = Asset Backed securities; CMBS = Commercial Mortgage Backed Securities; RMBS = Residential Mortgage Backed Securities; SC = Structured Credit.05001,0001,5002,0002,5003,0003,5004,0001996199719981999200020012002200320042005200620072008200920102011201220132014USD billionAgency MBSNon-Agency MBSABS02,0004,0006,0008,00010,00012,0002002200320042005200620072008200920102011201220132014USD billionAgency MBSNon-Agency MBSABS0.00.51.01.52.02.53.03.54.0051015202530ABSCMBSRMBSSCABSCMBSRMBSSCABSCMBSRMBSSCUSEMEAAPACTotalEUR billion% lossesLossrealised (%)Lossexpected (%)Original balance (EUR bn)01002003004005006000.00.51.01.52.02.5200020012002200320042005200620072008200920102011201220132014EUR billion% lossesLossrealised (%)Lossexpected (%)Original balance (EUR bn)05001,0001,5002,0002,500199920002001200220032004200520062007200820092010201120122013EUR billionRMBSCDOCMBSMixedSMEABSWBS0100200300400500600700800900200020012002200320042005200620072008200920102011201220132014EUR billionWBSSMERMBSCDOABSCMBS 
 
 
ANNEX 3 – BCBS-IOSCO survey on "Impediments to sustainable 
securitisation markets"21 

21 Survey conducted in summer 2014.  More details can be found in the original document: http://www.bis.org/bcbs/publ/d304.pdf 

74 

 
 
 
 
 
                                                            
ANNEX 4 – STS criteria in the LCR and Solvency II delegated acts 

The criteria to identify highly transparent, simple and standardised securitisation instruments set out 
in the Solvency II and Liquidity Coverage Ratio delegated acts are based on recommendations from 
the  European  Insurance  and  Occupational  Pensions  Authority  (EIOPA)  and  a  detailed  analysis of 
the liquidity of different instruments from the European Banking Authority (EBA).22  

These criteria do not include any risk retention requirements (i.e. requirements that the originator, 
sponsor or original lender should retain a material net economic interest in the transaction). This is 
because risk retention requirements are already implemented in EU law and apply across the board, 
to  all  types  of  securitisation  instruments  (whether  high-quality  or  not)  held  by  insurance 
undertakings23 and credit institutions24. 

As set out in paragraph 1 below, most criteria are common to the Solvency II and LCR delegated 
acts. However, as the purpose is different in each act – the Solvency II standard formula concerns 
capital requirements, while the LCR delegated act prescribes rules for the assets held by banks in 
their  liquidity  buffer  –  some  criteria  are  specific  to  the  LCR  delegated  act,  to  ensure  that  high-
quality securitisation instruments are also highly liquid. 

1. Requirements common to the Solvency II and LCR delegated acts 

1.1. Maximum seniority 

The tranche must be the most senior in the securitisation transaction, and it must remain so at all 
times, even after events that may impact the relative seniority of tranches, such as the delivery of an 
enforcement  or  acceleration  notice.  This  criterion  ensures  that  the  credit  quality  of  the  tranche  is 
indeed  enhanced  as  compared  to  the  credit  quality  of  the  entire  pool  of  underlying  exposures. 
Maximum  seniority  is  among  the  more  relevant  features  justifying  a  prudential  treatment  that  is 
aligned to the underlying exposures. 

1.2. Homogeneous eligible underlying exposures 

Homogeneity in the type of underlying exposures increases soundness, simplicity and transparency 
(in particular, loan-level reporting is easier to produce and interpret). All underlying exposures must 
belong to only one of the following types: 

Residential  loans:  securitisation  positions  may  be  backed  by  loans  secured  by  a  first-ranking 
mortgage  and/or  by  fully-guaranteed  residential  loans  as  referred  to  in  Article  129(1)(e)  of  the 
Capital Requirements Regulation. In both cases, the pool of loans must feature on average a loan-
to-value  ratio  lower  than  or  equal  to  80%.  In  the  case  of  mortgage  loans  only,  it  is  possible  to 
derogate from this loan-to-value requirement, provided that instead, the national law of the Member 
State where the loans are originated provides for a maximum loan-to-income ratio not higher than 

22 This analysis examined the liquidity of some asset backed securities against a number of metrics. However, this work was not 
sufficient for EBA to recommend the inclusion of ABS (apart from RMBS) as HQLA for the purposes of LCR. 

23 By virtue of Article 135(2) of Directive 2009/138/EC (Solvency II). 

24 By virtue of Article 405 of Regulation (EU) No 575/2013 (CRR). 

75 

 
 
 
                                                            
45%,  and  each  loan  in  the  pool  complies  with  this  limit.  The  relevant  national  law  must  be 
communicated to the Commission, and EBA and/or EIOPA. 

Loans, leases and credit facilities to undertakings, in particular SMEs: securitisation positions may 
be  backed  by  commercial  loans,  leases  and  credit  facilities  to  undertakings  to  finance  capital 
expenditures  or  business  operations other  than  the  acquisition  or  development  of  commercial real 
estate,  provided  that  at  least  80%  of  the  borrowers  in  the  pool  in  terms  of  amount  are  small  and 
medium-sized enterprises at the time of issuance of the securitisation.  

Auto loans or leases: securitisation positions may be backed by a loans or leases for the financing of 
a broad range of vehicles. Such loans or leases may include ancillary insurance and service products 
or  additional  vehicle  parts,  and  in  the  case  of  leases,  the  residual  value  of  leased  vehicles25.  All 
loans and leases in the pool shall be secured with a first-ranking charge or security over the vehicle 
or an appropriate guarantee in favour of the securitisation special purpose vehicle. 

Consumer  loans  and  credit  card  receivables:  securitisation  positions  may  be  backed  by  loans  and 
credit  facilities  to  individuals  for  personal,  family  or  household  consumption  purposes.  As  a 
consequence  of  this  closed  list  of  eligible  underlying  exposures,  commercial  mortgage  backed 
securities (CMBS) and collateralised debt obligations (CDOs)26 are excluded. This is justified given 
their poorer performance, as shown in EIOPA's advice and other studies of CMBS.27  

No re-securitisations, no synthetic securitisations: re-securitisations are explicitly excluded, as they 
are typically complex and less transparent structures, where the cascading of investor losses is very 
difficult to understand due to re-tranching. 

The same goes for synthetic securitisations, where the underlying exposures are not transferred to 
the special purpose vehicle. Instead, the transfer of risk is achieved by the use of credit derivatives 
or guarantees, while the exposures being securitised remain with the originator. The transfer of the 
assets to be securitised ensures that securitisation investors have recourse to those assets should the 
Securitisation  Special  Purpose  Entity  (SSPE)  not  fulfil  its  payment  obligations.  Such  recourse 
cannot be granted in synthetic transactions, due to the fact that only the credit risk associated with 
the underlying assets, rather than the ownership of such assets, is transferred to the SSPE. Such a 
structure also adds counterparty risk on derivatives or guarantees, and hampers investors' rights to 
the  proceeds  of  the  underlying  exposures.  In  addition,  most  synthetic  structures  add  to  the 
complexity of the securitisation in terms of risk modelling. 

1.3. Restricted use of derivatives and transferable financial instruments 

Derivatives  can  only  be  used  for  hedging  currency  and  interest  rate  risk.  This  also  excludes  the 
synthetic securitisations described in the above paragraph. The pool of underlying exposures must 
not  include transferable financial  instruments  (this  effectively  means  CDOs  are  excluded),  except 

25 Auto loans or lease securitisations including residual values must however comply with paragraph 0 below, which prevents the repayment of the 
securitisation depending predominantly on the sale of the vehicles. 

26 CDOs are also excluded by virtue of the criteria in point 0 because their underlying exposures usually include transferable debt instruments, such 
as non-investment grade bonds. 

27 See page 121 of EIOPA's technical report (2013). 

76 

 
 
                                                            
financial  instruments  issued  by  the  securitisation  special  purpose  entity  itself,  in  order  to 
accommodate master trust structures. 

1.4. 'True sale' and absence of severe 'claw back' provisions 

The  transfer  of  the  underlying  exposures  to  the  securitisation  special  purpose  vehicle  must  be 
sufficiently certain from a legal point of view: 

 

 

the  transfer  must  be  enforceable  against  any  third  party  and  the  underlying  exposures  be 
beyond  the  reach  of  the  seller  (originator,  sponsor  or  original  lender)  and  its  creditors, 
including in the event of the seller's insolvency ('true sale' requirement); 
the  transfer  of  the  underlying  exposures  to  the  SSPE  may  not  be  subject  to  any  severe 
clawback  provisions  in  the  jurisdiction  where  the  seller  is  incorporated  because  such 
provisions induce legal insecurity on investors' rights. 

1.5.  Continuity  provisions  for  the  replacement  of  servicers,  derivative  counterparties  and 
liquidity providers 

The underlying exposures must have their administration governed by a servicing agreement which 
includes servicing continuity provisions to ensure, at a minimum, that a default or insolvency of the 
servicer  does  not  result  in  a  termination  of  servicing.  Where  applicable,  the  documentation 
governing  the  securitisation  must  also  include  continuity  provisions  to  ensure,  at  a  minimum,  the 
replacement of derivative counterparties and liquidity providers upon their default or insolvency. 

The aim of these two criteria is to mitigate credit risk with different counterparties involved in the 
securitisation transaction, whose default or insolvency could jeopardise the smooth running of the 
transaction. 

1.6. Absence of credit-impaired obligors 

At  the  time  of  issuance  of  the  securitisation  or  when  incorporated  in  the  pool  of  underlying 
exposures at any time after issuance, the underlying exposures must not include exposures to credit-
impaired  obligors  (or  where  applicable,  credit-impaired  guarantors).  The  definition  of  credit-
impaired obligors or guarantors is both backward-looking (e.g. the obligor has declared bankruptcy, 
or  has  recently  agreed  with  his  creditors  to  a  debt  dismissal  or  reschedule,  or  is  on  an  official 
registry  of  persons  with  adverse  credit  history)  and  forward-looking  (e.g.  the  obligor  has  a  credit 
assessment by an external credit assessment institution or has a credit score indicating a significant 
risk that contractually agreed payments will not be made compared to the average obligor for this 
type of loans in the relevant jurisdiction). This criterion effectively excludes 'sub-prime' loans from 
the high-quality securitisation category. 

1.7. Absence of loans in default 

At  the  time  of  issuance  of  the  securitisation  or  when  incorporated  in  the  pool  of  underlying 
exposures  at  any  time  after  issuance,  the  underlying  exposures  must  not  include  exposures  in 
default, as defined in the banking prudential rules in Article 175 of Regulation (EU) No 575/2013. 
This criterion ensures that the securitisation does not contain loans or leases already in default when 
the securitisation transaction begins or when new exposures are transferred to the SSPE. 

1.8. Reliance on the future sale of assets securing the exposures 

77 

 
 
The repayment of the securitisation position must not be structured to depend predominantly on the 
sale  of  assets  securing  the  underlying  exposures;  however,  this  shall  not  prevent  such  exposures 
from being subsequently rolled over or refinanced.  

The  point  of  this  criterion  is  to  exclude  transactions  where  the  ability  of  the  SSPE  to  repay  the 
securitisation  notes  is  subject  to  an  unacceptable  level  risk  of  risk,  due  to  overreliance  on  the 
proceeds  of  the  sale  of  assets  securing  the  underlying  exposures  such  as  used  cars  when  an  auto 
lease securitisation transaction matures. While recognising that auto lease securitisations including 
residual  values  may  be  eligible  as  high  quality  (see  paragraph  0),  the  repayment  of  those 
securitisations should not rely predominantly on the future realisation of those residual values. 

1.9. Pass-through requirement for non-revolving structures 

Cash  proceeds  from  the  underlying  exposures  should  flow  in  a  simple  and  transparent  way  to 
investors. Structures where a significant amount of cash is retained within the SSPE (for example, 
securitisations  with  bullet  payments)  would  not  comply  with  this  pass-through  profile  and, 
therefore, are excluded.  

1.10. Early amortisation provisions for revolving structures 

Where  the  securitisation  has  been  set  up  with  a  revolving  period,  the  transaction  documentation 
provides  for  appropriate  early  amortisation  events,  which  shall  include  at  a  minimum  all  of  the 
following: 

  a deterioration in the credit quality of the underlying exposures; 
  a failure to generate sufficient new underlying exposures of at least similar credit quality; 
 
the occurrence of an insolvency-related event with regard to the originator or the servicer. 

High-quality  securitisations  should  ensure  that,  in  the  presence  of  a  revolving  period  mechanism, 
investors  are  sufficiently  protected  from  the  risk  that  principal  amounts  may  not  be  fully  repaid. 
Sufficient protection should be ensured by the inclusion of provisions which trigger amortisation of 
all payments at the occurrence of adverse events such as those mentioned in the criterion.    

1.11. At least one payment at the time of issuance 

At  the  time  of  issuance  of  the  securitisation,  the  borrowers  (or,  where  applicable,  the  guarantors) 
must have made at least one payment. This is intended to exclude securitisation backed by newly-
originated  loans.  However,  this  requirement  would  not  be  proportionate  in  practice  for  the 
securitisation of credit card receivables. Hence there is a derogation for this type of securitisation. 

1.12. Absence of self-certified loans 

In  the  case  of  securitisations  backed  by  residential  loans,  the  pool  of  loans  must  not  include  any 
loan that was marketed and underwritten on the premise that the loan applicant or, where applicable 
intermediaries, were made aware that the information provided might not be verified by the lender.  

This  requirement  is  essential  to  exclude  loans  where  the  applicant  and,  where  applicable, 
intermediaries,  might  be  incentivised  to  misrepresent  essential  information,  e.g.  to  overstate  their 
income. This criterion also helps exclude 'sub-prime' lending. 

1.13. Assessment of retail borrowers' creditworthiness 

78 

 
 
In  the  case  of  securitisations  where  the  underlying  exposures  are  residential  loans,  auto  loans  or 
leases, consumer loans or credit facilities, the creditworthiness of the borrowers must be assessed 
thoroughly,  in  accordance  with  the  Mortgage  Credit  Directive  (Directive  2014/17/EU)  or  the 
Consumer  Credit  Directive  (Directive  2008/48/EC)  or  equivalent  rules  in  third  countries,  where 
applicable. This requirement effectively excludes flawed securitisation business models, relying on 
unsound underwriting practices. 

