Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Regulation (EU) No 575/2013 as regards adjustments to the securitisation framework to support the economic recovery in response to the COVID-19 pandemic
Date: 2020-07-24
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union, European Commission
Subjects: economic recovery, epidemic, financial control, financial institution, financial legislation, financial market, infectious disease, market supervision, private-sector liquidity

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   EUROPEAN COMMISSION  Brussels, 24.7.2020  COM(2020) 283 final 2020/0156 (COD)  Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Regulation (EU) No 575/2013 as regards adjustments to the securitisation framework to support the economic recovery in response to the COVID-19 pandemic  (Text with EEA relevance) {SWD(2020) 120 final}  
 
 
EXPLANATORY MEMORANDUM 

1. 

CONTEXT OF THE PROPOSAL 

Reasons for and objectives of the proposal 

• 
Regulation (EU) No 575/20131 of the European Parliament and of the Council, known as the 
Capital Requirements Regulation (hereinafter “the CRR”), establishes together with Directive 
2013/36/EU2,  known  as  the  Capital  Requirements  Directive  (hereinafter  “the  CRD”),  the 
prudential regulatory framework for credit institutions operating in the Union. The CRR and 
the  CRD  were  adopted  in  the  aftermath  of  the  2008-2009  financial  crisis  to  enhance  the 
resilience  of  institutions  operating  in  the  EU  financial  sector,  largely  based  on  global 
standards  agreed  with  the  EU’s  international  partners,  in  particular  the  Basel  Committee  on 
Banking Supervision (BCBS).  

The  CRR  has  been  subsequently  amended  on  several  occasions  to  tackle  remaining 
weaknesses  in  the  prudential  regulatory  framework  and  to  implement  some  outstanding 
elements  of  the  global  financial  services  reform  that  are  essential  to  ensure  institutions' 
resilience.  One  set  of  amendments,  contained  in  Regulation  (EU)  2017/24013,  has 
implemented the revised securitisation framework adopted by the BCBS in December 20144 
("the revised Basel framework"). The revised Basel framework has been designed to reduce 
the complexity of the regulatory capital requirements applicable at the time, reflect better the 
risks of positions in a securitisation and  allow institutions to  determine capital  requirements 
through  own  calculations  and  on  the  basis  of  the  information  available  to  institutions,  thus 
reducing reliance on external ratings.  

In order to further promote the development of a high quality EU securitisation market based 
on  sound  practices,  Regulation  (EU)  2017/2401  also  included  amendments  aiming  at 
providing  for  a  more  risk-sensitive  regulatory  treatment  for  simple,  transparent  and 
standardised  (STS)  securitisations  in  line  with  the  standards  on  the  alternative  capital 
treatment for “simple, transparent and comparable” securitisations published by the BCBS in 
July 20165. The eligibility  criteria  for STS  securitisations are laid down in Regulation  (EU) 
2017/24026  that  also  provides  for  a  set  of  common  requirements  on  risk  retention,  due 
diligence and disclosure for all financial services sectors.  

The  severe  economic  shock  caused  by  the  COVID-19  pandemic  and  the  exceptional 
containment  measures  are  having  a  far-reaching  impact  on  the  economy.  Businesses  are 

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Regulation  (EU)  No  575/2013  of  the  European  Parliament  and  of  the  Council  of  26  June  2013  on 
prudential  requirements  for  credit  institutions  and  Directive  2013/36/EU  of  the  European  Parliament 
and  of  the  Council  of  26  June  2013  on  access  to  the  activity  of  credit  institutions  and  the  prudential 
supervision of credit institutions (OJ L 176, 27.6.2013, p. 1 ). 
Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the 
activity of credit institutions and the prudential supervision of credit institutions and investment firms, 
amending  Directive  2002/87/EC  and  repealing  Directives  2006/48/EC  and  2006/49/EC  (OJ  L  176, 
27.6.2013, p. 338). 
Regulation  (EU)  2017/2401  of  the  European  Parliament  and  of  the  Council  of  12  December  2017 
amending  Regulation  (EU)  No  575/2013  on  prudential  requirements  for  credit  institutions  and 
investment firms (OJ L 347, 28.12.2017, p. 1). 
http://www.bis.org/bcbs/publ/d303.pdf 
https://www.bis.org/bcbs/publ/d374.pdf  
Regulation (EU) 2017/2402 of the European Parliament and of the Council of 12 December 2017 laying 
down a general framework for securitisation and creating a specific framework for simple, transparent 
and  standardised  securitisation,  and  amending  Directives  2009/65/EC,  2009/138/EC  and  2011/61/EU 
and Regulations (EC) No 1060/2009 and (EU) No 648/2012 (OJ L 347, 28.12.2017, p. 35). 

