Ref. Ares(2017)3025174 - 16/06/2017
Position Paper on
the Proposal for a Regulation laying down common rules on
securitization and creating a European framework for sim-
ple, transparent and standardised securitisation and amend-
ing Directives 2009/65/EC, 2009/138/EC, 2011/61/EC and
Regulations (EC) No 1060/2009 and (EU) No 648/2012
and
the Proposal for a Regulation amending Regulation (EU) No
575/2013 on prudential requirements for credit institutions
and investment firms
Key messages on STS securitisations
1. The European institutions’ initiatives to foster a simple, transparent and
standardised (STS) securitisation market are to be welcomed.
2. However, critical criteria for STS securitisations are too vague and do not
take into account common market practices. On the other hand, extremely
severe sanctions are envisaged in the case of non-compliance.
3. It is not a satisfactory option to delegate the determination of undefined
legal terms to the supervisory authorities after the STS Regulation will have
come into force, because this creates high level of legal uncertainty and can
entail politically unintended consequences.
4. The procedure over determining non-compliance by the competent
authorities creates a high level of legal uncertainty for originators. It will
prevent the competent authority from confirming STS-compliance on the
request of the originator before notification of STS-compliance to ESMA due
to the risk of being overruled by the Joint Committee of the European
Supervisory Authorities (EBA, EIOPA and ESMA) after notification.
Our recommendations
1. A number of critical eligibility criteria need to be better defined.
2. In the absence of third party certification, the framework must confer a right
on the originator to request from its competent authority a binding
confirmation of conformity.
3. The attractiveness of STS securitisation should not be undermined by
significantly higher capital requirements. Thus, capital requirements should
not be increased for STS securitisations compared to the current situation.
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A. General remarks
The Arbeitskreis der Banken und Leasinggesellschaften der Automobilwirtschaft e.V. (AKA),
the Comité des Constructeurs Français d’Automobiles (CCFA), the Society of Motor Manufac-
turers & Traders (SMMT) and the Verband der Automobilindustrie e.V. (VDA) represent the
leading companies of the automotive industry including their financial services companies –
the so called Captives – in the UK, France and Germany.
Each year, more than 13 million new passenger cars are registered in the European Union.
Approximately 60 % of the cars sold are either financed or leased. The Captives are an indis-
pensable partner for motor vehicle manufacturers in the marketing of passenger and commer-
cial vehicles.
Furthermore, the Captives are a major source of funding for the car industry in Europe provid-
ing financing and leasing to private and commercial customers and facilitating the sale of vehi-
cles across the EU. The Captives rely heavily on the securitisation of auto loans and leases to
fund themselves and thus to ensure the financing and leasing of motorcars produced by the
car manufacturers. Securitisations will further increase in importance since they allow captives
to diversify their refinancing: Auto ABS are an alternative funding source to customer deposits
and corporate bonds. They offer good protection against market volatilities and contribute to
achieve future economic growth.
Auto-ABS transactions are generally structured in a very simple, robust and transparent way.
They are secured both by the sold receivables and by the related vehicles themselves. The
high quality of securitisation transactions reflects the high quality of the standards applied to
lending and loan processing.
Within the ABS segment Auto-ABS is the only meaningful asset class with a 68% market share
in 2014. Investors particularly appreciate the low risk and high liquidity of public ABS. Auto-
ABS have the lowest spread of all ABS segments due to the perception as simple, standard-
ised, transparent high quality securitisations. Even during the financial crisis, European Auto
ABS proved to be extremely crisis-resistant and did not cause investors to suffer any losses.
We appreciate the Commission´s political approach to focus on the development of
transparent, simple and standardised securitisation to build a sustainable EU market for
securitisation. However we are concerned that these political aims will not be met by the draft
for an STS framework as proposed by the Commission. We are particularly concerned that the
proposal may lead to the exclusion of a wide range of well-established and marketable ABS
from the definition of STS, including ABS backed by auto loans as issued by captive finance
companies.
Our main concern is the requirement for originators, sponsors and issuers to jointly certify that
a securitisation meets the STS criteria. This places a substantial burden on issuers to verify
their transactions against approximately fifty or more criteria, many of which are inherently
uncertain and open to differing interpretations.