1.14. Transparency and disclosure of loan-level data 

Where  either  the  originator  or  sponsor  of  a  securitisation  is  established  in  the  Union,  they  must 
comply  with  transparency  requirements  set  out  in  the  Capital  Requirement  Regulation. 
Furthermore,  in  accordance  with  Article  8b  of  Regulation  (EU)  No  1060/2009,  the  European 
Securities and Markets Authority (ESMA) will in 2017 set up a website centralising the publication 
of  information  regarding  structured  finance  instruments,  i.e.  securitisations.  Through  this  website, 
the  issuer,  originator  or  sponsor  of  the  securitisation  will  be  able  to  publish  information  on  the 
credit  quality  and  performance  of  the  underlying  assets  of  the  structured  finance  instrument,  the 
structure  of  the  securitisation  transaction,  the  cash  flows  and  any  collateral  supporting  a 
securitisation  exposure  as  well  as  any  information  that  is  necessary  for  investors  to  conduct 
comprehensive and well-informed stress tests on the cash flows and collateral values supporting the 
underlying exposures. 

Where neither the issuer, nor the originator, nor the sponsor of a securitisation is established in the 
Union, comprehensive loan-level data in compliance with standards generally accepted by market 
participants  must  be  made  available  to  existing  and  potential  investors  and  regulators  at  issuance 
and on a regular basis. 

1.15. Listing requirement 

Both  the  Solvency  II  and  LCR  delegated  acts  require  that  high-quality  securitisation  positions 
should  be  listed  on  a  regulated  market/recognised  exchange,  or  admitted  to  trading  on  another 
organised  venue,  with  a  robust  market  infrastructure.  The  drafting  of  this  criterion  could  not  be 
strictly  aligned  in  the  two  acts  because  of  legal  constraints  stemming  from  differences  in  the 
corresponding  'level  1'  legislation28.  In  addition,  under  the  LCR  delegated  act,  securitisation 
positions  may  be  deemed  highly  liquid  if  they  are  tradable  on  generally  accepted  repurchase 
markets.  This  was  not  included  in  the  Solvency  II  delegated  act  as  repurchase  transactions  to 
generate liquidity are not typical for insurers. 

1.16. Credit quality 

Both  the  Solvency  II  and  LCR  delegated  acts  require  that  high-quality  securitisation  positions 
receive  a  minimum  external  credit  assessment,  on  issuance  and  at  any  time  thereafter.  The 
minimum external credit assessment is one of the elements for high-quality securitisation positions 
and  does  not  constitute  sole  and  mechanistic  reliance,  in  accordance  with  the  principles  of  the 
Financial Stability Board for reducing reliance on CRA ratings29. 

28 On the one hand, the Solvency II Directive uses the concept of a "regulated market" as defined in Article 13(22). On the other hand, the Capital 
Requirements Regulation uses the concept of a "recognised exchange" as defined in Article 4(1)(72). While the latter is also based on the concept of 
a "regulated market", the CRR definition also includes clearing mechanism requirements.  

29 Available at: http://www.financialstabilityboard.org/publications/r_101027.pdf  

79 

 
 
                                                            
In Solvency II, the position should be investment grade, i.e. be assigned to credit quality step  3 at 
least.  In  order  to  ensure  that  the  securitisation  position  is  highly  liquid,  the  LCR  delegated  act 
requires that it is assigned to credit quality step 1. The mappings of external credit assessments onto 
the  respective  scales  of  credit  quality  steps  applicable  in  banking  and  insurance  legislation  is 
prepared by the Joint Committee of the European Supervisory Authorities. 

2. Requirements specific to the LCR delegated act 

The LCR delegated act includes all the requirements for high quality securitisations set out in the 
Solvency  II  Delegated  Act  but  adds  some  additional  requirements  specifically  for  liquidity 
purposes.  It  would  not  be  justified  to  assume  that  all  high  quality  credit  securitisations  would  be 
sufficiently liquid in a market stress scenario. 

2.1. Minimum issue size 

The  larger  the  issue  size,  the  deeper  the  secondary  market.  Therefore,  the  LCR  delegated  act 
provides for a minimum issue of EUR 100 million. 

2.2. Maximum weighted average time to maturity 

Securitisations with a short-weighted average life and high prepayments have proven to enjoy good 
liquidity during periods of stress, as they convert into cash in a short time span (this is the case of 
auto loan ABSs, for example). Accordingly, the LCR delegated act will only recognise positions in 
securitisations where weighted average time to maturity is less than 5 years, assuming call or certain 
prepayment options are exercised. 

80 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ANNEX 5 - Synthetic securitisation 

This annex is aimed at explaining the basics of synthetic securitisation, its benefits and risks.  

  What is a securitisation process?  

In its most basic form, securitisation involves two steps. Firstly a company (the "originator") with 
loans or other income-producing assets—identifies assets it wants to remove from its balance sheet 
and  pools  them  into  what  is  called  the  reference  portfolio.  It  then  sells  this  asset  pool  a  special 
purpose vehicle (SPV), specifically set-up to purchase the assets and realize their off-balance-sheet 
treatment  for  legal  and  accounting  purposes.  Secondly,  the  issuer  finances  the  acquisition  of  the 
pooled assets by issuing tradable, interest-bearing securities that are sold to capital market investors. 
The investors receive cash flows generated by the reference portfolio.  

Source: IMF 200830  

  What is a synthetic securitisation?  

In  synthetic structures  there is  no transfer  of ownership of the underlying  assets/loans  from the 
originating  banks  to  the  securitisation  vehicle.  Instead,  a  derivative  contract,  such  as  a  credit 
default  swap  (CDS),  is  used  to  gain  credit  risk  exposure  to  a  specified  pool  or  portfolio  of 
underlying assets.  

Synthetic  structures  provide  the  issuer  with  capital  relief  (i.e.  lower  capital  charges),  as  the 
credit risk of the assets underlying the securitisation (e.g. bank loans to SMEs) is transferred to a 
third  party  with  the  CDS  contract.  Synthetic  structures  do  not  provide  funding  however,  as  the 
assets (in the previous example, SME loans) remain on the issuer's balance sheet, they are not sold. 
That is a main difference with "true sale" securitisation, which provides both credit risk transfer and 
funding for the issuer. 

30 http://www.imf.org/external/pubs/ft/fandd/2008/09/pdf/basics.pdf  

81 

 
 
 
 
 
 
 
                                                            
  What are the potential risks of synthetic securitisation? 

A synthetic structure introduces more complexity and uncertainty in the transactions. This type of 
structure  creates  an  additional  counterparty  credit  risk,  on  top  of  a  "true  sale"  securitisation,  that 
must  be  managed.  The  nature  of  this  additional  counterparty  risk  is  dependent  on  the  way  it  is 
structured  (e.g.  risks  attached  to  the  entities  providing  protection  via  the  CDS,  nature  of  the 
collateral). 

Source: True Sale International 31 

A key additional risk lies in the legal drafting of the derivative used to mimic the asset transfer from 
the  originator  to  the  issuer  of  the  securitisation.  Such  drafting  is  usually  not  standardised  and 
defines what risks are transferred and under what conditions. This introduces legal uncertainty and 
risks that must be taken into consideration. By contrast, a "true sale" securitisation has a clear 
and standardised form of risk transfer, as the asset underlying the securitisation are effectively sold 
to the issuer of such securitisation. 

Synthetic structures were abused  in  order to  reduce prudential capital requirements,  rather than 
used in order to obtain genuine transfer of risk. In the run-up to the 2007-2008 financial crisis, there 
was an emergence of "arbitrage structures" that generated important losses for investors. The US 
Financial Crisis Inquiry Report concluded that "the synthetic CDOs proliferated, in part because it 
was much quicker and easier for managers to assemble a synthetic portfolio out of pay-as-you-go 
credit default swaps than to assembly a regular cash CDO out of mortgage backed securities (…) 
and they tended to offer the potential for higher returns on the equity tranches." When the bubble 
burst, hundreds of billions of dollars in losses in mortgages and mortgage-related securities shook 
markets as  well as  financial institutions.  The synthetic structuring,  through derivatives,  magnified 
these  losses.  There  are  famous  examples  such  as  the  deal  arranged  by  Goldman  Sachs  called 
ABACUS 2007-AC1. The German bank IKB lost almost all of its $150 million investment in this 
instrument.  

In  Europe  too,  synthetic  structures  generated  losses  that  are  a  multiple  of  those  generated  by 
simple and transparent structures. Based on historical data,  the probability of a synthetic CDOs 

31 http://www.true-sale-international.de/en/abs-im-ueberblick/wasistabs/  

82 

 
 
 
 
                                                            
defaulting is 19 times higher than that of simple structures such as RMBS and credit cards ABS 
(see table below, from AFME).  

Table A.1 – losses generated by EU term securitisations 2007 to 2013 

Source: AFME 

Simpler synthetic structures such as those issued by the EIF generated losses of 0.8% on average. 
This  level  is  identical  to  that  of  average  EU  structured  credit  products  (see  Figure  6  in  the  main 
text). While these losses were considerably smaller than those of their US counterparts, structured 
credit  and  EIF  synthetics  have  nonetheless  underperformed  traditional  securitisations 
considerably. Traditional EU securitisations such as RMBS and ABS generated losses of 0.0% and 
0.1%  respectively.  The  available  data  does  not  support  the  introduction  of  synthetics  in  the  STS 
scope.  

  What is the current state of play in the policy discussions?  

The financial sector globally agrees that more work is needed in order to develop STS criteria for 
synthetic  securitisation.  They  acknowledge  the  political  sensitivity  of  this  segment  due  to  the 
financial crisis and the higher complexity of such products, both requiring caution. For instance the 
main  private  body  developing  a  label  for  high  quality  securitisations  -  Prime  Collateralised 
Securities (PCS) - has excluded synthetic securitisations from their list of eligible securitisation 
instruments. They are likely to develop criteria but only in the medium-term. 

83 

 
 
 
 
Synthetics are neither eligible for ECB/BoE refinancing operations. It follows that central banks 
do  not  accept  synthetics  are  safe  collateral  against  which  to  lend  funds  to  banks.  Also,  the  ECB 
excludes synthetics from the list of assets purchasable under its ABS Purchase Programme. 

No  work  on  identifying  criteria  for  simple  and  transparent  synthetics  has  been  carried  out  by 
international  organisations.  Neither  the  BCBS-IOSCO  nor  the  EBA  did  include  synthetics  in  the 
scope of simple, transparent and standardised securitisation. They do not plan to develop criteria to 
identify simple for synthetics in the near future. 

Two MS with sizeable securitisation markets are reluctant to progress quickly. A few other MS are 
more open to integrate synthetics but only at a later stage, recognising that further work is needed if 
there is to be properly defined additional specific criteria for synthetics.  

An  overwhelming  majority  of  respondents  to  the  Commission's  public  consultation  on 
securitisation agreed with the exclusion of synthetic products from the STS scope. Notably, the 
majority  of  industry  associations  and  private  companies  also  agreed.  A  detailed  breakdown  of 
responses  by  category  is  presented  in  the  table  below.  Under  the  column  "YES"  is  presented  the 
percentage of respondents who agreed on the criteria excluding synthetics while under "NO" is the 
percentage that argued against the exclusion.  

Table  A.2  –  Percentage  of  respondents  agreeing  with  STS  criteria  excluding  synthetic 
securitisations 

Category 

Private individual 

Company, SME, micro-enterprise, sole trader 

Consultancy, law firm 

Legislators, Regulator and Supervisor 

Industry association 

Non-governmental organisation 

Other 

TOT 

Source: European Commission 

YES  NO 

75% 

68% 

25% 

32% 

100% 

0% 

85% 

73% 

15% 

27% 

100% 

0% 

40% 

60% 

74% 

26% 

84 

 
 
  
 
 
 
 
 
 
 
 
 
ANNEX 6 - Financing SMEs with the securitisation tool 

State of play 

Recent changes in the regulation for securitisation include preferential rules for SME securitisation. 
First, the (LCR) Delegated Act allows SMEs securitised products to be included in the liquid asset 
pool  for  the  LCR.  This  should  support  financing  of  SMEs.  However,  only  senior  tranches  are 
eligible, which implies that the amount of SME ABS to be included in the LCR pool will be small.  

Secondly,  the  Delegated  Regulation  for  Solvency  II  includes  a  definition  of  high-quality 
securitisation  (simple,  sound,  transparent,  comparable)  with  a  more  favourable  capital  treatment 
including  loans  to  SMEs  as  admissible  underlying  asset  (Article  177(2)(h)(iii)  of  the  Delegated 
Regulation). Whether or not that's enough to significantly change the extent of investment in SMEs 
by insurers will also depend on relative yields to other products.  

Promotional  banks  have  supported  the  development  in  SME  ABS  in  their  countries  and  more 
generally  in  Europe  through  special  programs.  KFW,  for  example,  was  very  successful  with  the 
PROMISE  infrastructure  for  SME  securitisation  (72  transactions  with  a  volume  of  €  126bn  from 
2000  to  2012).  However,  the  majority  of  transactions  under  this  scheme  are  currently  short  term 
ABS (ABCPs) rather than SME ABS. 

While beneficial, the LCR and Solvency II rules are unlikely to fight stigma and revive the market 
for  securitisations  alone  (see  section  6.1.1).  The  same  stands  true  for  SME  securitised  products. 
Regarding promotion banks' schemes, while these have met some success, they have not been able 
to  counteract  the  decline  seen  in  SME  securitisation  issuance  since  the  crisis.  It  appears  that  the 
problems that have affected securitisation markets in general, analysed in the previous chapter, have 
prevented such schemes to reach their full potential. 

Introducing STS and a risk-sensitive prudential framework 

Differentiating between STS products and the rest, and applying such differentiation in the capital 
treatment  applied  to  securitisations,  the  Commission's  initiative  would  allow  the  securitisation 
technique to perform both its funding and risk transfer functions. This would help banks to free up 
capital  currently  needed  to  fund  existing  credit  exposures.  In  this  way,  banks  would  be  able  to 
extend new credit.  

In  a  context  of  improving  macro  conditions  and  extremely  low  interest  rates  paid  by  other  assets 
(e.g.  government  bonds),  banks  are  incentivised  to  give  new  credit  to  firms,  which  are  mostly 
SMEs. Reviving the securitisation market should then help easing credit conditions for SMEs and 
improving their access to credit.  