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facing disruption in supply chains, temporary closures and reduced demand, while households 
are  confronted  with  unemployment  and  a  fall  in  income.  Public  authorities  at  Union  and 
Member  State  levels  have  taken  decisive  actions  to  support  households  and  solvent 
undertakings  to  withstand this severe but  temporary slowdown in  economic activity and the 
liquidity shortages that it will cause. Thanks to the reforms undertaken in the aftermath of the 
2008 financial crisis, institutions are today well capitalised and much more resilient than they 
were  in  2008.  This  enables  them  to  play  a  key  role  in  managing  the  economic  shock  that 
stems  from  the  COVID-19  pandemic.  Nevertheless,  uncertainty  related  to  the  pace  of 
recovery of economic activity will inevitably have an impact on the banking sector, including 
for  the  expected  increase  in  the  volume  of  non-performing  loans  due  to  the  deep  recession 
caused by the COVID-19 pandemic crisis.  

Securitisation can play an important role in enhancing the capacity of institutions to support 
the economic recovery, providing for an effective tool for funding and risk diversification for 
institutions. It is therefore essential in the context of the economic recovery post COVID-19 
pandemic to reinforce that role and help institutions to be able to channel sufficient capital to 
the real economy. Building essentially on recent work carried out by the EBA, this result can 
be  achieved  through  three  targeted  amendments  aiming  at  increasing  the  overall  risk-
sensitivity  of  the  EU  securitisation  framework  that  would  make  the  recourse  to  the 
securitisation tool more economically viable for  institutions whithin a prudential  framework 
adequate to safeguard the EU financal stability.  

First, it is necessary to provide for a more risk-sensitive treatment for STS on-balance-sheet 
securitisation,  in  line  with  the  EBA  recommandation  included  in  its  “Report  on  STS 
framework  for  synthetic  securitisation”7.  Based  on  an  extensive  analysis  of  the  on-balance-
sheet synthetic securitisation market developments and trends in the EU, including data on the 
historical  default and loss performance of the synthetic transactions, the  report recommends 
the  establishment  of  a  cross-sectoral  EU  framework  for  STS  on-balance-sheet  securitisation 
that  is  limited  to  on-balance-sheet  synthetic  securitisation  and  is  based  on  a  common  set  of 
eligibility criteria. It also recommends a targeted differentiated prudential  treatment for STS 
on-balance-sheet securitisation exposures, taking into account in particlar the reduced agency 
and modelling risk compared to non-STS on-balance-sheet synthetic securitisation exposures. 

The alignment of the prudential treatment is also widely acknowledged as a necessary step to 
further encourage institutions to bear the costs incurred to comply with the STS criteria when 
structuring the securitisation transactions. 

Second,  it  is  necessary  to  remove  the  existing  regulatory  constraints  to  the  securitisation  of 
non-performing exposures (NPEs) embedded in the current framework. As highlighted in the 
EBA  Opinion  2019/13  on  the  regulatory  treatment  of  NPE  securitisations8,  the  current 
framework does not incorporate the specific features of NPE securitisation, thereby leading to 
excessive  capital  requirements  for  this  category  of  exposures,  particularly  under  the 
Securitisation  Internal  Ratings  Based  Approach  (SEC-IRBA)  and 
the  Securitisation 
Standardised Approach (SEC-SA). The excessive conservativeness of the framework is due to 
the  fact  that  it  has  been  designed  having  exclusive  regard  to  the  specific  risk  drivers  of 
performing loans.  It  is  therefore proposed to  amend the treatment  of NPE securitisations by 
providing  for  a  simple  and  sufficiently  conservative  approach  based  on  a  flat  100%  risk 
weight  applicable  to  the  senior  tranche  of  traditional  NPE  securitisations  and  on  the 
application of a floor of 100% to the risk weights of any other tranches of both traditional and 
on-balance-sheet synthetic NPE securitisations that remain subject to the general framework 

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EBA/OP/2020/07 of 6 May 2020. 
EBA/OP/2019/13 of 23 October 2019. 