By contrast, the penalties for inaccurately describing a transaction as STS-compliant are
extremely severe, including a fine of up to 10% of group worldwide turnover and potentially
even criminal sanctions. Originators, issuers and sponsors face liability if competent
authorities find that even one of the STS requirements in their transactions – or indeed, one
requirement in one transaction within an ABCP programme – has not been satisfied. Without
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clear, transparent and foreseeable eligibility criteria, captives would not be willing and able to
market their ABSs as STS-compliant.
In our opinion, it is not an appropriate solution to effectively delegate the definition of vague
legal terms to supervisory authorities, because originators would only be able to assess after
the regulation has come into force whether they can comply with the eligibility criteria. This
would in turn impact originators’ structuring decisions and make it impossible to prepare for the
new requirements because originators will not know exactly how to implement the STS criteria.
Moreover, supervisory authorities could easily change their views and amend their guidelines
whenever they deem necessary without any participation of the legislative and democratically
mandated institutions. Originators that have already made substantial efforts to ensure that
their securitisations comply with the requirements might find themselves in a position where a
sudden and unexpected change in the interpretation deprives their securitisations of STS
eligibility. The problem will be reinforced by the fact that the European Supervisory Authorities’
guidance will not be binding with the result that interpretation by national competent authorities
can differ from country to country in the European Union. This is likely to increase uncertainty
and complexity if the issuer and the originator are located in different European countries.
We therefore recommend that the Regulation includes criteria which are simple, clear and self-
explanatory as far as possible. Against this backdrop, we have made concrete proposals on
how to adjust the text of the Regulation.
As we have repeatedly made clear in previous submissions, our strong preference is for STS
certification by a single body so as to eliminate inconsistencies in interpretation of the STS
criteria - we are not convinced that individual national competent authorities will be able to act
in a uniform manner in a way that a single mandated body could.
However, since the Commission, for reasons we do not agree with, has chosen not to take this
proposal forward, we are instead proposing as a compromise approach that originators and
sponsors have the right to request their competent authority for a legally binding confirmation
that the securitisation is conform to the criteria relating to simplicity and standardisation. We
elaborate on this proposal below.
Notwithstanding that the main focus of this paper is on STS qualification, we think it is
extremely important that “grandfathering” of existing transactions should be extended as much
as possible. Auto Captives have many securitisations across Europe that may not qualify as
STS and it would be extremely unfortunate if these were automatically deemed non-compliant
with the general criteria that will apply to all transactions without sufficient time being given to
prepare. Many of these transactions are private and bi-lateral revolving transactions that have
been running for many years and play a vital role in funding particular geographic markets. The
sudden disruption of these funding arrangements could, in the case of floorplan ABS, cause
major damage to dealer networks in a given country. We also request that it should be
clarified that the administrative sanctions and remedial measures in article 17 will not apply in
respect of transactions that pre-date the coming into force of the Securitisation Regulation and
related relevant RTS.
We hope that the framework for simple, transparent and standardised securitisations will
establish a regulatory basis which takes the needs of market participants into account and will
truly support the European market for securitisations.
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B. Specific remarks
I. Eligibility criteria for STS-ABS transactions
a) Right to request a binding confirmation of conformity
There exist many competent authorities in the European Union for credit institutions, insurance
undertakings and money market funds that can have different opinions on the STS-compliance
of certain ABS. Against this backdrop, it is crucial that the competent authority of the originator
or sponsor have the power to grant a confirmation of conformity on request to create the
required legal certainty for originators. This confirmation would have to be binding across the
EU; otherwise no authority could be expected to grant the requested confirmation given that it
could be overruled by the Joint Committees of the European Supervisory Authorities.
Our proposal permits the originator or sponsor to file a letter of enquiry with their competent
authority to obtain a binding confirmation of conformity relating to the criteria of simplicity and
standardisation and empowers the competent authority to give such confirmation. The
proposal contributes to better balance the responsibility of originators on the one hand and the
need of a sufficient level of legal certainty on the other hand. The confirmation shall be legally
binding across the European Union to warrant the necessary level of legal certainty for all
market participants.