It  is  not  easy  to  provide  a  reliable  estimate  on  the  additional  provision  of  loans  a  revival  of  the 
securitisation  market  could  provide.  This  depends  indeed  on  a  multitude  of  factors:  a)  monetary 
policy,  b)  demand  for  credit,  c)  developments  in  alternative  funding  channels  (covered  bonds, 
unsecured credit to name a few). All of these are likely to change through time, affecting the final 
outcome. With these caveats in mind, one can say however that, all things equal, if the securitisation 
market  would  go  back  to  pre-crisis  issuance  levels,  banks would  be  able  to  provide  an  additional 
€157bn of credit to the private sector. This would represent a 1.6% increase in credit to EU firms 
and households (this is still 4.7% below its peak).  

85 

 
 
 
 
 
Such an increase in loans provision would be likely distributed among all types of loans, including 
loans  to  SMEs.  This  is  an  important  point  because  it  makes  clear  that  by  freeing  up  capital, 
securitisation  revival  would  indirectly  help  SME  credit  access.  Assuming  stable  shares  of  SME 
loans to total loans (18.5% in OECD jurisdiction, with wide variations, e.g.: 49% in Greece), this 
would imply a 1.6% increase in SME loans.  

On  top  of  the  indirect  effect  described,  the  direct  effect  of  the  Commission  initiative  on  SME 
lending should be sizeable as the more risk sensitive capital treatment would reduce capital charges 
to  STS  SME  securitisation,  increasing  the  returns  of  such  products  compared  to  the  returns 
generated  by  keeping  the  SME  loans  on  the  bank's  balance  sheet.  This  problem  has  been 
highlighted by the IMF as a key obstacle to SME securitisation (see page 21 for more details).   

Furthermore,  the  inclusion  of  ABCP  conduits  satisfying  criteria  of  simplicity,  transparency  and 
standardisation  in  the  STS  perimeter  will  foster  the  growth  of  this  key  source  of  financing  for 
SMEs. It is worth recalling that an average €240bn of ABCP have been issued in the last five years 
and  that  63%  of  these  instruments  fund  trade  receivables,  floorplan  loans  and  equipment  leases, 
which are primarily granted to SMEs.  

Finally, promoting securitisation market as a whole will develop investor and issuer expertise and 
build  an  effective  infrastructure  around  assessing,  pricing  and  trading  securitisations.  This  in  turn 
should reduce due diligence and credit analysis costs, helping SME loans to become a more viable 
asset as investors seek higher yields and issuers seek diversification of their funding structure and 
balance sheet management.  

Public guarantee schemes 

SME  securitisation  could  also  be  supported  through  public  schemes  such  as  those  ran  by  EIF  or 
various Member States in  the past. Guarantees normally  are time-limited and targeted on specific 
asset segments (e.g. SME ABS).  

Such schemes could help implementing the STS securitisation agenda aimed at helping SME access 
to  credit  without  prejudice  to  a  legislative  programme  at  a  later  stage.  They  would  also  increase 
incentives  for  products  standardisation  (e.g.  example  of  the  US  mortgages  agencies)  and  would 
promote liquidity.  

The  costs  involved  in  such  schemes  are  however  high.  For  the  guarantee  scheme  to  have  a 
meaningful effect at an EU level, substantial fiscal costs would have to be borne by Member States, 
in  a  context  where  budget  reduction  is  a  binding  constraint  across  many  EU  jurisdictions. 
Additional risks on taxpayers as well as moral hazard issues would also have to be considered.  

Such schemes would also overlap with the various guarantee schemes existing in EU jurisdictions 
as well as carried out by the EIB/EIF group such as the SME initiative (SMEI). This is an EU-wide 
joint  financial  instrument  of  the  EIB  Group,  the  European  Commission  and  the  Member  States, 
approved  by  the  European  Council  in  2013  and  aiming  at  supporting  SMEs  through  risk-sharing 
financial instruments.  In  practice  it relies  either  on  guarantee  facilities and  securitisation tools.  In 
2015 an €800mn scheme was launched in Spain under the umbrella of SMEI. This is expected to set 
the base for future financial instruments to support SMEs. 

86 

 
 
 
 
 
 
ANNEX 7 – Summary of responses to the Commission's public 
consultation on securitisation 

The Commission held a public consultation between 18 February and 13 May 2015 to explore the 
challenges and opportunities related to an EU framework for simple, transparent and standardised 
securitisation (STS securitisation).  

This consultation was part of the Commission’s Green Paper on the Capital Market Union 
(CMU) and aimed at collecting views on 18 specific questions, grouped in 10 sections:  

Identification criteria for qualifying securitisation instruments  

Identification criteria for short term instruments 

Risk retention requirements for qualifying securitisation 

Compliance with criteria for qualifying securitisation 

Elements for a harmonised EU securitisation structure 

Standardisation, transparency and information disclosure 

Secondary markets, infrastructures and ancillary services 

Prudential treatment for banks and investment firms 

Prudential treatment of non-bank investors 

Role of securitisation for SMEs 

120 responses to the public consultation were received from: 

Member States government and financial authorities; 

Issuers and originators of securitisation;  

Investors in securitisation;  

Financial institutions and their associated bodies; 

Service providers to securitisation; 

Non-financial institutions; and, 

Individual citizens, academics and associations. 

The list of public contributors to the consultation is annexed to this document. Please note that 10 
respondents asked for their contributions to be kept confidential.  

87 

 
 
 
 
 
2. STATISTICS ON RESPONDENTS 

  Categories of respondents 

Organisations or companies 

Public authorities or international organisations 

Private individuals 

Replies  % 

93 

22 

5 

77% 

18% 

4% 

  Confidentiality request  

Yes, I agree to my response being published  

No, I do not want my response to be published 

Replies  % 

  110 
10 

91.6% 

8.3% 

  Type of organisations: 

Industry association 

Company, SME, micro-enterprise, sole trader 

Other 

Consultancy, law firm 

Non-governmental organisation 

  Type of public authorities 

Replies  % 

52 

22 

8 

6 

5 

43% 

18% 

6% 

5% 

4% 

Government or Ministry 

Regulatory authority, Supervisory authority or Central bank   
Other public authority 

International or European organisation 

Replies  % 

11 

7 

2 

2 

9.17% 

5.83% 

1.67% 

1.67% 

88 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Geographical origin of respondents 

Replies  % 

United Kingdom 

France 

Belgium 

Germany 

Other country 

Spain 

Austria 

Ireland 

Italy 

The Netherlands   
Luxembourg 

Finland 

Denmark 

Norway 

Portugal 

Slovakia 

Malta 

Sweden 

Switzerland 

Croatia 

Czech Republic 

Greece 

Hungary 

  Role in securitisation markets 

Issuers / originators 

Investors / potential investors 

28 

16 

16 

11 

7 

5 

5 

5 

5 

4 

3 

3 

2 

1 

1 

1 

1 

1 

1 

1 

1 

1 

1 

23.3% 

13.3% 

13.3% 

9.1% 

5.8% 

4.1% 

4.1% 

4.1% 

4.1% 

3.3% 

2.5% 

2.5% 

1.6% 

0.8% 

0.8% 

0.8% 

0.8% 

0.8% 

0.8% 

0.8% 

0.8% 

0.8% 

0.8% 

89 

Replies  % 

26 

19 

21.6% 

15.8% 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Services providers (infrastructures, ancillary services providers.) 

Other (public authorities, non-financial entities, individuals…) 

9 

66 

7.5% 

55% 

  Field of activity or sector (multiple replies were possible): 

Banking 

Investment management (e.g. hedge funds, private equity funds, 
venture capital funds, money market funds, securities) 

Other 

Not applicable 

Market infrastructure operation (e.g. CCPs, CSDs, Stock 
exchanges) 

Insurance 

Credit rating 

Pension provision 

Auditing 

Academia / research 

Accounting 

Social entrepreneurship 

Replies  % 

40 

34 

30 

15 

12 

11 

8 

7 

5 

4 

3 

2 

33.3% 

28.3% 

25% 

12.5% 

10% 

9.1% 

6.6% 

5.8% 

4.1% 

3.3% 

2.5% 

1.6% 

90 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3.  SUMMARY OF THE RESPONSES 

1.  Identification criteria for qualifying securitisation instruments  

Question 1: 

A. Do the identification criteria need further refinements to reflect developments taking place at 
EU and international levels? If so, what adjustments need to be made? 

B. What criteria should apply for all qualifying securitisations ('foundation criteria')? 

Main messages: 

There is a strong support for differentiation based on modular approach. EBA/BCBS/IOSCO 
seen as natural and authoritative base for criteria. Slight preference for BCBS-IOSCO 
principle-based approach, while EBA approach is seen as a bit too prescriptive by various 
stakeholders (mostly industry). Support for STS differentiation not including credit risk 
elements and applying to all tranches (cf. "it's about the originating and structuring procedure 
so applies to all tranches of the deal").Strong emphasis on the importance to have consistency 
of legislation at EU level and the need to avoid proliferation of criteria/definitions/regimes 
(CRR, S2, LCR..) 

The vast majority of respondents (74%) agreed that synthetics may be currently excluded by 
the STS framework. The majority of respondents from industry associations (73%) and private 
companies (68%) are also of this view. Other categories (regulators, legislators, NGOs, private 
individuals) showed bigger majorities in favour of the exclusion. A detailed breakdown of 
responses by category is presented in the table below. Under the column "YES" is presented 
the percentage of respondents who agreed on the criteria excluding synthetics, while under 
"NO" is the percentage that argued against the exclusion. 

Category 

Private individual 

Company, SME, micro-enterprise, sole trader 

Consultancy, law firm 

Legislators, Regulator and Supervisor 

Industry association 

Non-governmental organisation 

Other 

TOT 

YES  NO 

75% 

68% 

25% 

32% 

100% 

0% 

85% 

73% 

15% 

27% 

100% 

0% 

40% 

60% 

74% 

26% 

Finally, some stakeholders are requesting more detailed on some criteria notably on those 
related to comparability, homogeneity, definition of impaired credit and borrower, definition 
of significant risk too vague and inconsistent. 

91 

 
 
 
 
 
2. Identification criteria for short term instruments 

Question 2:  

A. To what extent should criteria identifying simple, transparent, and standardised short-term 
securitisation instruments be developed? What criteria would be relevant? 

B. Are there any additional considerations that should be taken into account for short-term 
securitisations? " 

Number of contributions on this specific question:  78 

Of which: 

Originators/issuers:18 

Investors: 11 

Public authorities: 15 

Service providers: 5 

Others: 30 

Main messages: 

Majority view: Almost two thirds respondents consider criteria for short term securitisations 
should be developed. Most feel this criteria should differentiate between those structures 
devoted to real economy financing (e.g. multi-seller ABCP conduits) and those used for 
arbitrage (e.g. SIVs). 

Many respondents suggest the criteria should take into account the type of underlying assets 
and the level of overcollateralisation. There were also proposals for the criteria to limit 
maturity mismatches and require frequent reporting of underlying risks and structures and the 
nature of the liquidity support provided by the financial institution, amongst others. 

Minority views: One tenth of respondents feel that the focus should first be on term 
securitisation and that short term securitisation criteria should not be rushed ahead to avoid 
repeating previous mistakes. One of these suggested that if such a criteria was developed it 
should then only apply to the securitisation of trade receivables. 

3. Risk retention requirements for qualifying securitisation 

Question 3: 

A. Are there elements of the current rules on risk retention that should be adjusted for qualifying 
instruments? 

The overwhelming majority of respondents (almost 70%) are in favour of maintaining the 
level and forms of risk retention as they are or tightening them. Of these, some suggest that 
the level of risk retention should be increased (to 15-20%).  

All the regulatory community, central banks and finance ministries argued that the risk 
retention requirements are a crucial tool to align interests of the various actors in the 

92 

 
 
 
 
securitisation chain and that their level and form are currently working fine, so that they see 
no reason for changing them.  This view was shared also by the majority of industry 
organisations and private companies, with a vast majority (almost 60%) of private sector 
respondents arguing for keeping the rules as they are. Three more technical issues were raised 
by several respondents and require attention: the definition of "originator" in CRR, the 
exclusion of managed CLO and purchased receivables. 

B. For qualifying securitisation instruments, should responsibility for verifying risk retention 
requirements remain with investors (i.e. taking an "indirect approach")? Should the onus only 
be on originators? If so, how can it be ensured that investors continue to exercise proper due 
diligence? 

Respondents have somewhat diverging views on how this shift should happen concretely. 
About 60% of respondents (mostly industry stakeholders) argued for shifting the 
responsibility to originators/issuers/sponsors (i.e. substituting the current indirect with the 
direct approach). About a third of the respondents (mostly public authorities but not 
exclusively) supported instead the EBA proposal of accompanying the indirect approach with 
the direct approach thereby rendering both investors and issuers responsible. The second 
group justified maintaining investors' responsibility in two ways: i) this would continue 
ensuring EU investors invest only in securitisation backed by solid risk retention regimes and 
ii) this would maintain the incentives for investors' due diligence in risk retention aspects 

4. Compliance with criteria for qualifying securitisation 

Question 4.A and 4.B 

How can proper implementation and enforcement of EU criteria for qualifying instruments be 
ensured? How could the procedures be defined in terms of scope and process? 

Number of contributions on this specific question:  79 

Of which: 

Originators/issuers: 17 

Investors: 14 

Public authorities: 18 

Service providers: 4 

Others: 26 

General process: 

Almost all respondents emphasise the importance of having appropriate enforcement and 
compliance mechanisms in place to build a sustainable STS securitisation market in Europe. 
Views are split on the best ways to ensure this objective.  

93 

 
 
 
 
 
Some respondents argue that the onus of ensuring compliance with the STS criteria should be 
mainly on originators and investors. Originators may for instance be required to self-attest that 
a given instrument meets the identification criteria. They consider this approach as the best 
way to avoid excessive reliance on assessments delivered by third parties. This approach is 
seen as the most efficient way to reduce "moral hazard" risks and ensure proper due diligence 
by investors.  

Other stakeholders believe that the recourse to external parties is essential to overcome the 
current stigma attached to securitisations and to build investors' confidence in STS 
instruments. In practice, some stakeholders suggest that public authorities could be directly 
involved in providing this assessment, while a significant number of respondents are 
supporting the establishment of private bodies acting as "certifiers" or "control bodies". These 
entities – under the supervision of public authorities - would be requested to assess the 
compliance of STS. 