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for  the  calcualtion  of  risk-weighted  exposures.  The  proposed  treatment  is  aligned  with  the 
main elements of the approach currently being finalised by the BCBS.  

Third,  it  is  proposed  to  amend  Article  249(3)  which  introduces  an  additional  eligibility 
criterion  for  the  recognition  of  unfunded  credit  protection  for  institutions  applying  the 
standardised  approach  to  calculate  capital  requirements  for  securitisation  exposures. 
Specifically, it imposes a minimum credit rating requirement for almost all9 types of providers 
of  unfunded  credit  protection,  including  central  governments.  This  provision  appears  to  be 
inconsistent  with  the  general  credit  risk  mitigation  rules  set  out  in  the  CRR,  with  the 
objectives of that Regulation, but also with the new international standards set by the revised 
Basel  III  framework imposing a minimum  credit rating  requirement only  to  a limited set  of 
protection  providers  in  case  of  securitisation  exposures.  This  amendment  will  enhance  the 
effectiveness  of  national  public  guarantee  schemes  assisting  institutions’  strategies  to 
securitise NPEs in the aftermath of the COVID-19 pandemic. 

These proposed changes, together with the proposed changes to Regulation (EU) 2017/2402, 
will enable institutions  to maintain a high volume of lending to  the economy in  the coming 
months and therefore will provide an important contribution to the absorption of the impact of 
the shock of the COVID-19 crisis.  

As  such,  and  compared  to  the  current  regulatory  framework,  the  changes  will  reinforce  the 
role of securitisation as a tool available to institutions to maintain and possibly even enhance 
their lending capacity in two ways: 

 

 

by facilitating the recourse to this technique to offload NPEs that can be expected to 
grow  in  the  aftermath  of  the  crisis.  By  doing  so,  institutions  will  be  able  to  better 
spread  the  risk  to  other  financial  actors  and  ultimately  reduce  regulatory  capital 
constraints  stemming  from  the  impact  of  the  high  volume  of  NPEs,  while 
maintaining high prudential standards; and 

by  implementing  a  more  risk-sensitive  treatment  of  the  senior  tranche  held  by  the 
originator institution in case of STS  on-balance-sheet  securitisation. As pointed out 
by  many  stakeholders,  the  development  of  STS  eligibility  criteria  would  not  be 
sufficient  'per  se'  to  achieve  the  objective  of  making  the  compliance  with  these 
criteria economically viable if the introduction of the new criteria is not accompanied 
with  a  more  risk-sensitive  prudential  treatment  in  the  area  of  capital  requirements, 
better reflecting their specific features.  

The more risk-sensitive  treatment  for NPE securitisations  and for the senior tranche of STS 
on-balance-sheet  securitisations  are  set  out  in  the  present  proposal,  while  the  eligibility 
criteria for the latter type of securitisations, together with other cross-sectoral provisions, are 
contained in Regulation (EU) 2017/2402. 

• 

Consistency with existing policy provisions in the policy area 

The proposal introduces amendments to the existing legislation. These amendments are fully 
consistent  with  the  existing  policy  provisions  in  the  field  of  prudential  requirements  for 
institutions  and  their  supervision,  including  with  the  EBA  “Opinion  on  the  regulatory 
treatment  of  NPEs”,  the  EBA  “Report  on  STS  framework  for  synthetic  securitisation”,  the 
Commission proposal to amend Regulation (EU) 2017/2402, adopted at the same time as this 

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The only exception are central counterparties. 

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proposal,  and  the  Final  report  of  the  High  Level  Forum  on  the  Capital  Markets  Union  –  A 
new vision for Europe’s capital markets10. 

• 

Consistency with other Union policies 

This proposal is part of the broader response by the Commission to the COVID-19 pandemic. 
It is instrumental in ensuring the effectiveness of measures adopted by the Member States, the 
Commission  and  the  European  Central  Bank.  It  is  fully  consistent  with  the  Commission 
Communication  on  the  economic  aspects  of  the  coronavirus  crisis,  issued  on  13  March 
202011, as well as with the Communication ‘COVID 19 – Economic package – Using every 
available  Euro’  launched  on  2  April  202012,  the  Communication  ‘Europe's  moment:  Repair 
and Prepare for the Next Generation’13, the Interpretative Communication on the application 
of  the  accounting  and  prudential  frameworks  to  facilitate  EU  bank  lending14  issued  on  28 
April 2020 and Regulation (EU) 2020/87315. 

2. 