Article 14 should be supplemented by the following new paragraph 2:
“Originators or sponsors may file a letter of enquiry with their competent authority to
obtain a binding confirmation of conformity based on the joint opinion of the originator,
SSPE and, if relevant, the sponsor that the securitisation complies with the
requirements relating to simplicity in Article 8 and to standardisation in Article 9. In the
case of an ABCP programme sponsors may file a request with the competent authority
to obtain a binding confirmation of conformity based on the opinion of the sponsor that
the ABCP programme complies with the requirements of Article 12.”
In addition, Article 16 should be supplemented by the following paragraph 4:
“The competent authority of the originator or sponsor is empowered to provide the
confirmation requested under Article 14(2) that the securitisation complies with the
requirements of Articles 8 and 9. In the case of an ABCP programme the competent
authority of the sponsor is empowered to provide the confirmation requested under
Article 14(2) that the ABCP programme complies with the requirements of Article 12.
Such confirmation shall be legally binding across the European Union.”
Finally, the second sentence of Article 21 par. 5 should be amended as follows.
“In case of disagreement between the competent authorities, the matter may be referred to
ESMA and the procedure of Article 19 and, where applicable, Article 20 of Regulation (EU) No
1095/2010 shall apply except for matters where a binding confirmation by the competent
authority referred to in paragraph 4 of Article 16 has already been given.”
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b) Eligibility criteria relating to simplicity and standardisation
Article 8 par. 4 sentence 1: Homogenous in terms of asset type
“The securitisation is backed by a pool of underlying exposures that are homogeneous in
terms of asset type.”
While “asset type” is undefined, recital 18 lists “pools of auto loans and leases to borrowers or
lessees” as one example of asset type. We agree with the interpretation suggested in the
recital and propose that this is made conclusive. This is crucial since the EBA in its report of 7
July 2015 took a very restrictive view of “asset type”, which would preclude issuers for mixing
auto loans from private customers with SME customers, or loans for new vehicles with loans
for used or ex-demo vehicles. Under the EBA’s approach, bal oon payments would have to be
securitised separately to repayments during the life of the loan except where the balloon
payment was only “minimally different” (which is not typically the case). We are not aware of
any auto ABS transactions which would qualify under these criteria.
Against this background we welcome the explanation in recital 18. However, we are concerned
that EBA could use its own interpretation of “homogenous in terms of asset type” in its
guideline on the interpretation of the STS criteria. We are of the opinion that the Regulation
should reflect established and successful market practice for auto ABS and that it should be
sufficiently clear with regard to its interpretation.
Our proposal
We suggest clarifying the definition of “asset type” in Article 8 par.4:
“The securitisation is backed by a pool of underlying exposures which consist exclusively of
one of the following asset types:
a)
pools of residential loans;
b)
pools of commercial loans, leases and credit facilities to undertakings of the same
category to finance capital expenditures or business operations;
c)
pools of auto loans and leases to borrowers or lessees; or
d)
loans and pools of credit facilities to individuals for personal, family or household
consumption purposes.”
Alternatively, the Regulation could refer to the asset types listed in (i)-(v) of Article 13(2)(g) of
delegated act EU/2015/61 for consistency and clarity.
Article 8 par. 7(c): Non-credit impairment based on the indication of significantly
increased risk
“The underlying exposures, at the time of transfer to the SSPE, shall not include exposures in
default within the meaning of Article 178(1) of Regulation (EU) No 575/2013 or exposures to a
credit-impaired debtor or guarantor, who, to the best knowledge of the originator or original
lender:
c) has a credit assessment or a credit score indicating that the risk of contractually
agreed payments not be made is significantly higher than for the average debtor
for this type of loans in the relevant jurisdiction”
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In our view, the language leaves too much room for interpretation between national competent
authorities, creating a high level of uncertainty. In addition, the reference to the average debtor
for this type of loans in the relevant jurisdiction is particularly problematic because it could
entail that obligors are deemed to be of significantly higher risk in one European country with
high credit standards, but not in another county with less strict credit standards.