Due diligence / moral hazard: Originators and investors should remain responsible for 
fulfilling their obligations, even though this could be facilitated to a certain extent through 
elements provided by external parties. Investors should not reduce their own risk assessment 
and interpret STS criteria as credit quality indicators. To this aim, sufficient information 
should be accessible to them. This should include notably loan level and performance data and 
publication by originators of comprehensive information with regard to aspects of the STS 
criteria that cannot be verified directly by investors (e.g. underwriting standards). An 
independent attestation/certification process should not lead to overreliance on STS 
qualification. 

Clarity: EU legislation on STS criteria should be precise enough to give a clear guidance to 
originators and investors. The EU criteria should provide a minimum certainty to investors 
even if STS qualification could be challenged or denied by competent supervisors (e.g. in the 
context of an onsite examination). Legal certainty is an important means of building trust and 
restarting the securitisation markets.  

Timeliness/costs of the process: To make high-quality securitisation attractive for investors 
and originators, the cost of implementing and enforcing the criteria would have to remain 
within reasonable limits. Excessive delays in providing this compliance 
assessment/certification would impede originators activities and be detrimental to the 
development of an STS market.   Some stakeholders suggest that not every securitisation 
instrument or structure should be checked again for compliance with the criteria. In some 
cases, it should be possible for a securitisation structure that has already been certified once to 
be copied without the need for a full renewed check.  

Avoiding fragmented approaches / ensuring EU Consistency: A number of stakeholders 
emphasise the importance of a consistent interpretation of STS criteria in all EU Member 
States, especially given the mobility of securitisation structures and originators. The 
responsibility for determining whether a particular instrument complies with STS criteria 
needs to be clearly assigned. The mechanism should ensure consistency in its application. A 
consistent EU approach has to be implemented in order to ensure a single market for STS 
instruments and to avoid "forum-shopping" risks. In order to achieve such objectives, some 
respondents suggest that STS assessment/certification could be done directly by a European 
authority (e.g. ESA).  

Sanction regimes: The monitoring mechanism should foresee clear processes in case of a 
breach in compliance either due to a wrong appreciation at the origination or due to a change 

94 

 
 
in the securitisations’ structure during its life. These processes should notably address 
originators and third parties in charge of assessing STS criteria. Where an investor benefits 
from a preferential regulatory treatment with regard to a particular STS securitisation position 
and does not meet these verification requirements by negligence or omission, the regulation 
could include appropriate measures for sanctioning such negligence or omission. 

Question 4.C 

To what extent should risk features be part of this compliance monitoring? 

Number of contributions on this specific question:  63 responses 

Of which: 

Originators/issuers: 12 

Investors: 9 

Public authorities: 13  

Service providers: 3 

Others: 23 

A vast majority of respondents consider that the compliance monitoring should cover the 
securitisation structure and the relevant STS criteria. However, it should not cover the credit 
risk posed by the underlying assets. While credit risk features are an essential part, they should 
be addressed within the due diligence process. Including risk features in the compliance scope 
would raise several issues. It may in particular introduce a confusing message to investors. 
These criteria are not aimed to provide an opinion on credit risks but to make investors’ 
assessments of risks more straightforward. The STS approach should help investor to properly 
analyse the credit risk of the underlying assets in their due diligence process. 

Investors should be fully responsible for their due diligence as they would for any other type 
of financial instrument. The approach should avoid replicating the errors of the subprime crisis 
and the overreliance on external entities (e.g. credit rating agencies). It is therefore difficult to 
see how assessments or monitoring of these credit risks (for instance by an independent third 
party) would help to achieve the STS objective. Compliance with STS criteria should only 
ensure that due diligence process is less time-consuming due to strict requirements limiting 
the complexity of securitisations and enhancing transparency and standardisation. Several 
respondents underlined however that information on risk developments during the life cycle of 
the transaction is of utmost importance. Thus originators should provide timely elements to 
investors which should keep on requesting risk information in regular reports. 

However, some stakeholders consider that it could be logical to include some credit risks 
criteria in the compliance monitoring while addressing potential risks related to moral hazard. 
Some underline that risk features are already part of the supervision of national competent 
authorities over credit institutions. Therefore if an issuer-based approach would be taken, 
these risk features would be monitored.  

95 

 
 
 
 
 
5. Elements for a harmonised EU securitisation structure 

Question 5: 

A. What impact would further standardisation in the structuring process have on the 
development of EU securitisation markets?  

Number of contributions on this specific question:  72 responses 

Of which: 

Originators/issuers: 17 

Investors: 16 

Public authorities: 11 

Others: 28 

The majority of the respondents argue that a standardisation in the structuring process will 
have a positive impact in the development of the securitisation market. It is claimed that such 
standardisation i) will incentivise liquidity of the secondary market for securitized products, 
ii) will ease investing in structured finance, iii) enhance investor confidence and promote the 
further development of such markets. Moreover standardisation will enhance comparability 
for investors by creating a level playing field with similar credit products such as covered 
bonds and thus make securitisations more attractive. It will also help build the new market of 
standard simple product for less sophisticated investors. Some argue that a more benign 
capital treatment for the qualifying instruments will allow consideration of a wider range of 
products with marginal additional resources. Finally a standardisation of the structures may 
help enhancing secondary markets.   

However, most stakeholders have doubts on the possibility for the Commission to develop – 
in short/ medium terms - a harmonised legal framework to frame the establishment of 
securitisation vehicles, the transfer of assets or the subordination among noteholders. 
Discussions on taxation regimes, insolvency laws, and securities laws would be required as 
pre-requisite. There is also support of encouraging further standardisation in the 
documentation of securitisations by market participants themselves. The example of the 
Dutch Securitisation Association is perceived as a promising initiative which could be 
expanded to other asset classes and Member States. 

A minority of respondents claim that it would be very difficult and undesirable to come up 
with one European securitization structure. The advantages of securitisation, as a flexible tool 
to design investment products best fitted to specific situations may disappear. It is suggested 
that the European Commission should not risk of hampering the redevelopment of the 

96 

 
 
 
 
 
 
European securitization market, by setting up a pan European securitisation structure, which 
may require considerable time to be implemented due to two fundamental structural 
differences between countries i.e. property ownership and insolvency laws. These Structures 
have been developed over many years to accommodate particular national contract, property 
and insolvency laws of the Member States. It is also proposed that imposing standardisation 
would give a special advantage to those players who can benefit from standardization, namely 
large institutions with “middle of the road” objectives.  

B. Would a harmonised and/or optional EU-wide initiative provide more legal clarity and 
comparability for investors?  What would be the benefits of such an initiative for originators?  

Number of contributions on this specific question:  67 responses  

Of which: 

Originators/issuers: 13 

Investors: 14  

Public authorities: 12 

Others: 28 

The majority of respondents underlined that a harmonised regime would make analysing a 
transaction easier for investors and provide more legal certainty by easing the burden and cost 
of having to comply with differing requirements or choose which label/s to conform to. It 
would also facilitate cross-border investments within the EU, allowing access to a much wider 
market by allowing for greater comparability of transactions and creating a level playing field 
for investors. Moreover, some respondents stress that more harmonised legal environment and 
disclosure frameworks would reduce potential barriers to the availability of transaction 
counterparties. It would subsequently increase investor confidence and generate a 
development of an EU wide securitisation market. For originators the main benefit would be 
in reducing complexity within the structuring process, as well as within the recurring 
transaction processes, through more consistent and simple documentation.  

As regards the benefits of harmonisation a minority of respondents argue that the 
securitisation process is already regulated in an adequate manner and further harmonisation 
could lead to overregulation without providing an additional value. Standardisation in the 
structuring process is difficult to achieve in the EU due to the differing national regulations on 
securitisation.  Other measures - stopping short of a new EU structure established by legal 
instrument – may well yield quicker benefits; it would thus be preferred to develop industry 
standards and best practices concerning the origination documentation and structure of SPVs. 
Some of the matters (such as the nature and extent of subordination) should be left to markets 
to define, rather than being set out in legislation. Harmonisation may be beneficial, but the 
lack of a harmonised framework is not seen as a principal impediment to securitisation 

97 

 
 
 
 
investment and/or issuance.  

C. If pursued, what aspects should be covered by this initiative (e.g. the legal form of 
securitisation vehicles; the modalities to transfer assets; the rights and subordination rules for 
noteholders)? (60 replies) 

The majority of the respondents consider that the initiative should cover the legal form of the 
securitisation vehicle the form of assignment and notification requirements the rights and 
entitlements of the noteholders as well as disclosure and documentation requirements.   

Relating to the aspects covered by the initiative it is argued by some respondents that 
harmonisation of securitisation requires harmonisation in various areas of law including: 
general civil law issues; limited recourse and non-petition clauses; the law governing standard 
terms and conditions; the law governing securities and debentures/debt securities, provisions 
governing set-off; Insolvency law; general tax law issues and cross-border taxation and data 
protection. 

It is also proposed that a flexible approach with minimum fixed eligibility criteria should be 
sufficient. Some suggest that the creation of a supra-national structure that would promote 
cross-border investment without impacting the current national securitisations regimes has 
also been proposed as has the definition of quality assets and underlying assets and eligibility 
criteria.  

D. If created, should this structure act as a necessary condition within the eligibility criteria for 
qualifying securitisations?  

Number of contributions on this specific question: 56 

Of which: 

Originators/issuers: 12 

Investors: 9 

Public authorities: 7 

Others: 28 

The majority of respondents consider that a standardised structure should not be considered a 
necessary condition within the eligibility criteria for qualifying securitisations. The majority 
supports a principles based harmonisation as opposed to a one size fits all approach. 
Moreover, legal harmonisation may take a while to be completed and making a standard 
structure a necessary prerequisite will hinder the Commission’s goal to quickly restart the 
securitisation market.  

The minority view is that a structure must act as a necessary condition within the eligibility 

98 

 
 
 
 
 
criteria for qualifying securitisations.  

6. Standardisation, transparency and information disclosure 

Number of contributions on this specific question: 93 

Of which: 

Originators/issuers: 22 

Investors: 16 

Public authorities: 15 

Service providers: 5 

Others (please specify if there is a specific category reacting on this question): 35 

Question 6:  

A. For qualifying securitisations, what is the right balance between investors receiving the 
optimal amount and quality of information (in terms of comparability, reliability, and timeliness), 
and streamlining disclosure obligations for issuers/originators?  

Main messages 

There is a large support for transparency on SFI. Market participants shall have access to at 
least the same amount of information as credit rating agencies (CRAs). The importance of 
increased standardisation is underlined by the majority of the respondents, provided there is a 
reasonable degree of flexibility to take into account the characteristics of different asset 
classes and provided that the amount of information is balanced to the needs of investors 
(some mentioned PRIPs as an example of balanced approach).  

Some suggest considering possible exemptions from standard templates for transactions that 
cannot be adequately covered. Some also insist on the need of consistency of enforcement 
across Member States). Strong emphasis on the quality of information provided (not only 
quantity). Large support also for the standardised templates provided by the CRA RTS on 
structured finance instruments (2015) which are considered very useful. There is also a very 
strong support for the set-up of a centralised transparency website for securitisation, so that 
information could be submitted only once, in one place and in a single format. Many 
contributors mention the European DataWarehouse (EDW) as a very positive experience, 
very useful for investors.  

Granular pools  

Many contributors consider that the disclosure of loan to loan data for transactions backed by 
very granular pools of assets: i) creates unnecessary burden for issuers; ii) is not useful for 
investors and suggest limiting disclosure to aggregated data which in their opinion would be 
more relevant/easier to assess by investors. 

Some respondents considered that the approach taken in ESMA’s RTS is excessive as it may 

99 

 
 
 
 
 
give investors enough information to figure out pricing/business strategies of their 
competitors; this in turn may reduce incentives to use such instruments. However, according 
to detailed elements provided by a public authority, these concerns would not be justified for 
the following reasons: 

- issuers already have this data, in an easy to disclose form; so the argument of additional 
burden for issuers would not be justified; 

- educated investors would strongly benefit from receiving loan level information which will 
enable them to aggregate data according to their own criteria, and avoid them to depend on 
the aggregation method used by issuers; in addition, in the absence of disclosure of loan to 
loan data, it is impossible to check the quality of the underlying data.  

Private transactions 

Many contributors on the industry side are concerned about the application of art. 8b of the 
CRA III Regulation (publication on the SFI website of loan to level data) also to private 
transactions. They argue that in private transactions, investors are free to determine 
contractually the level of transparency they consider necessary and in many instances that 
level would be higher than in public transactions. Some of these contributors are also 
concerned by the need to protect commercial secrets. In their view, in such cases, extending 
public disclosure on private transactions may act as a disincentive for such transactions. On 
the other side, many of the above mentioned contributors on the industry side would 
appreciate that private transactions be eligible for STC (with the understanding however, that 
private transactions seeking eligibility would need to comply with loan level disclosure 
requirements, provided this information is disclosed only to relevant parties and the 
supervisors). 

Minority views:  

- Some stakeholders mention that transparency is not sufficient to ensure that all investors 
have the capacity to assess the information; promoting simple structures is equally important 
in their view;  

- Standardisation would be difficult to achieve, given the great variety of transactions. Some 
indicate that adjustments are more needed for CMBS and RMBS, while would be less 
meaningful for revolving transactions 

- Standardisation would be useful, but should ensure sufficient flexibility in order not to 
prevent the development of innovative. 

B. What areas would benefit from further standardisation and transparency, and how can the 
existing disclosure obligations be improved?  

There is a strong support in favour of standardisation of investors’ reports. Also, many 
respondents highlighted that standardisation of definitions/key transaction terms (including of 
important ratios) used would be helpful. Some stakeholders were also in favour of further 
standardisation of performance metrics and of qualitative characteristics of securitisation (e.g. 
servicing characteristics).  

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C. To what extent should disclosure requirements be adjusted – especially for loan-level data – to 
reflect differences and specificities across asset classes, while still preserving adequate 
transparency for investors to be able to make their own credit assessments? 

Many respondents suggest adjusting disclosure requirements to the characteristics of each 
asset class. 

Question 7:  

Number of contributions on this specific question: 66 

Of which: 

Originators/issuers: 18 

Investors: 12 

Public authorities: 17 

Service providers: 5 

Others (please specify if there is a specific category reacting on this question): 14 

A. What alternatives to credit ratings could be used, in order to mitigate the impact of the country 
ceilings employed in rating methodologies and to allow investors to make their own assessments 
of creditworthiness? 