• 

LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY 

Legal basis 

The proposal is based on Article 114 of the Treaty on the Functioning of the European Union 
(TFEU), the same legal basis as for the legislative act that is being amended. 

• 

Subsidiarity (for non-exclusive competence)  

The  objectives  pursued  by  the  envisaged  amendments,  namely  to  maximise  the  capacity  of 
institutions  to  lend  and  to  absorb  losses  related  to  the  COVID-19  pandemic,  while  still 
ensuring  their  continued  resilience,  can  be  better  achieved  at  Union  level  rather  than  by 
different national initiatives as the amendments represent adjustments to existing Union rules 
in response to the COVID-19 pandemic. The problems and the underlying causes are the same 
across  all  Member  States.  In  the  absence  of  action  by  the  Union  the  existing  regulatory 
framework  would  be  less  effective  in  supporting  the  various  measures  taken  by  public 
authorities  at  both  Union  and  national  level  and  less  reactive  to  exceptional  market 
challenges.  

The  ability  of  Member  States  to  adopt  national  measures  is  limited,  given  that  the  CRR 
already regulates those matters, and changes at national level would conflict with Union law 
currently in force. If the Union were to cease regulating those aspects, the internal market for 

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https://ec.europa.eu/info/files/200610-cmu-high-level-forum-final-report_en 
Communication from the Commission to the European Parliament, the European Council, the Council, 
the  European  Central  Bank,  the  European  Investment  Bank  and  the  Eurogroup  on  Coordinated 
economic response to the COVID-19 Outbreak, COM(2020) 112 final of 13.03.2020. 
Communication from the Commission to the European Parliament, the European Council, the Council, 
the  European  Economic  and  Social  Committee  and  the  Committee  of  the  Regions  on  Coronavirus 
Response  -  Using  every  available  euro  in  every  way  possible  to  protect  lives  and  livelihoods, 
COM(2020) 143 final of 02.04.2020. 
Communication from the Commission to the European Parliament, the European Council, the Council, 
the  European  Economic  and  Social  Committee  and  the  Committee  of  the  Regions  Europe's  moment: 
Repair and Prepare for the Next Generation, COM(2020) 456 final of 27.5.2020. 
Communication  from  the  Commission  to  the  European  Parliament  and  the  Council:  Commission 
Interpretative  Communication  on  the  application  of  the  accounting  and  prudential  frameworks  to 
facilitate EU bank lending - Supporting businesses and households amid COVID-19, COM(2020) 169 
final of 28.04.2020. 
Regulation (EU) 2020/873 of the European Parliament and of the Council of 24 June 2020 amending 
Regulations  (EU)  No  575/2013  and  (EU)  2019/876  as  regards  certain  adjustments  in  response  to  the 
COVID-19 pandemic (OJ L 204, 26.6.2020, p. 4). 

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banking services would become subject to different sets of rules, leading to fragmentation and 
undermining the recently build single rulebook in this area.  

• 

Proportionality 

This Union action is necessary to achieve the objective of maximising institutions’ capacity to 
lend and to absorb losses amid the COVID-19 pandemic, whilst maintaining the consistency 
of the prudential framework. The proposed amendments do not go beyond addressing selected 
provisions  in  the  Union’s  prudential  framework  for  institutions  that  target  exclusively 
measures  aimed  at  ensuring  recovery  from  the  current  COVID-19  pandemic.  Moreover,  the 
proposed  amendments  are  limited  to  those  issues  which  cannot  be  addressed  within  the 
existing margin of discretion the current rules provide for. 

3. 

• 

RESULTS 
CONSULTATIONS AND IMPACT ASSESSMENTS 

EX-POST 

EVALUATIONS, 

OF 

STAKEHOLDER 

Ex-post evaluations/fitness checks of existing legislation 

This  proposal  is  not  accompanied  by  a  separate  impact  assessment.  Given  the  urgency  of 
measures to be taken to help the recovery after the crisis on financial markets and on the real 
economy resulting from  the COVID-19 pandemic, the impact assessment was replaced by a 
cost-benefit analysis included in the Staff Working Document supporting the Capital Markets 
Recovery  Package.  It  is  also  largely  based  on  preparatory  work  carried  out  by  the  EBA. 
Moreover,  the  impact  of  the  measures  which  are  being  amended  by  this  proposal  has  been 
subject to analysis in the impact assessments undertaken for Regulation (EU) 2017/2401. The 
proposal  primarily  aims  at  fine-tuning  the  calibration  of  capital  requirements  with  regard  to 
STS on-balance-sheet securitisation exposures and NPE securitisation exposures.  