The current established market practice is much more precise and objective. Effectively all
loans that have been approved in the normal course of business and that have been selected
randomly for securitisation are eligible provided that (i) at least one payment has been made
and (ii) the selected loans are not delinquent and not in default at the time of selection for
securitisation. These standards are already partly reflected in Articles 8 par. 6 and 8.
Our proposal
We propose to exclude loans that show evidence of impairment according to the applicable
accounting practices requiring specific provisions for bad and doubtful debts. We propose as a
back-stop to also exclude loans with the status of delinquency, which is an objective, prudent
and easily determined measure already used in investor reports.
We propose to change Article 8 par.7(c) as follows:
“The underlying exposures, at the time of transfer to the SSPE, shal not include exposures in
default within the meaning of Article 178(1) of Regulation (EU) No 575/2013 or exposures to a
credit-impaired debtor or guarantor, who, to the best knowledge of the originator or original
lender : …
(c)
show evidence of impairment according to the applicable accounting
practices requiring the allowance of specific provisions or whose exposures
to be transferred to the SSPE are delinquent indicating potentially significant
risk of default.”
Article 8 par. 9: Dependence on the sale of assets securing the underlying exposures
This requires that the repayment of investors does not depend “substantially” on the sale of
assets securing the underlying exposures. However, “substantially” is left undefined, raising
the possibility that anything but a negligible residual value risk could make a transaction STS-
ineligible.
This could exclude retail auto loans and leases in jurisdictions such as France, Italy, Spain and
Switzerland, where it is common to give consumers a choice between refinancing, paying a
balloon payment and acquiring the vehicle, or returning the vehicle and being released from
the balloon payment. In the latter case, the issuer acquires any residual value risk. In the UK,
consumer credit legislation grants consumers the right to terminate a hire purchase or
conditional sale agreement by returning the vehicle, provided they have paid at least half the
total price.
In order not to exclude such jurisdictions from the STS framework, residual value must be
considered in the transaction as a whole rather than on a loan-by-loan level. This reflects the
fact that residual value risk is mitigated in practice by entering into repurchase agreements, for
example, or through credit enhancement.
The requirement in Article 13 par. 3 of the delegated act is clearer and easier to interpret
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saying “The repayment of the securitisation positions shal not have been structured to
depend, predominantly, on the sale of assets securing the underlying exposures. We therefore
propose that the Regulation adopts the wording in Article 13 par. 3 of delegated regulation
2015/61 on the liquidity coverage requirement.
In addition, it should be clarified that residual values that are fully backed by repurchase
obligations or guarantees are not dependent on the sale of assets securing the underlying
exposures. In such cases the risk that the sales price of the asset is less than the calculated
value of the asset, the so-called residual value risk, is fully borne by the party that has
assumed the repurchase obligation or residual guarantee. There is no market risk any longer,
because the repayment is in such cases dependent on the credit quality of the party that has
assumed the repurchase obligation or guarantee.
Our proposal
Article 8 par. 9 should be amended as follows:
“The repayment of the holders of the securitisation positions shal not have been structured
to depend, predominantly, on the sale of assets securing the underlying exposures.
Underlying exposures that are secured by assets the value of which is guaranteed or
fully mitigated by a repurchase obligation by the seller of the assets securing the
underlying exposures or by another third party do not depend on the sale of assets
securing the underlying exposures. This shall not prevent such assets from being
subsequently rolled-over or refinanced.
Article 9 par. 6 (b) STS-D: Ensuring that a default or insolvency of the servicer does not
result in a termination of servicing
To relieve the assessment it should be added that a replacement clause which enables the
replacement of the servicer in case of default or insolvency usually fulfils the requirement to
ensure that a default or insolvency of the servicer does not result in a termination of the servic-
ing. It should be abstained from further specific requirements because there are no compara-
ble requirements for covered bonds. However, the impact of a default or insolvency of the ad-
ministrator of the underlying exposures is the same irrespective of a securitisation or a covered
bond because it makes no difference whether the administrator of the underlying exposures of
a securitisation or a covered gets into default or insolvency. This applies a fortiori in those cas-
es where the servicer is a credit institution.