The vast majority of respondents underline the importance that investors make their own 
creditworthiness assessment and do not rely mechanistically on external credit ratings. Credit 
ratings should be only one element amongst other to be considered in the overall assessment.  

Respondents suggest several type of alternatives (see below), but many of them are realistic 
about the difficulty to completely eliminate reliance on ratings. Most frequently suggested 
alternatives are:  

- disclosure is viewed as the most important tool for reducing reliance on ratings, as it enables 
investors to make their own risk assessment;  

- use an internal risk/ratings based approach (e.g. in terms of expected loss); 

- promote simple structures. 

Some minority contributors suggest additional alternatives such as: 

- use of monoline insurers or over-collateralisation to limit the impact of country ceilings; 

- creation of one or several non for profit, supra national, capital market or multilateral funded 
rating agency (to be funded by investors) 

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B. Would the publication by credit rating agencies of uncapped ratings (for securitisation 
instruments subject to sovereign ceilings) improve clarity for investors? 

The majority of respondents consider that the publication also of uncapped ratings (without 
the country ceiling) would offer additional clarity for investors and enable them to make their 
own analysis of the sovereign risk. 

There is however a significant proportion of respondents that highlight that the publication of 
uncapped ratings, although interesting for information purposes, would have however limited 
value for investors as long, as prudential legislation would continue to take into account the 
“capped ratings” (with the country ceiling). 

Some stakeholders highlight the need not to underestimate the country risk and the need for 
investors to perform some kind of country risk assessment. Some stakeholders also raise 
awareness about the need to avoid interfering with CRAs methodologies. 

7. Secondary markets, infrastructures and ancillary services 

Question 8.A: For qualifying securitisation, is there a need to further develop market 
infrastructure? 

Number of contributions on this specific question:  63 

Of which: 

Originators/issuers:18 

Investors: 7 

Public authorities: 11 

Service providers: 4 

Others: 23 

In favour of developing further market infrastructure: 46 responses (of which 20 were 
focusing only on information) 

Not in favour of developing further market infrastructure: 16 responses  

No reply: 57 

Most of respondents focus on infrastructures aiming at collecting and disseminating 
information on securitisation markets in the EU. The development of central repository would 
be necessary for market participants and investors in particular. Existing infrastructures such 
as the European Data warehouse (EDW) are perceived as positive initiatives which should be 
further developed. A number of respondents underlined the necessity to develop synergies and 
avoid diverging reporting requirements in this area (e.g. for central banks, supervisors and 
rating agencies). It was also suggested that additional elements could be collected such as 
information on trading activity and deal prices. It may encourage new investors to participate 
in the market. There was no strong call for the establishment of other type of infrastructures in 
the short/medium term.  

Some respondents underlined that the ability to trade securitisation instruments – notably 
qualifying instruments - on an exchange would open it up to a broader base of potential 

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investors and increase liquidity on secondary markets (e.g. money market funds as tradability 
is a mandatory prerequisite for investing). To promote these secondary markets, respondents 
also highlighted the need to be careful on potential interactions with the current discussion on 
the review of the trading book requirements by the Basel Committee.  

A number of stakeholders mention the importance of addressing specific issues related to 
ancillary services (bank account and swap providers) with a view to enhance the SPV’s 
economic and legal position in an insolvency situation. Some suggest that consideration could 
be given to the extent to which, for qualifying securitisations, public entities (EIB, 
promotional banks) could be more involved in the provisions of ancillary services.  

Question 8.B 

What should be done to support ancillary services? Should the swaps collateralisation 
requirements be adjusted for securitisation vehicles issuing qualifying securitisation 
instruments?  

Number of contributions on this specific question:  53 

Of which: 

Originators/issuers:17 

Investors: 5 

Public authorities: 10 

Service providers: 3 

Others: 18 

In favour of doing something to support ancillary services: 39 responses  

Not in favour of doing something to support ancillary services: 14  responses  

No reply: 67 

Most of respondents highlight the key role of ancillary services in the securitisation chain. 
Two specific areas are identified by stakeholders: the provision of swaps services (interest 
rates or FX swaps) and of bank accounts to securitisation structures. The majority of 
respondents indicate that the number of "eligible" counterparties is limited as the list of 
entities benefitting from sufficiently high quality ratings has been reduced over the last years. 
In practice stakeholders would like to decrease the existing overreliance on credit ratings 
and/or to explore alternative options. Several entities suggest that public entities such as 
central banks, supranational institutions or promotional banks could provide part of these 
ancillary services to securitisation vehicles.  

Several respondents suggest reducing the risks associated with the bankruptcy of 
counterparties. For instance some underlined that carving out swaps or bank account 
arrangements in a case where a financial institution (counterparty to the securitisation 
structure) goes into resolution would give more confidence to investors and agencies. The 
examples of Italian and French laws making the securitisation vehicles bank accounts 

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independent from the depository bank insolvency estate are seen as interesting options to 
assess.  

Many originators and trade associations support the Bank of England and European Central 
Bank position that derivative collateralisation requirements for securitisation special purpose 
entities should apply in the same way as for derivatives executed by covered bond issuing 
entities. It means mainly that securitisation vehicles could be exempted from the legislative 
requirements to provide collateral under EMIR regulation. This proposal is – however – not 
shared by all respondents especially by some public authorities.  

Question 8.C 

What else could be done to support the functioning of the secondary market?  

Number of contributions on this specific question:  53 responses 

Of which: 

Originators/issuers: 15 

Investors: 10 

Public authorities: 11 

Service providers:4 

Others: 13 

No reply: 67 

Most of the respondents are in favour of initiatives supporting the well-functioning of 
secondary markets for securitisation.  

A number of stakeholders emphasize that the introduction of criteria to identify simple, 
transparent and standardised securitisation (and a more risk sensitive prudential treatment) 
will help in promoting demand on secondary markets. Increased transparency - through the 
establishment of centralised database collecting and disseminating information on underlying 
assets and documentation of the different transactions - will also contribute to increase 
liquidity on these markets.   

Several members point out the importance of having an appropriate calibration of the capital 
requirements on trading book positions in the banking regulation. These provisions – 
currently under review by the Basel Committee – play an important role in the emergence of 
market makers. Equally important for the private sector representatives are the pre and post-
trade transparency requirements in the MIFIR-MIFID context.  

Some stakeholders also highlight the potential benefits of adjusting the "indirect approach" 
to risk retention requirement to ensure greater legal clarity for potential investors. Adjustments 
to sector-specific regulations are also mentioned as possible options such as allowing UCITS 
funds and MMF to invest more in STS securitisation.   

Improving market making could also be achieved through the development of specific 
liquidity solutions and the establishment of “last recourse buyer”. Some stakeholders are of 

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the views that recognized public or supranational guarantors could add to the market liquidity. 

8. Prudential treatment for banks and investment firms 

Number of contributions on this specific question:  63 

Of which: 

Originators/issuers: 18 

Investors: 5 

Public authorities: 15 

Others : 23 

Services providers: 2 

Question 9: "With regard to the capital requirements for banks and investment firms, do you 
think that the existing provisions in the Capital Requirements Regulation adequately reflect the 
risks attached to securitised instruments." 

The majority of respondents consider the current regulatory treatment for various reasons not 
suited to properly reflect the risks inherent in securitisation products and are in favour of 
revising it. This group of respondents can be divided in two sub-groups: 

A first sub-group mainly composed of Industry representatives in the area of 
issuers/originators consider the current  treatment already punitive and not reflecting historical 
performance of EU securitisation markets and would favour a downward re-calibration: 

  to  implement  a  capital  neutrality  principle,  particularly  for  senior  tranches  and/or  STC 

securitisations; 

  to  align treatment  (also in  the  area of  liquidity rules)  with  that  of  comparable  investment 
(particularly recurrent the reference to the unjustified incentives to the benefit of covered 
bonds); 

  to address the distortions (i.e. overstatement of risks) in the case of rating based approaches 

after the tightening of criteria by CRAs and in relation to sovereign rating caps 

A second sub-group including mainly Public Authorities (Supervisors, Ministries, Regulators) 
consider it necessary to address a series of shortcomings of the existing EU framework 
(mechanistic reliance on external ratings, inappropriately distributed capital charges across 
tranches, cliff-effects), on the basis of the recent BCBS proposals (possibly with some 
adjustments/ fine-tuning, e.g. reversing the hierarchy with regard to  ERBA and SA 
approaches) 

A minority of respondents (mainly including issuers/originators and investors) think that CRR 
provisions in most cases adequately address risks attached to securitisations and would like to 

105 

 
 
 
 
see no (or marginal) amendments implemented. In general stakeholders belonging to this 
group  support a correction of the “one-size-fits-all” approach to take into account the specific 
features of STC securitisations; 

Some respondents consider it necessary to enhance the harmonization of rules about the 
conditions to recognise the Significant Risk Transfer. 

Question 10: If changes to EU bank capital requirements were made, do you think that the recent 
BCBS recommendations on the review of the securitisation framework constitute a good 
baseline? What would be the potential impacts on EU securitisation markets? 

Number of contributions on this specific question:  60 

Of which: 

Originators/issuers: 19 

Investors: 7 

Public authorities: 11 

Others : 22 

Services providers: 1 

The respondents can be divided in 2 groups more or less equally represented.  

A first group led by private sector representatives opposes the transposition of the new BCBS 
framework and is convinced that it would penalise securitisation and unduly discriminate vis-
a-vis other debt instruments (e.g. covered bonds). In particular the following issues are of 
concern for these respondents:  

Substantial departure from the capital neutrality principle; 

Disregard for the (good) performance of European ABS during the crisis; 

Difficulties for non-originating banks to use the IRB and the consequent expected prevalence in the 
EU of the (more penalising) ERBA over the other 2 approaches; 

The treatment of exposures to ABCP (including liquidity assistance) which could penalise term 
securitisations; 

Excessive penalisation of senior tranches; 

Lack of calibration per asset class; 

The definition of tranche maturity and the level of RW floor. 

A second group (mainly Public Authorities and investor institutions) judges positively the use 
of the BCBS revised framework as baseline for the review of CRR provisions to ensure, inter 

106 

 
 
 
 
alia, global consistency. However the majority of the respondents included in this group 
consider it necessary to implement some adjustments with in primis a more favourable 
treatment for STS securitisations.  

Question 11: How should rules on capital requirements for securitisation exposures differentiate 
between qualifying securitisations and other securitisation instruments? 

Number of contributions on this specific question:  72 

Of which: 

Originators/issuers: 17 

Investors: 11 

Public authorities: 13 

Others : 27 

Services providers: 4 

With a few exceptions, the large majority of respondents are in favour of differentiating the 
prudential treatment of STS securitisations versus other securitisations. As regards the 
methodological approach main suggestions are: 

Keeping for STS the current CRR treatment; 

Implementing for STS a (near to) neutrality principles; 

Aligning or approximating the treatment of STS to that of Covered Bonds; 

Calibration for STS should focus on reducing the RW floor (some suggest a 10% or keeping the current 
7% under IRB or even cancelling it) and on re-scaling RW in all 3 approaches through a scaling factor 
or, alternatively, adjusting the “p” factor (SEC-IRBA and SEC-SA); 

Calibration for non-STS should not be reviewed upward; 

Using BCBS treatment as the backstop treatment for non-STS securitisations. 

Many respondents included in this group (and generally falling in the category of 
issuers/originators) draw the attention of the Commission to the need of avoiding cliff effects 
between STS and non-STS and to pay attention to the impact of those STS criteria that are 
dynamic (e.g. retention requirement). Ensuring a consistent treatment across different 
legislations (capital, liquidity and collateral regulations) and not discriminate negatively 
against ABCP are also among the main concerns of this group of respondents. 

A small number of respondent are against any differentiation since this would create an 
unjustified barrier for non-STS securitisations and would contribute to “unwarranted RWA 

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variability” 

Question 12: "Given the particular circumstances of the EU markets, could there be merit in 
advancing work at the EU level alongside international work?" 

Number of contributions on this specific question:  65 

Of which: 

Originators/issuers: 18 (including associations representing bank originators) 

Investors: 10 

Public authorities: 12 

Others: 25 

Although not spelt out as such in the question, most respondents have understood it as a 
binary decision between either front-running international standards with a dedicated EU 
framework for STS securitisation or holding European developments until there is an 
international agreement. 

Against that background, a slim majority of respondents would be in favour of front-running 
international standards. However, it should be noted that many of the respondents in this camp 
have expressed strong caveats. In general, those respondents would prefer to have consistency 
between European and international standards for STS securitisations in as much as possible. 
Accordingly, they suggest the Commission should try to secure international agreement first 
and only front-run global standards in the event that agreement at that level cannot be reached 
reasonably soon. 

There were several respondents that opposed front-running international developments to 
various degrees, although caveated responses were less common in this case. That is, 
respondents in this camp tended to take a straightforward position in favour of consistency 
between EU and international standards on STS securitisation. The remaining respondents did 
not take a clear line either way. 

Among the constituent groups identified above, a clear majority of public authorities and 
originators/issuers favoured front-running international standards, either decidedly or with 
caveats. In the other camp, it is worth highlighting that a majority of investors were very 
clearly against front-running international standards, while only a few were in favour but with 
reservations in some cases.     

9. Prudential treatment of non-bank investors 

Question 13: Are there wider structural barriers preventing long-term institutional investors from 
participating in this market? If so, how should these be tackled? 

108 

 
 
 
 
 
Number of contributions on this specific question:  71 

Of which: 

Originators/issuers: 14 

Investors: 12 

Public authorities: 13 

Service providers: 4 

Others: 28. 

Many respondents felt that the introduction of STS criteria, if implemented in a credible and 
effective manner, would help reduce investor stigma and make securitisation more attractive 
to investors. There were a number of comments about the regulatory and non-regulatory 
restrictions on pension and insurers that stop them from investing in securitisations. For 
pension funds those mentioned were often market led (e.g. in investor mandates) or 
restrictions in national frameworks. For insurers, Solvency II capital charges were frequently 
raised as an impediment. It was widely felt that pension funds and insurers were natural 
potential investors in securitisations, but that market conditions would need to adapt for this to 
be realised. Many respondents felt that Solvency II capital charges, in particular for mezzanine 
tranches, should be recalibrated. 