The  proposed  amendments  would  have  a  limited  impact  on  the  administrative  burden  for 
institutions and the costs for them to adapt their internal operations, with costs expected to be 
offset by benefits derived in terms of capital availability. The proposed amendments concern 
provisions  that  enable  institutions  to  use  more  favourable  treatments,  but  do  not  impose  on 
them such treatments.  

• 

Fundamental rights 

The  proposal  is  not  likely  to  have  a  direct  impact  on  the  rights  provided  in  the  Charter  of 
Fundamental Rights of the European Union. 

4. 

BUDGETARY IMPLICATIONS 

The proposal does not have a budgetary impact for the Union institutions.  

5. 

(a) 

(1) 

OTHER ELEMENTS 

Detailed explanation of the specific provisions of the proposal 

Removal of the regulatory obstacles to NPE securistisation 

The  current  EU  regulatory  framework  for  securitisation  is  designed  to  account  for  the  most 
common features of typical securitisation transactions, i.e. securitisations backed by pools of 
performing  loans.  More  precisely,  the  current  securitisation  framework  uses  as  its  main 
regulatory  driver  the  credit  risk  of  the  securitised  exposures,  while  correcting  for  “non-
neutrality” factors to incorporate the agency and model risks that are typical of securitisations. 
When applied to NPE securitisations, this framework yields capital requirements that proved 

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to  be  disproportionate,  in  particular  for  the  so-called  ‘formulaic  approaches’  (i.e.  the  SEC-
IRBA and SEC-SA). This is because the calibration of those approaches is not consistent with 
the risk drivers which are specific to NPEs.  

SEC-IRBA and SEC-SA rely on quantitative credit risk information that is based on the gross 
book value of the exposures included in the pool and, as a result, yield risk weights that are 
too  high  when  compared  to  the  risk-weights  applicable  under  the  Securitisation  External 
Ratings Based Approach (SEC-ERBA). The impact is particularly acute for senior tranches of 
NPE securitisations, which are subject to proportionately larger risk weights under the SEC-
IRBA and the SEC-SA than other tranches.  

The proposed Regulation would introduce, in a new Article 269a, a new framework for NPE 
securitisations where: 

 

 

the senior tranche of a traditional NPE securitisation would be subject to a flat risk 
weight of 100%, provided the NRPPD is at least 50% of the gross book value of the 
exposures; and 

all other tranches of NPE securitisations would be subject to the general framework 
with two specific adjustments: 

 

 

a floor of 100% would apply to the risk weight; and 

the  use  of  the  so-called  foundation  IRB  parameters  in  case  of  securitisation 
exposures eligible for the use of the SEC-IRBA in accordance with Article 254 
of the CRR would be prohibited. 

Finally, in line with the recommendation included in the EBA opinion of 2019, it would be 
clarified  that  when  institutions  apply  the  cap  provided  for  in  Article  268  of  the  CRR  to 
positions they hold in NPE securitisation, the expected losses referred to in paragraph 1 of this 
Article  should  be  calculated  net  of  the  NRPPD  and  of  any  additional  specific  credit  risk 
adjustments. 

In order to qualify for the specific treatment illustrated above, the new Article would use the 
definition  of  the  term  ‘NPE  securitisation’  contained  in  Regulation  (EU)  2017/2402,  i.e.  a 
securitisation where at least 90% of the exposures in the underlying pool are non-perfoming 
within the meaning of Article 47a of the CRR. 

(2) 

Preferential treatment of the senior tranche of STS on-balance-sheet securitisation 

STS on-balance-sheet securitisation allows institutions to transfer credit risk through funded 
or unfunded credit protection bought or granted by other investors, freeing capacity for new 
lending to the real economy and ensuring a more efficient risk sharing among financial actors.  