Our proposal
The following sentence should be added at the end of Article 9 par. 6 STS-D for clarification
purposes:
“
For the purpose of Article 9 par. 6 (b), a replacement clause which enables the re-
placement of the servicer in case of default or insolvency can be deemed appropriate to
fulfil the requirement to ensure that a default or insolvency of the servicer does not re-
sult in a termination of the servicing.”
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Article 9 par. 7: Definitions, remedies and actions relating to delinquency and default of
debtors
“The transaction documentation shall include definitions, remedies and actions relating to
delinquency and default of debtors, debt restructuring, debt forgiveness, forbearance, payment
holidays, losses, charge offs, recoveries and other asset performance remedies in clear and
consistent terms.”
As well as requiring the disclosure of commercially sensitive policies as a matter of course, this
would deny servicers the flexibility to update their policies and procedures in light of evolving
market and regulatory conditions. It is unrealistic for the transaction documents to be amended
each time a policy must be updated. In any event, the Regulation requires the servicer to have
experience in servicing the underlying exposures and should therefore permit the servicer a
degree of discretion.
Our proposal
We recommend that this requirement is either deleted or modified to ensure that the servicer
retains flexibility over its policies and processes. At least, the following sentence should be
inserted after sentence 1 for clarification:
“
Changes of such terms and processes can be made provided that those changes will
not materially adversely affect the repayment of the securitisation positions.”
II. Eligibility criteria for STS-ABCP transactions
We are not experts on bank multi-seller conduits, nor are we experts on ABCP. However, a
large part of the European automotive industry is dependent on the funding that multi-seller
conduits provide and whose funding relies in turn on conduits being able to sell ABCP to
investors. We understand from conversations with our relationship banks that there are a
number of potentially problematic ABCP criteria but we would like to focus on Article 12 par. 2
and Article 13 par. 8.
Article 12 par.2: maximum residual maturity of the underlying exposures
Article 12 par. 2 stipulates that the underlying exposures shall have a remaining weighted
average life of no more than two years and none shall have a residual maturity of longer than
three years.
Such a requirement will exclude virtually all auto loans from STS ABCP programmes because
the legal maturity is typically 6 years. At a minimum, if this criterion is not modified or
withdrawn, it will at least lead to significantly higher financing costs by ABCPs or could even
lead to a situation where sponsors exclude auto loans from ABCP programmes.
Moreover, in an ABCP programme, the bank sponsor provides full liquidity support and takes
any risks arising from maturity transformation, not the CP investor. The sponsor is in a position
to absorb any liquidity risk due to being a prudentially-regulated bank, as required in the
programme-level criteria.
Against this backdrop we strongly urge the Commission to drop the requirement that none of
the underlying exposures shall have a residual maturity of longer than three years. In addition,
it should be clarified that the remaining weighted average life is predicted based on the results
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of the cash flow model. Such amendment is particularly justified in circumstances where the
programme benefits from full bank liquidity support, because there is no maturity
transformation risk for the investor in such a case.
Our proposal
Should this provision not be removed, we propose the following amendments as an alternative:
“Transactions within an ABCP programme shall be backed by a pool of underlying exposures
that are homogeneous in terms of asset type and shall have a remaining expected weighted
average life of no more than four years and none shall have a residual maturity of longer than
three years.”
Article 13 par. 8: Transparency requirements at ABCP programme level
As drafted, this would make all originators in an ABCP programme jointly responsible for the
publication of loan-level information, documents and notifications to ABCP holders. Investors
would be presented with potentially thousands of data points on a monthly basis as well as
dozens of transaction documents which they are unlikely to have the time or resources to
properly review. This level of disclosure is not proportionate given that ABCP investors
typically hold ABCP as a short-term investment which is traded frequently. Disclosure of loan
level information should be for the benefit of the conduit bank, which guarantees the ABCP.
In addition, a current advantage of private or bilateral transactions is the increased level of
protection for private information. The proposal would require originators, sponsors and issuers
to share a vast array of commercially sensitive information (for example, internal policies and
procedures on origination and recovery as well as the commercial terms agreed with each
bank), which could be accessed not only by investors but by competitors within the same
ABCP programme. This is completely unacceptable to captive finance companies in respect of
dealer floorplan loans.