Some commented that uncertainty was holding back investors in a number of jurisdictions. A 
supervisor felt that greater standardisation of structures could draw in a greater institutional 
investor base by reducing the required cost of analysis. A few other replies suggested that the 
investor base could be expanded by improving credit assessment capabilities. 

Question 14.A: For insurers investing in qualifying securitised products, how could the 
regulatory treatment of securitisation be refined to improve risk sensitivity? For example, should 
capital requirements increase less sharply with duration? 

Number of contributions on this specific question:  57 

Of which: 

Originators/issuers: 8 

Investors: 11 

Public authorities: 15 

Others: 23 

There is vast support for improving risk-sensitivity in the Solvency II standard formula and 
avoiding alleged cliff-edge effects in calibrations. But there is a wide variety of (sometimes 
contradictory) suggestions to achieve this. For example, a few respondents suggest increasing 

109 

 
 
 
 
 
certain calibrations on other assets classes rather than cutting existing calibrations for senior 
STC securitisation (which are at or below the level of direct unrated loans, by virtue of the 
look-through approach). 

While supporting the current look-through approach, a quarter of a respondents complained 
that it is not properly implemented on two types of underlying assets: 

residential mortgage loans, which attract a significantly lower charge under the counterparty risk 
module.  

secured unrated loans, which can attract charges lower than 3% per year of duration even in the 
framework of the spread risk module. 

Many respondents also found that the existing calibration for STC securitisation lacks risk-
sensitivity because it was artificially flattened at 3% for several rating classes. 

Beside the possible tweaks mentioned above, it is widely felt that calibrations are too onerous, 
but few practical solutions for recalibration are proposed. Around 15% of respondents 
consider that calibrations on STC securitisations should be reduced in line with corporate 
bonds, or even covered bonds, of the same credit quality. Although many respondents from 
the industry mention the very good track record of STC securitisation in terms of default rates, 
only three respondents actually suggest that securitisation positions should be exempted from 
spread risk and instead, be subject to counterparty default risk, automatically or depending on 
insurers' intention to hold those positions to maturity or not. 

On the contrary, another 15% of respondents caution against lowering the existing calibration 
for STC securitisation, arguing that this would lack empirical grounds and that the Solvency II 
regime has not yet been tested. Authorities in a MS find the current calibration on senior 
tranches unjustifiably low. 

As for the dependence on duration, there is significant support to mitigate its effects, but 
dependence on duration is rather seen as of secondary importance compared to the initial level 
the calibration. EIOPA points to the lack of relevant data necessary to kink spread risk factors 
along duration. 

Question 14.B: Should there be specific treatment for investments in non-senior tranches of 
qualifying securitisation transactions versus non-qualifying transactions? 

A vast majority of respondents consider that calibrations applied to "Type 2 securitisation 
positions" (including non-senior tranches of STC securitisation) are punitively high, because 
they are partly based on US subprime data. They argue that such calibrations shrink 
significantly the investor base for non-senior tranches of STC securitisation. 

It is unanimously felt that STC qualification should apply at transaction level, not at tranche 
level. However, consequences for calibrations are less clear-cut. Views are split as to how 
granular calibrations should be (there are concerns about complexity of the standard formula).  

Two central banks suggest that there should be four sets of calibrations, to accommodate STC 

110 

 
 
 
vs. non-STC products, and senior vs. non-senior tranches of those products. There are 
diverging opinions as to the relative levels of those calibrations: should capital requirements 
on non-senior STC tranches be more or less onerous than on senior non-STC tranches? In two 
rating agencies' opinion, experience suggests that both are possible, depending on the specifics 
of each transaction. 

 Almost 20% of respondents argue in favour of 'capital neutrality' at the level of a whole 
securitisation structure (instead of capital neutrality on senior tranches only). In their view, the 
total capital requirement applicable to all tranches of a given STS securitisation should not be 
higher than those applicable to the whole underlying portfolio. 

More specifically, an additional 15% of respondents argue that the same set of existing 
calibrations (Type 1) could be used for senior and non-senior tranches of STC securitisation. 
Anyway, seniority gives rises to differences in ratings anyway, so that spread risk factors 
would capture this difference, without the need to derive a new calibration on scarce data 
(EIOPA's concern).  

Only two supervisors and a central bank are explicitly opposed to any specific calibration for 
non-senior STC tranches. 

Question 15:  

A. How could the institutional investor base for EU securitisation be expanded? 

B. To support qualifying securitisations, are adjustments needed to other EU regulatory 
frameworks (e.g. UCITS, AIFMD)? If yes, please specify. 

Number of contributions on this specific question:  70 

Of which: 

Originators/issuers: 15 

Investors: 11 

Public authorities: 11 

Service providers: 3 

Others: 30. 

Most stakeholders consider that the introduction of a credible STS framework should in itself 
help expand the institutional investor base for EU securitisation. The harmonising of concepts, 
definitions, due-diligence and reporting requirements were also viewed as important factors 
that would bring the costs for prospective investors. Greater consistency of rules between 
banks and insurers was also highlighted as being important. Many stakeholders feel that banks 
will have to continue to play a big role in the investor base, at least until a much larger non-
bank investor community in securitisation can be sustained. 

The majority of respondents do not consider amendments to the AIFMD or UCITS rules are 

111 

 
 
 
 
needed to enable the investors caught by these rules to invest in securitisation, although some 
call for an adjustment to the risk retention requirements so the onus for monitoring is on 
originators, not investors. Many also stated that investor due-diligence requirements should be 
significantly streamlined and relaxed. 

Some public authorities stated that it was important that the STC criteria maintains high 
standards and excludes the more complex securitisations. A consumer association states that 
the investor base should not be expanded at all, while some private stakeholders advised that 
the criteria should be widened to include a wider range of asset classes, such as CMBS, to 
broaden the investor base. A supervisory authority said that it would be important not to 
stigmatise non-qualifying securitisations. It was noted that the listing of securitisations could 
make them eligible to UCITS and thus more attractive to investors. In some countries, such as 
Croatia, no securitisation framework exists, so developing one would be a first step to 
expanding the investor base. Some stakeholder called for a re-evaluation of risk retention 
requirements and no increase in bank capital charges. 

10. Role of securitisation for SMEs 

Question 16: 

Number of contributions on this specific question:  76 

Of which: 

Originators/issuers: 19 

Investors/potential investors: 11 

Public authorities: 14 

Others (NGOs): 4 

Others (Industry associations): 18 

Others (Services providers): 7 

Others (Consultancy, law firm): 3 

A. What additional steps could be taken to specifically develop SME securitisation? 

The importance of increased standardisation is underlined by the majority of respondents. A 
distinction is being made between more standardisation at the level of documentation and 
more product standardisation. Standardised information should be collected on a centralised 
basis and access should be free for all market participants. There is support for allowing some 
forms of synthetic securitisation to qualify as simple transparent and standardised. 

Current capital weightings prescribed by Solvency II are considered to have a 
disproportionate effect and should be lowered. Allowing the application of the SME scaling 

112 

 
 
 
 
 
 
factor to securitisation positions would provide more incentives for regulated firms to actively 
engage in securitisation. It should be ensured that SME securitisation falls within the 
regulatory definition of STS instruments. 

The role of Asset-Backed Commercial Paper (ABCP) in financing SME loans is seen as very 
important. The development of a scoring system for SME companies in Europe is also 
perceived as invaluable. 

B. Have there been unaddressed market failures surrounding SME securitisation, and how best 
could these be tackled? 

The SME securitisation market is blamed to be only national and having information 
asymmetry between the issuers and investors. Also the respondents noted market failures 
stemming from the compulsory reference to external credit ratings, the severe changes in 
rating methodologies, the favourable treatment of on-balance sheet SME loans by MS and the 
ABS risk weightings.  

The respondents make reference to several unaddressed market failures, including: the 
inability for funds to originate loans and other types of debt in some markets, the exclusion of 
non-deposit taking entities to provide direct SME credit, the lack of transparency and 
standardisation of SME loans, as well as the current risk weightings for CLOs and the "one 
size fits all" approach to risk retention. To correct the internal market failures, the respondents 
suggested actions such as increasing transparency, standardisation, introducing quality 
standards and enabling synthetic securitisation as an alternative method.  

A couple of stakeholders stress that 'tranching' was argued to be one of the key factors to 
provide investor protection in the SME securitisation markets and thus this procedure should 
not be penalised. This is because the bankruptcies of SMEs are common, due diligence for 
each issuing businesses is expensive and there is a lack of reliable risk assessment models or 
measures of SME creditworthiness. 

C. How can further standardisation of underlying assets/loans and securitisation structures be 
achieved, in order to reduce the costs of issuance and investment? 

The majority of respondents consider that due to the  large variety of SMEs in terms of 
company size and business models, it is important that originators have comprehensive 
flexibility with regard to structuring their SME loans and tailoring these loans to the needs of 
individual SMEs. Any further standardisation for STS securitisations should be based on 
general principles which lead to certification/labelling.  Further standardisation should be 
achieved by exploring already existing private sector initiatives such as the Prime 
Collateralised Securities Initiative (PCI), the True Sale International (TSI) or the Short term 
commercial paper program (STEP label).  

Minority views underline that further standardisation of underlying assets and securitisation 
structures should be determined by the market and not by legislative intervention. 

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D. Would more standardisation of loan level information, collection and dissemination of 
comparable credit information on SMEs promote further investment in these instruments?" 

The majority responded that a certain degree of standardisation at loan level information, 
collection and dissemination of comparable credit information on SMEs is considered to be 
essential for promoting investment in SME securitisation 

Minority views pointed out that there is already sufficient standardisation of loan level 
information (via Prospectus Directive, Capital Requirements Regulation, Article 8b of the 
Credit Rating Agencies Regulation and its associated regulatory technical standards, as well as 
initiatives such as the Bank of England and ECB ABS reporting standards). Any additional 
transparency requirements that go beyond those already in place would be counterproductive. 
The same applies for any additional collection and publication of data and information.  

11. Miscellaneous 

Question 17: 

To what extent would a single EU securitisation instrument applicable to all financial sectors 
(insurance, asset management, banks) contribute to the development of the EU's securitisation 
markets? Which issues should be covered in such an instrument? 

Number of contributions on this specific question: 64 

Of which: 

Originators/issuers:16 

Investors:13 

Public authorities: 13 

Service providers: 4 

Others: 18 

No reply: 56 

7 respondents replied that a single EU securitisation instrument would to a great extent 
contribute to the development of the EU's securitisation market, while 20 agreed that a single 
instrument would contribute to the development of the market. 16 respondents did not directly 
reply to the question, but pleaded in favour of more regulatory consistency and a level playing 
field. 11 respondents thought that the creation of a single instrument is not appropriate and/or 
not a priority. 

Those stakeholders that did not think the development of a single instrument is appropriate 
mainly pointed out that the requirements in different sectors are of a different nature (e.g. 
prudential requirements, diversity, risk profile and duration of assets); that a single instrument 
would require harmonisation of property/contract law and would run into legal and taxation 
issues; that the market already knows the existing Member State framework very well and/or 
that it would be very challenging to (further) harmonise. 

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Respondents also mentioned that the harmonised approach to STS securitisation could be a 
first step towards a single EU securitisation instrument. Overall, in their replies respondents 
did not focus too much on the legal instrument that would have to be used, but more on the 
effects of the legal instrument which should ensure more cross-sectoral consistency, more 
clarity of the existing rules in place and the potential time needed to put in place the new legal 
framework.  

On the issues to be covered in such an instrument:   

  Many stakeholders mentioned the STS criteria; 

  Quite a number of respondents mentioned: 

  Capital charges for banks and/insurers; 

  Definitions  (e.g.  of  default,  performance  metrics,  boundaries  between  securitisation  and 

investment; 

  Disclosure rules; 

  Risk retention; 

  Harmonisation and/or simplification of the existing rules. 

  A limited number of respondents mentioned the due diligence rules  

Question 18A: 

For qualifying securitisation, what else could be done to encourage the further development of 
sustainable EU securitisation markets? 

Number of contributions on this specific question: 43 

Of which: 

Originators/issuers: 8 

Investors: 4 

Public authorities: 11 

Service providers: 6 

Others: 13 

No reply: 77 

Many of the things that according to respondents could be done to encourage the further 
development of sustainable EU securitisation markets were already mentioned in relation to 
other questions. 

115 

 
 
 
 
The most important elements mentioned were: 

Harmonise and make more consistent the legal framework, standardisation; 

The creation of a level playing field across instruments for prudential treatment; 

Give an appropriate capital treatment to STS that is better than for non-STS; 

Provide a more precise definition of what constitutes a significant risk transfer, also in context 
leverage ratio; 

The costs securitisation vehicles incur when entering into derivatives and third party service 
agreements should not be increased unnecessarily; 

Investigate whether off balance sheet treatment-tests are always applied consistently by auditors and 
whether processes can be improved; 

Active participation and promotion of STS by local state and regulator, financial and publicity support 
of new intermediation models by public institutions; 

Promotion of STS securitisation; 

Due consideration should be given to the trading side under the MIFID rules so that there are no 
counterincentives to trade these instruments; 

There may be a need to create a process for licencing the operators, product information, etc. based 
on the models of AIFMD or UCITS; 

Consideration therefore needs to be given to the cost that regulatory changes have added to a 
securitisation issue; 

SWAP counterparty availability and GIC accounts are a problem, which could be removed when a 
central bank would provide these services; 

Ancillary facilities ranking senior or pari passu to rated positions have historically been unrated. At 
the moment a rating can be inferred from a rated position, only where this rated position is 
subordinated in all aspects to the unrated facility. This results in a higher cost of capital for providing 
these facilities. Being able to infer a rating from a rated position which ranks pari passu to the 
ancillary service would go some way to ensuring a more appropriate capital treatment for these 
unrated positions; 

Makes an assessment whether non-bank investors are able to adequately assess the credit risks 
transferred and have the capacity to absorb or control these quantities of credit risk. These products 
shall not to be directly marketed to retail investors (Clarify certain conditions relating to the use of 
unfunded credit protection under Regulation 575/2013 (CRR), in particular Article 213(1)(c)(i) of CRR; 

Credit quality should be irrelevant to the qualifying securitisation criteria; 

Regulators and other participants must encourage investors to analyse securitisations with rigor and 

116 

 
 
objectivity; 

All qualifying transactions and securities should be registered with a not-for-profit, jointly owned, 
limited purpose data repository (a “Utility”) to enable real-time monitoring of both the transaction’s 
actual vs. projected performance as well as the Market’s systemic dimensions (i.e. size, volume, 
participants and inter-linkages). 