The  current  securitisation  framework,  as  set  out  in  Regulation  (EU)  2017/2402,  does  not 
include  any  form  of  on-balance-sheet  synthetic  securitisation  in  the  STS  regime.  This  is 
mainly  due  to  the  unavailability  of  systematic  data  and  the  lack  of  sufficient  technical 
preparatory work at the time of adoption of that Regulation. The STS Regulation nonetheless 
requires the EBA to produce a report on the feasibility of an STS framework for on-balance-
sheet  synthetic  securitisations.  The  EBA  report,  published  on  6  May  2020,  provides  for  the 
necessary data and technical analysis to justify the establishment of this framework. The new 
STS  criteria  for  STS  on-balance-sheet  securitisation,  as  recommended  by  the  EBA  report, 
follow the structure of the existing STS criteria for traditional non-asset backed commercial 
programme  securitisation  that  were  introduced  in  the  new  EU  securitisation  framework  in 
2017, i.e. they include  requirements  on simplicity, standardisation and transparency that  are 
adapted to the specificities of on-balance-sheet synthetic securitisation, where appropriate.  

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In  addition,  the  criteria  include  a  number  of  requirements  specific  to  on-balance-sheet 
synthetic securitisation only, such as requirements mitigating the counterparty credit risk that 
is  inherently  involved  in  these  synthetic  structures,  including  requirements  on  eligible 
protection contracts, counterparties and collateral, requirements addressing various structural 
features of the securitisation transaction and requirements ensuring that the framework targets 
only STS on-balance sheet securitisation. 

Article  270  of  the  CRR  allows  a  specific  treatment  for  only  a  subset  of  on-balance-sheet 
synthetic securitisations, namely those fulfilling the following criteria: 

(a) 

(b) 

(c) 

70% of the securitised exposures must be exposures to SMEs; 

the  securitisation  must  meet  the  traditional  STS  criteria  as  applicable  to  an  on-
balance-sheet synthetic securitisation; 

the credit risk not retained by the originator has to be transferred through a guarantee, 
or counter guarantee that fulfils a number of conditions. 

Following the recommendations of the EBA report, it is also proposed to introduce a targeted 
and limited in scope preferential treatment for STS on-balance sheet securitisation exposures, 
which focuses on the senior tranche. This would be done by extending the treatment currently 
provided in Article 270 of the CRR to a wider range of underlying assets. 

(3) 

Recognition of credit risk mitigation for securitisation positions 

According  to  Article  249(1)  and  (2)  of  the  CRR,  an  institution  may  recognise  funded  or 
unfunded credit protection with respect to a securitisation position in the same way and under 
the same conditions as provided in the general credit risk mitigation framework applicable to 
non-securitised  exposures.  However,  paragraph  3  of  this  Article  introduces  an  exception  to 
that  general  treatment.  Specifically,  for  institutions  applying  the  standardised  approach  it 
introduces an additional eligibility criterion for the recognition of unfunded credit protection. 
The additional eligibility criterion is a minimum credit rating requirement for almost all types 
of providers of unfunded credit protection, including central governments.  

This provision appears to be inconsistent with the general credit risk mitigation rules set out in 
the CRR and with the objectives of that Regulation. It is indeed not clear why, for instance, a 
guarantee provided by an institution, or a central government, that meets the eligiblity criteria 
for protection providers contained in the general credit risk mitigation rules but that does not 
fulfil the minimum credit rating criterion in Article 249(3) of the CRR cannot be accepted as 
eligible  credit  risk  mitigation  under  the  securitisation  framework,  but  can  be  accepted  as 
eligible credit risk mitigation when provided for a non-securitisation exposure. In that respect 
the revised Basel III framework agreed in December 2017 imposes a minimum credit rating 
requirement only to a limited set of protection providers in case of securitisation exposures. 
Specifically, in the revised Basel III framework, the requirement only applies to entities which 
are  not  sovereign  entities,  public  sector  entities,  institutions  or  other  prudentially  regulated 
financial institutions. 

In light of these elements and considering the relevance that public guarantee schemes to help 
NPE securitisation in the recovery phase may have, it is proposed to amend Article 249(3) of 
the CRR and align the credit risk mitigation rules applicable to the securitisation exposures to 
the general framework in line with what was agreed at international level by the BCBS.  