Look at costs for SME loans securitization. 

Question 18B: In relation to the table in Annex 2 are there any other changes to securitisation 
requirements across the various aspects of EU legislation that would increase effectiveness or 
consistency? 

Number of contributions on this specific question: 25 

Of which: 

Originators/issuers: 8 

Investors: 1 

Public authorities: 8 

Service providers: 2 

Others: 6 

No reply: 95 

The 25 respondents that replied to this question mentioned a large number of different issues. 
In many cases the issues also relate to other questions in the consultation. 

The topic that was most raised was cross-sectoral consistency of the (interpretation/application 
of the) EU securitisation rules, including the STS terminology. 

Other issues mentioned were: 

Clarify the application of AIFM Directive on securitisation vehicles. 

Ensure a non-discriminatory regulatory treatment of securitisation compared to similar asset classes.  

Exclude securitisation vehicles from collateralisation requirements under EMIR for securitisation; 

Concerns about minimal rating requirements for swap providers that are necessary for a 
securitisation to obtain a given rating; 

Regulatory and prudential provisions should be adapted/clarified. For instance, leverage ratio rules 
allow for too much scope of interpretation/should allow deduction of any securitisation tranches sold 
to third party investors from the total balance-sheet size used for the computation of the leverage 
ratio  and NSFR creates a too harsh treatment of securitisation;  

117 

 
 
 
 
The creation of a uniform European standard (for tax, civil and insolvency law issues), at least for the 
securitisation of bank loans, would be desirable. 

Do public business promotion and economic development programs on a national and EU level, 
linking securitisation and public economic promotion 

Give due consideration on the trading side under the MIFID rules so that there are no 
counterincentives to trade these instruments (EBF, Luxembourg Bankers' Association) 

May need to create a process for licencing the operators and product information based on the 
models of AIFMD or UCITS; 

Essential that the Money Market Funds Regulation preserve the ability of money market funds to 
invest in qualifying securitisations in both the long term ABS and the short term markets ABCP 
market; 

Concerns that the revised securitisation framework results in excessive risk weights for both senior 
and junior CMBS bonds, as compared to other financial instruments; 

Originators should ensure that their offering documentation includes specific relevant information 
disclosures to make it easier for investors to satisfy specific contractual, fiduciary or statutory 
compliance requirements for certain investments; 

Either increasing the ‘illiquid’ bucket in UCITS from 10% or specifically determining qualifying 
securitisations to be ‘liquid’ for purposes of UCITS; 

Legal ring-fencing of trust accounts related to co-mingling and/or set-off amounts would ideally be 
achieved to reduce cash reserve requirements which increase the costs of issuing securitisations due 
to lack of legal clarity/risk; 

When developing the STS criteria the national legislations concerning inter alia insolvency and 
company law should not be overlooked; 

Harmonised application of accounting standards; 

Consideration may also be given to Delegated Regulation (EU) 1187/2014 as regards RTS for 
determining the overall exposure to a client or a group of connected clients in respect of transactions 
with underlying assets; 

Systematic support of Member States for the securitisation issued in their countries is not needed, 
nor any other type of guarantee provided by State agencies. Public support should be limited to an 
efficient legal framework.  

4. LIST OF RESPONDENTS  

Advisory Committee of the CNMV (Spanish National Securities Market Commission) 

AMAFI 

118 

 
 
 
AMUNDI 

APG Asset Management N.V. 

Asset Management and Investors Council (AMIC) at the International Capital Market Association 
(ICMA) 

Association for Financial Markets in Europe 

Association Française de la Gestion financière (AFG) 

Association française des Sociétés Financières 

Associazione Bancaria Italiana 

Assogestioni 

Austrian Federal Economic Chamber, Division Bank and Insurance 

Austrian Federal Ministry of Finance, Austrian Financial Market Authority 

Autorité des Marchés Financiers 

AXA INVESTMENT MANAGERS 

Banking &amp; Payments Federation Ireland (BPFI) 

Banque de France/Autorité de Contrôle Prudentiel 

Barclays Bank 

BBVA 

Better Finance 

BlackRock 

BNY Mellon 

British Bankers Association 

Building Societies Association 

Bundesarbeitskammer Osterreich 

Bundesverband der Deutschen Industrie, Deutscher Industrie- und Handelskammertag, Deutsches 
Aktieninstitut 

Casey Campbell 

CNCIF 

Commercial Real Estate Finance Council (CREFC) Europe 

Confederation of Finnish Industries EK ry 

Czech Ministry of Finance 

Danish Bankers Association 

Deutsche Bank 

Deutsche Bundesbank 

Dr Orkun Akseli 

Dutch Securitisation Association 

119 

 
 
EACB - European Association of Co-operative Banks 

EIOPA 

EMPLOYERS OF CONSTRUCTION OF ARAGON CONFEDERATION 

EURONEXT 

European Association of Public Banks 

European Banking Federation 

European Central Bank 

European Fund and Asset management Association (EFAMA) 

European Mortgage Federation 

European Savings and Retail Banking Group (ESBG) 

European Securities and Markets Authority (ESMA) 

Fédération Française des Sociétés d'Assurances (FFSA) 

Federation of Finnish Financial Services 

Finance & Leasing Association 

Finance Norway 

Finance Watch 

Financial Law Committee of the City of London Law Society 

French banking Federation 

German Banking Industry Committee 

German Federal Ministry of Finance 

Gouvernement Français 

Groupe GTI 

HM Treasury 

ICI Global 

Insurance Europe 

INTERMONEY TITULIZACION, SGFT,S.A. 

International Capital Market Association 

Irish Debt Securities Association 

Irish Department of Finance (Ministry) 

Irish Securitisation Industry Working Group 

Irish Stock Exchange 

K&L Gates LLP 

Leaseurope and Eurofinas (joint response) 

Loan Market Association 

120 

 
 
Luxembourg Investment Fund Association (ALFI) 

M&G Investment Management Ltd. 

Magyar Nemzeti Bank (Central Bank of Hungary) 

Managed Funds Association 

MEDEF 

Ministry of Finance 

Ministry of finance of the Slovak republic 

Moody's Investors Service 

Nomura International plc 

ORRICK, HERRINGTON & SUTICLIFFE 

Osterreichischer Sparkassenverband 

PensionsEurope 

Philippe CREPPY 

Prime Collateralised Securities (PCS) 

Realkreditraadet (Association of Danish Mortgage Banks) 

REGULATION PARTNERS 

Risk Control Limited 

RJM Consulting 

Schroders 

Scope Ratings AG 

Société française des Analystes Financiers 

Spanish National Securities Market Commission (Comision Nacional del Mercado de Valores - 
CNMV) 

Standard & Poors Rating Services 

State Street Corporation 

States of Guernsey 

Structured Finance Industry Group 

Swiss Finance Council 

The Alternative Investment Management Association (AIMA) 

The Association of Corporate Treasurers 

The Investment Association 

The Luxembourg Bankers Association - The ABBL 

The Netherlands Ministry of Finance, also on behalf of the Netherlands Authority for the Financial 
Markets (AFM) and the Dutch Central Bank (DNB) 

The Swedish Government and the Swedish authorities (Finansinspektionen and Riksbanken) 

121 

 
 
Thomas Zmugg 

True Sale International GmbH, Frankfurt am Main, Germany 

UBS AG 

UEPC 

UniCredit 

Union Asset Management Holding AG 

Verband der Automobilindustrie e.V. (VDA) 

William J. Harrington, Experts Board - Key Expert on Structured Finance Topics, Wikirating 

ANNEX 8 – Findings from the COM Questionnaire to FSC Members 
on securitisation 

The European Commission has received 17 replies on the FSC questionnaire on simple transparent 
and  standardised  securitisation  (Austria,  Bulgaria,  Croatia,  the  Czech  Republic,  Estonia,  Finland, 
France, Germany, Greece, Italy, Latvia, Lithuania, the Netherlands, Portugal, Romania, Spain and 
the United Kingdom).  

A. General  

The EU framework for EU securitisation is composed of a large number of EU legal acts. These 
include  the  Capital  Requirements  Regulation  for  Banks,  the  Solvency  II  Directive  for  insurers 
and  the  UCITS  and  AIFMD  Directives  for  asset  managers.  Legal  provisions,  notably  on 
information disclosure and transparency, are also laid down in the Regulation on Credit Rating 
Agencies and the Prospectus Directive. 

Question 1  

a) Are there in addition to the transposition measures of the EU legal acts mentioned above 
specific  legislative  and  regulatory  provisions  in  your  country  that  create  a  legal  framework 
for securitisation? Is there any specific soft-law or guidance that covers this issue?  

Ten  respondents  (Austria,  Bulgaria,  Croatia,  the  Czech  Republic,  Estonia,  Finland,  Germany, 
Lithuania,  the  Netherlands  and  the  United  Kingdom)  indicated  that  they  do  not  have  in  place 
specific legislative and regulatory provisions for securitisation, besides the measures transposing the 
relevant  EU  legal  acts.  Some  of  these  respondents  pointed  out  that  despite  the  inexistence  of  a 
specific legal framework, guidance, regulations and guidelines relevant to securitisation have been 
issued by regulators as well as market sponsored bodies. 

Seven  respondents  (France,  Greece,  Italy,  Latvia,  Portugal,  Romania  and  Spain)  noted  that  they 
have established a legal framework regarding securitisation.  

122 

 
 
 
 
 
 
 
b)  If  there  are  such  specific  provisions,  soft-law  or  guidance,  what  has  been  the  impact  of 
these  on  the  market?  Please  include,  where  possible,  references  to  data  or  studies  that 
underpin your analysis.  

With  regard  to  the  impact  of  the  securitisation  legal  framework  on  the  market  two  respondents 
(Latvia, Romania) pointed out that such impact cannot be estimated due to the lack of securitisation 
activity in the country, while Greece replied that such data are not available. Spain indicated that 
even though the existence of a solid regulatory framework has shielded the market from episodes of 
financial  instability,  securitisation  activity  has  been  subdued  for  the  past  7  years.  Finally,  France 
noted that the solid legal framework helps securitisation structures remain simple.  

c) Do you believe that any evolutions in these rules, soft-law or guidance are needed to re-boot 
securitisation  markets  taking  notably  into  account  developments  at  international  and  EU 
levels?  

There is no consensus on the need for evolution of the established national legal framework to re-
boot  the  securitisation  market.  Three  respondents  (France,  Greece  and  Portugal)  noted  that  the 
framework currently in force is reliable and resilient, pointing out other obstacles (such as the rating 
caps  imposed  by  the  rating  agencies  and  the  increased  capital  charges  for  investments  in 
securitisation), which inhibit the development of securitisation. Romania and Latvia indicated that 
a  review  of  the  national  securitisation  framework,  in  light  of  the  developments  at  the  EU  and 
international level, is necessary and fitting. Italy explained that the Italian securitisation framework 
will be revised to reflect the developments agreed at international and European level especially as 
to the initiatives for developing a simple and transparent securitisation market. Spain indicated that 
they have already adopted a new legal framework, which updates the regime on securitisation.  

B. Harmonisation of securitisation structures  

Question 2:  

a)  Are  there  any  specific  legislative  and  regulatory  provisions  in  your  country  that  create  a 
specific legal  framework for the structure of securitisation transactions? Please describe the 
main characteristics of this framework.  

Six  respondents  (France,  Greece,  Italy,  Portugal,  Romania  and  Spain)  provided  details  of  the 
specific legislative provisions which create a framework for securitisation and regulate issues such 
as:  the  establishment  of  a  special  purpose  vehicle,  the  transfer  of  receivables,  the  taxation  of  the 
transfers  and  the  SPVs,  the  insolvency  of  the  originator  and  data  protection.  Three  respondents 
(Germany, the Netherlands and the United Kingdom) explained that there is no specific framework 
for securitisation and transactions are carried out under general law provisions.  

b) What best practices from your market could in your view be useful at EU level in order to 
help issuers as well as boost investor appetite in EU securitised products? 

 France stated that establishing a vehicle that is supported by a strong legal framework, is subject to 
strong regulatory requirements and is monitored by a responsible actor with legal personality acting 
in  the  best  interest  of  investors,  is  a  good  practice  that  could  be  useful  at  EU  level.  Germany 
indicated  as  a  best  practice  from  its  market,  the  True  Sale  International  GmbH  (TSI),  which  was 
founded on the initiative of 13 German banks. The TSI has established standards for transparency, 
investor  information,  lending  and  loan  processing  and  also  provides  certification  services  for  a 

123 

 
 
 
corresponding and widely accepted German securitisation standard.32 In addition to that, a wholly 
owned subsidiary of the TSI provides special purpose vehicles (SPVs) under German law that have 
been used since 2005 in almost 100 securitisations transactions. Portugal highlighted the fact that 
under its law the same STC (credit Securitisation Company) may be used by different originators to 
issue  an  unlimited  number  of  separate  transactions  is  often  seen  as  an  efficient  solution  for 
originators. Spain mentioned as good practices the favouring of true sale operations (compared to 
synthetic operations), that only credit claims can transferred to the SPV (other types of movable and 
immovable property are not allowed) and the especially demanding transparency requirements. The 
United  Kingdom  indicated  that  the  flexibility  of  its  regime  which  has  enabled  innovation  in 
securitisation  and  the  securitisation  of  a  wide  range  of  asset  classes  is  well  regarded  by  market 
operators.  

c)  Are  there  in  you  jurisdiction  any  obstacles  for  the  transfer  of  pools  of  assets  to  SPVs 
established outside your jurisdiction?  

Ten  respondents  (Austria,  Czech  Republic,  Germany,  Greece,  Italy,  Latvia,  Lithuania33,  the 
Netherlands, Spain and the United Kingdom34) reported no specific obstacles that would prevent the 
transfer of pools of assets to SPVs established outside the country’s jurisdiction. Romania indicated 
that  such  transfers  are  only  permissible  to  SPVs  authorised  by  the  national  financial  supervision 
authority.  France  stated  that  the  origination  or  purchase  of  non-matured  receivables  as  regular 
business practice is regarded under French law as a credit activity and thus requires licensing as a 
credit  institution  in  France  (or  the  use  of  a  European  passport).  SPVs  subject  to  French  law  are 
allowed to acquire these non-mature receivables to conduct business without having to apply for a 
licence.  

d) In terms of harmonisation, are there are any other initiatives in your country that would 
deserve a specific attention?  