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2020/0156 (COD) 

Proposal for a 

REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 

amending Regulation (EU) No 575/2013 as regards adjustments to the securitisation 
framework to support the economic recovery in response to the COVID-19 pandemic 

(Text with EEA relevance) 

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, 

Having    regard    to    the    Treaty    on    the    Functioning    of    the    European    Union,    and    in  
particular Article 114 thereof, 

Having regard to the proposal from the European Commission, 

After transmission of the draft legislative act to the national parliaments, 

Having regard to the opinion of the European Central Bank, 

Having regard to the opinion of the European Economic and Social Committee, 

Acting in accordance with the ordinary legislative procedure, 

Whereas: 

(1) 

(2) 

(3) 

The COVID-19 pandemic is severely affecting people, companies, health systems and 
the  economies  of  Member  States.  The  Commission,  in  its  Communication  to  the 
European Parliament, the European Council, the Council, the European Economic and 
Social  Committee  and  the  Committee  of  the  Regions  of  27  March  2020  entitled 
‘Europe's moment: Repair and Prepare for the Next Generation’ stressed that liquidity 
and  access  to  finance  will  be  a  continued  challenge  in  the  months  to  come.  It  is 
therefore  crucial  to  support  the  recovery  from  the  severe  economic  shock  caused  by 
the  COVID-19  pandemic  by  introducing  targeted  amendments  to  existing  pieces  of 
financial  legislation.  This  package  of  measures  is  adopted  under  the  label  “Capital 
Markets Recovery Package”. 

Credit  institutions  and  investment  firms  (‘institutions’)  will  have  a  key  role  in 
contributing to the recovery. At the same time, they are likely to be impacted by the 
deteriorating  economic  situation.  Competent  authorities  have  provided  temporary 
capital,  liquidity  and  operational  relief  to  institutions  to  ensure  that  institutions  can 
continue  to  fulfil  their  role  in  funding  the  real  economy  in  a  more  challenging 
environment. 

Securitisations  are  an  important  component  of  well-functioning  financial  markets 
since  they  contribute  to  diversifying  institutions'  funding  sources  and  releasing 
regulatory  capital  that  can  be  reallocated  to  support  further  lending.  Furthermore, 
securitisations  provide  institutions  and  other  market  participants  with  additional 
investment  opportunities,  thus  allowing  portfolio  diversification  and  facilitating  the 
flow  of  funding  to  businesses  and  individuals  both  within  Member  States  and  on  a 
cross-border basis throughout the Union. 

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(4) 

(5) 

(6) 

(7) 

(8) 

(9) 

It is important to reinforce the capacity of institutions to provide the necessary flow of 
funding  to  the  real  economy  in  the  aftermath  of  the  COVID-19  pandemic,  while 
ensuring that adequate prudential safeguards are in place to preserve financial stability. 
Targeted  changes  to  Regulation  (EU)  No  575/2013  as  regards  the  securitisation 
framework should contribute to the achievement of those objectives and enhance the 
coherence and complementarity of that framework with the various measures taken at 
Union and national level to address the COVID-19 pandemic. 

The final elements of the Basel III framework published on 7 December 2017 impose, 
in case of securitisation exposures, a minimum credit rating requirement only upon a 
limited  set  of  protection  providers,  namely  to  entities  that  are  not  sovereign  entities, 
public sector entities, institutions or other prudentially regulated financial institutions. 
It is therefore necessary to amend Article 249(3) of Regulation (EU) No 575/2013 to 
align it with the Basel III framework in order to enhance the effectiveness of national 
public guarantee schemes assisting institutions’ strategies to securitise non-performing 
exposures (NPEs) in the aftermath of the COVID-19 pandemic. 

its  “Opinion  on 

The current Union prudential framework for securitisation is designed on the basis of 
the most common features of typical securitisation transactions, i.e. performing loans. 
In 
the  Regulatory  Treatment  of  Non-Performing  Exposure 
Securitisations”16 of 23 October 2019, the European Banking Authority (EBA) pointed 
out that the current prudential framework for securitisation set out in Regulation (EU) 
No  575/2013,  when  applied  to  securitisations  of  NPEs,  leads  to  disproportionate 
capital  requirements  because  the  securitisation  Internal  Ratings  Based  Approach 
(SEC-IRBA)  and  the  securitisation  Standardised  Approach  (SEC-SA),  is  not 
consistent  with  the  specific  risk  drivers  of  NPEs.  A  specific  treatment  for  the 
securitisation of NPEs should therefore be introduced. 

As  pointed  out  by  the  EBA  in  its  “Report  on  STS  framework  for  synthetic 
securitisation”  of  6  May  2020,  it  is  necessary  to  introduce  a  specific  framework  for 
simple, transparent and standardised (STS) on-balance sheet securitisation. Given the 
lower  agency  risk  and  modelling  risk  of  a  STS  on-balance-sheet  securitisation 
compared  with  a  non-STS  on-balance-sheet  synthetic  securitisation,  a  fitting  risk-
sensitive calibration for STS on-balance-sheet securitisations as recommended by the 
EBA in its report should be introduced. The greater recourse to the STS on-balance-
sheet securitisation promoted by the more risk sensitive treatment of the senior tranche 
of such securitisations will free up regulatory capital and ultimately further expand the 
lending capacity of institutions in a prudentially sound manner. 

In order to take account of developments in the international standards for exposures 
to NPE securitisations, the power to adopt acts in accordance with Article 290 TFEU 
should be delegated to the Commission. 

Since  the  objectives  of  this  Regulation,  namely  to  maximise  the  capacity  of 
institutions to lend and to absorb losses related to the COVID-19 pandemic, while still 
ensuring  their  continued  resilience,  cannot  be  sufficiently  achieved  by  the  Member 
States but can rather, by reason of their scale and effects, be better achieved at Union 
level, the Union may adopt measures, in accordance with the principle of subsidiarity 
as  set  out  in  Article  5  of  the  Treaty  on  European  Union.  In  accordance  with  the 
principle  of  proportionality,  as  set  out  in  that  Article,  this  Regulation  does  not  go 
beyond what is necessary in order to achieve those objectives. 

16 

https://eba.europa.eu/risk-analysis-and-data/npls 

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(10)  Regulation (EU) No 575/2013 should therefore be amended accordingly, 

HAVE ADOPTED THIS REGULATION: 

Article 1 
Amendments to Regulation (EU) No 575/2013 

Regulation (EU) No 575/2013 is amended as follows:  

(1) 

in Article 249(3), the first subparagraph is replaced by the following: 

“By  way  of  derogation  from  paragraph  2,  the  eligible  providers  of  unfunded  credit 
protection  listed  in  point  (g)  of  Article  201(1)  shall  have  been  assigned  a  credit 
assessment by a recognised ECAI which is credit quality step 3 or above.”; 

(2) 

the following Article 269a is inserted: 

Article 269a 
Treatment of non-performing exposures (NPE) securitisations 

1. 

2. 

3. 

4. 

5. 

The  risk  weight  for  a  position  in  an  NPE  securitisation  shall  be  calculated  in 
accordance with Article 254, subject to a floor of 100%. 

By  way  of  derogation  from  paragraph  1,  institutions  shall  assign  a  risk  weight  of 
100%  to  the  senior  securitisation  position  in  a  traditional  NPE  securitisation, 
provided the exposures in the pool backing the securitisation have been transferred to 
the  SSPE  with  a  non-refundable  price  discount  of  at  least  50%  on  the  nominal 
amount of the exposures. 

Institutions  that  pursuant  to  Chapter  3  of  this  Title  are  not  permitted  to  use  own 
estimates  of  LGD  and  conversion  factors  with  respect  to  the  exposures  of  the  pool 
shall  not  be  permitted  to  use  the  SEC-IRBA  for  the  calculation  of  risk  weighted 
exposures amounts for a position in an NPE securitisation. 

For  the  purpose  of  Article  268(1),  expected  losses  associated  with  positions  in  an 
NPE  securitisation  shall  be  included  after  deduction  of  the  non-refundable  price 
discount  as  referred  to  in  paragraph  2  of  this  Article  and,  where  applicable,  any 
additional specific credit risk adjustments. 

For  the  purposes  of  this  Article,  ‘NPE  securitisation’  means  NPE  securitisation  as 
defined in point (24) of Article 2 of Regulation 2017/2402.”; 

(3) 

Article 270 is replaced by the following: 

“Article 270  
Senior positions in STS on-balance-sheet securitisation  

An  originator  institution  may  calculate  the  risk-weighted  exposure  amounts  of  an  STS  on-
balance-sheet  securitisation  as  referred  to  in  Article  26a(1)  of  Regulation  2017/2402  in 
accordance with Articles 260, 262 or 264 of this Regulation, as applicable, where both of the 
following conditions are met: 

(a) 

(b) 

the securitisation meets the requirements set out in Article 243(2); 

the position qualifies as the senior securitisation position.”; 

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(4) 

in Article 456(1) the following point (l) is added: 

“(l) amendments to Article 269a of this Regulation to take account of developments 
in the international standards for exposures to NPE securitisations.” 

Article 2 
Entry into force 

This Regulation shall enter into force on the twentieth day following that of its publication in 
the Official Journal of the European Union.  

Done at Brussels, 

For the European Parliament 
The President 

For the Council 
The President 

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