Germany referred to the TSI initiative discussed in its reply under question 3b. Romania noted that 
amendments aimed at strengthening the regulation of prudential supervision of the quality of debts 
portfolio used to back-up the issued financial instruments and the issuance activity, are currently in 
progress.  The  United  Kingdom  indicated  that  while  there  are  no  initiatives,  there  is  a  degree  of 
harmonisation  of  the  business  models  and  securitisation  programmes  of  the  major  securitisation 
issuers  brought  about  by  market  pressure  and  market  discipline.  In  addition  to  that,  common 
standards  have  been  introduced  at  the  underlying  assets  level.  Finally,  the  introduction  of 
transparency  criteria  by  the  Bank  of  England  and  the  ECB,  has  led  to  greater  standardisation 
between issuers.  

e)  Regarding  infrastructures  (for  example  trading/issuing  venues)  related  to  securitisation, 
are  there  any  initiatives  in  your  country  that  would  deserve  specific  attention?  If  specific 
infrastructures have been developed, please describe them and specify their importance (for 
example share of total transactions being traded/issued on each venue).  

32 Originate to distribute securitisations are explicitly excluded from the potential scope of application of these standards 

33 The transfer would have to comply with the requirements set forth by general laws.  

34 However the transfer of certain types of receivable may give rise to additional requirements, for example a transferee of consumer 
receivables  requires  a  license  from  the  UK  consumer  credit  regulator,  whereas  a  buyer  of  residential  mortgage  loans  may  require 
authorisation from the FCA.  

124 

 
 
 
                                                            
Ten respondents (Austria, Croatia, Germany, Greece, Latvia, Lithuania, the Netherlands, Romania, 
Spain  and  the  United  Kingdom)  indicated  that  there  are  no  initiatives  related  to  securitisation 
infrastructure  that  deserve  specific attention.  France  stated  that  a  scheme  has  been  developed  for 
securitising loans to SMEs but no other specific infrastructure has been developed; Spain noted that 
securitisations can be traded both in regulated markets and multilateral trading facilities (Mercado 
Alternativo de Renta Fija).  

C. SME securitisations  

Question 3: 

What is the current situation as regards SME securitisation in your country?  

Ten  respondents  (Austria,  Bulgaria,  Croatia,  Czech  Republic,  Estonia,  Finland,  Greece,  Latvia, 
Lithuania,  and  Romania)  indicated  that  there  is  no  SME  securitisation  activity  within  their 
jurisdiction  at  the  moment.  Four  respondents  (France,  the  Netherlands,  Portugal  and  the  United 
Kingdom)  noted  that  while  there  is  some  activity,  SME  securitisation  never  developed  widely 
within their territory, with volumes being subdued. Spain stated that there is an operation in place 
that involves the securitisation of SMEs trade receivables. This operation takes place in the Spanish 
multilateral trading facility for fixed income. 

Please describe your national schemes (if any) and/private sector initiatives for SME securitisation. 

Four respondents (France, Germany, Italy and the United Kingdom) indicated that there have been 
initiatives for SME securitisation.  

In France the main French banks, with the support of the Banque de France, have created the Euro 
Secured  Notes  Issuer  (ESNI).  This  vehicle  issues  secured  notes  backed  by  bank  loans  to  SMEs 
meeting the eligibility criteria for Eurosystem refinancing operations, measured by the Banque de 
France  rating  (FIBEN).  Private  loans  transferred  as  part  of  a  collateral  arrangement  in  favor  of 
ESNI  shall  nonetheless  remain  managed  by  the  banking  groups  that  granted  them  (each  credit 
institution  participating  in  ESNI  has  its  own  independent  compartment)  and  the  securities  are  not 
issued  in  tranches.  These  issues  will  provide  a  liquidity  value  to  financing  granted  to  SMEs  and 
mid-tier companies and allow capital market participants to benefit from high quality collateral. The 
financial instruments issued may be used as collateral between capital market participants and as a 
new investment asset class for investors. 

Another  initiative  is  currently  being  developed  by  the  Banque  Publique  d’Investissement  (BPI 
France). In this structure, banks could sell a portion of their SME loans to a SPV (in order to allows 
for  a  correct  alignment  of  interests,  banks  must  keep  between  60  and  80%  of  each  loan),  and 
BPI France would then guarantee the portion of the loans in the SPV. This  would allow banks to 
deconsolidate  their  loans,  while  maintaining  a  commercial  relationship  with  their  clients.  For 
BPI France,  the  structure  ensures  that  its  interventions  focusing  on  addressing  identified  market 
failure in SMEs access to credit can be implemented without imposing constraints on the funding 
model of the banks. 

In Germany the KfW PROMISE platform for synthetic securitisations of SME loans is structured 
as follows: a bank transfers the credit risk of a reference portfolio of SME loans to KfW via a credit 
default  swap.  The  credit  risk  of  the  reference  portfolio  is  then  being  tranched  and  KfW  receives 
credit  protection  for  the  super  senior  tranche  by  a  credit  default  swap  with  an  investment  bank 
acting as protection provider. The remaining risk of the reference portfolio is then first transferred 
125 

 
 
 
  
to  a  German  SPV  via  a  certificate  of  indebtedness  or  a  credit  default  swap  which  is  then  finally 
transferring  the  credit  risk  to  securitisation  investors  by  issuing  various  credit  linked  notes.  The 
proceeds from issuing the credit linked notes are then used to collateralise KfW’s claims towards 
the issuing SPV resulting from the credit default swap. Main benefits of the PROMISE programme 
are its standardised structure and documentation and the reduction in capital requirements achieved 
by the originator due to KfW’s favourable risk weight.  

In  Italy,  there  is  the  Confidi  initiative  (Confidi  is  an  Italian  non-bank  financial  intermediary 
providing  SMEs  with  credit  guarantees) and  the  tranched  cover  system  where  credit  protection  is 
directly  bought  from  investors,  in  the  form    of  a  financial  guarantee  backed  by  cash  collateral  or 
personal  notes  or  tranching  the  underlying  portfolio  using  the  Supervisory  Formula  Approach 
(SFA).  This  structure  can  also  cover  the  risk  of  a  new  origination  portfolio,  thus  facilitating  new 
securitisations, which in turn would provide substantial new lending to the real economy 

In the United Kingdom the British Business Bank has undertaken two initiatives under the Enable 
programme: Enable Funding and Enable Guarantees.  

Enable  funding.  Under  this  scheme,  the  BBB  will  "warehouse"  newly-originated  asset  finance 
receivables from different originators, who are generally not large enough to issue securitisations on 
their  own.  Once  a  stock  has  been  built  up,  the  BBB  will  seek  to  refinance  by  issuing  a 
securitisation.  This  initiative  is  aimed  at  improving  the  provision  of  asset  and  lease  finance  to 
smaller UK businesses, and enabling smaller asset finance providers to access capital markets. 

Enable guarantees. Under this scheme, the BBB can provide a guarantee to cover a portion of a 
designated portfolio’s net credit losses in excess of an agreed threshold. The first transaction of the 
enable guarantee programme was completed with Clydesdale and Yorkshire Banks in March 2015. 
While  this  scheme  does  not  involve  a  public  securitisation,  securitisation  technology  is  used  in 
tranching the risk of the asset portfolio, and in assessing the credit risk of the portfolio. 

D. Miscellaneous 

Question 4: Are there any specific issues related to your national experience on securitisation 
you would like to highlight?  

Lithuania  noted  its  support  for  a  harmonised  framework  for  securitisation  in  the  EU;  Portugal 
highlighted the negative impact the post-crisis regulatory changes and the behaviour of credit rating 
agencies  has  had  on  the  issuance  and  sale  of  ABS.  The  Netherlands  pointed  out  the  regulatory 
uncertainty and the high prospective capital charges as the main reasons behind the lack of activity 
in  the  RMBS  market.  France  also  highlighted  the  high  cost  of  securitisation  as  opposed  to  other 
funding options and the need for standardisation and innovation. Italy noted that certain synthetic 
securitisation  transactions  aimed  at  SMEs  can  be  as  clear  and  transparent  as  traditional 
securitisation  and  offer  significant  added  value  in  the  bank  management  of  risk  and  capital. 
Therefore,  they  should  not  be  excluded  from  the  framework  of  STS  securitisation.  The  United 
Kingdom finally indicated that the small number of large banking institutions, which have similar 
business  models  leads  to  economies  of  scale  which  benefit  not  only  banks  but  also  investors.  In 
addition to that, the government’s initiatives have enabled smaller banks to access the securitisation 
markets.  

126 

 
 
 
 
 
 
Replies to the FSC questionnaire  

Existence of 
specific 
legislative and 
regulatory 
provisions?  

Impact of the 
existing legal 
framework on 
the market?  

Would evolution of 
the existing 
national legal 
framework be 
needed to re-boot 
the market?  

Austria  

Bulgaria  

Croatia  

Czech Republic  

Estonia 

France  

Finland  

Germany 

Greece  

Italy 

Latvia  

Lithuania 

Netherlands  

Portugal 

Romania  

Spain  

No 

No 

No 

No 

No 

Yes 

No  

No 

Yes 

Yes 

Yes 

No 

No  

Yes 

Yes 

Yes 

N/A 

N/A 

N/A  

N/A  

N/A 

Positive  

N/A 

Positive  

N/A  

N/A 

N/A  

N/A 

N/A 

N/A 

No impact on the 
market 

Positive  

N/A 

N/A 

N/A 

N/A 

N/A 

No 

N/A 

No 

Yes 

Yes 

Yes 

N/A 

No 

Yes 

Yes 

United Kingdom  

No 

Positive  

127 

 
 
 
 
 
  
 
 
Harmonisation of securitisation structures 

Existence of a 
specific legal 
framework for 
the structure of 
securitisation 
transactions  

Obstacles for the 
transfer of pool of 
assets to SPVs 
outside the 
country's 
jurisdiction?  

Initiatives in 
term of 
harmonisation?  

Infrastructures 
related to 
securitisation?  

Austria  

Bulgaria  

Croatia  

Czech 
Republic  

Estonia 

France  

Finland  

Germany 

Greece  

Italy 

Latvia  

Lithuania 

No 

No 

No  

No  

No 

Yes 

No  

No 

Yes 

Yes 

No  

No 

Netherlands   No  

Portugal 

Romania  

Spain  

United 
Kingdom  

Yes 

Yes 

Yes 

No 

No 

No 

N/A  

N/A  

N/A 

Yes  

N/A  

No 

No 

No 

N/A  

No 

No 

No 

No 

Yes 

No 

No 

N/A 

N/A 

No 

N/A 

No 

N/A 

No 

No 

No 

No 

No 

No 

No 

No 

No 

No 

N/A 

N/A 

N/A 

N/A 

Yes 

No 

No 

N/A 

No 

Yes 

N/A 

Yes 

128 

 
 
 
 
  
 
 
 
 
 
 
 
 
 
SME securitisation 

National schemes/private 
initiatives for SME 
securitisation  

Austria 

No SME securitisation activity  No 

Bulgaria 

No SME securitisation activity  N/A 

Croatia 

No SME securitisation activity  N/A 

Czech Republic  No SME securitisation  activity  N/A 

Estonia 

No SME securitisation activity  N/A 

France 

Subdued volumes of SME 
securitisation activity 

Euro Secured Notes Issuer 
(ESNI)/ Initiative of the 
Banque Publique de 
Investissement 

Finland 

No SME securitisation activity  N/A 

Germany 

Greece 

Italy 

Latvia 

Subdued volumes of SME 
securitisation activity 

No SME securitisation   
activity 

No SME securitisation   
activity 

KFW promise platform 

Confidi 

No SME securitisation activity  N/A 

Lithuania 

No SME securitisation activity  N/A 

Netherlands 

Portugal 

Subdued volumes of SME 
securitisation activity 

Subdued volumes of SME 
securitisation activity 

N/A 

Romania 

No SME securitisation activity  N/A 

Spain 

Yes 

N/A 

United 
Kingdom 

Subdued volumes of SME 
securitisation activity 

British Business Bank 
Initiatives (Enable 
funding/ guarantees) 

129 

 
 
  
 
 
 
 
ANNEX 9 – Bibliographical references 

Abiad, A., Dell'Ariccia, G., & Li, B. (2014). "What have we learned about creditless recoveries?" 
In: Claessens, S., Kose, M. M. A., Kose, M. A., Laeven, M. L., & Valencia, F. (2014).  Financial 
Crises: Causes, Consequences, and Policy Responses. International Monetary Fund. 

AFME (2014). "Securitisation Data Report Q4:2014", December 2014. 

BCBS-IOSCO Joint Forum (2011). "Report on asset securitisation incentives" July 2011. 

BoE-ECB (2014). "The case for a better functioning securitisation market in the European Union". 
Joint BoE-ECB paper, May 2014. 

Coval, J., Jurek, J., & Stafford, E. (2009). "The economics of structured finance".  The Journal of 
Economic Perspectives, 3-26. 

EBA (2014). "EBA discussion paper on simple, standard and transparent securitisations".  

EBA (2015) "Prudential treatment of securitisations" Staff working document, 18 March 2015. 

ECB  (2011).  "Determinants  of  credit-less  recoveries",  ECB  WP  n.  1358  by  Bijsterbosch,  M.,  & 
Dahlhaus, T. 

Fitch (2014). "Global structured finance losses: 2000-2014 issuance" 

Giovannini,  A.,  Mayer,  C.,  Micossi,  S.  (2015):  "Restarting  European  long-term  investment 
finance", CEPR Press 

Gorton, G. B. (2008). "The panic of 2007". National Bureau of Economic Research WP 14358 

IMF (2014) "SME securitisation in the Euro Area: a policy proposal" 

IMF (2014b) "Euro Area policies, 2014 Article IV consultations, selected issues" in  IMF Country 
Report No. 14/199 

IOSCO (2012) "Global developments in securitisation regulation", November 2012. 

JC  (2015)  "Draft  final  report  on  securitisation  prepeared  by  the  Joint  Committee  Task  Force  on 
Securitisation" 23 March 2015 

Laas,  D.  and  Siegle,  C.  (2014)  "Basel  Accords  versus  Solvency  II:  Regulatory  Adequacy  and 
Consistency under the Postcrisis Capital Standards", mimeo, University of St. Gallen. 

Shin, H.S., (2009), "Securitisation and financial stability", The Economic Journal vol. 119, pp. 309-
332 

130