Our proposal
We request that Article 13(8) is replaced with a new Article 12(8), specifying that the
transparency requirements apply at a transaction-level (rather than at the ABCP programme
level).
12. 8. The originator, sponsor and SSPE shall be jointly responsible for compliance at ABCP
transaction level with Article 5 of this Regulation and shall make all information required by
Article 5(1) (a) available to potential investors
holding securitisation positions before
pricing. The originator, sponsor and SSPE shall make the information required by Article 5 (1)
(b) to (e) available before pricing at least in draft or initial form, where permissible under Article
3 of Directive 2003/71/EC. The originator, sponsor and SSPE shall make the final
documentation available to
holders of securitisation positions at the latest 15 days after
closing of the transaction.
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III. Transparency Requirements
Article 5 par.2: Exceptions to Article 5 par. 1 (a) with regard to the transparency
requirements
An exception with regard to the transparency requirements should be envisaged for where
publication would breach Union or national law governing the protection of confidentiality, data
protection or would result in a violation of the banking secrecy. Otherwise it may in some cases
be impossible to fulfil the transparency requirements.
Our proposal
The following sentence should be added:
“The obligation set out in paragraph 1(a) to make available information shall not apply
to the extent that such publication would breach Union or national law governing the
protection of confidentiality of information sources or the processing of personal data
or would result in a violation of the banking secrecy protecting the confidentiality of
customer information.”
IV. Draft proposal for a regulation amending regulation (EU) No 575/2013 (CRR)
Article 243 (2) (b) CRR: Granularity criterion
“(b) at the time of inclusion in the securitisation, the aggregate exposure value of all exposures
to a single obligor in the pool does not exceed 1% of the exposure values of the aggregate
outstanding exposure values of the pool of underlying exposures. For the purposes of this
calculation, loans or leases to a group of connected clients, as referred to in point (39) of
Article 4(1), shal be considered as exposures to a single obligor.”
We believe that the 1 % threshold is appropriate for retail transactions. However, the language
with respect to the group of connected clients should be changed slightly so that this applies
“according to the best knowledge” of the originator.
With respect to wholesale transactions such as the securitisation of receivables from car
dealers, the 1% threshold is set too low and will prevent these types of securitisations from
ever meeting the STS criteria. Therefore, if dealer floorplan is not to be completely excluded
from STS, a significantly higher threshold will be needed. In our view the threshold needs to be
set at 5% to allow significant dealer groups to obtain funding through ABS and this could be
implemented as either a single threshold or in combination with other thresholds to further
ensure the granularity of the overall pool of loans. This is something that the Captives have a
great deal of experience with and we would urge further detailed discussion on this point.
Our proposal
We propose the following amendment:
“(b) at the time of inclusion in the securitisation, the aggregate exposure value of all exposures
to a single obligor in the pool does not exceed 1% of the exposure values of the aggregate
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outstanding exposure values of the pool of underlying exposures in retail transactions.
In wholesale transactions, the aggregate exposure value of all exposures to a single
obligor in the pool does not exceed 5% of the exposure values of the aggregate
outstanding exposure values of the pool of underlying exposures. For the purposes
of this calculation, loans or leases made to the best knowledge of the originator to a
group of connected clients, as referred to in point (39) of Article 4 (1), shall be considered
as exposures to a single obligor.”
Article 243 par. 2 (c) CRR-D: Maximum risk weights of the underlying exposures under
the Standardised Approach
“(c) at the time of their inclusion in the securitisation, the underlying exposures meet the condi-
tions for being assigned, under the Standardised Approach and taking into account any el-
igible credit risk mitigation, a risk weight equal to or smaller than:
(iv) for any other exposures, 100% on an individual exposure basis.”
We have reason to believe that the said provision might entail that it will be obligatory for
originators to nominate ECAIs. Our fear is based on the rationale of EBA as expressed in its
report of July 2015 stating that:
“
When determining the risk weights of exposures for assessing compliance with this criterion,
all available credit assessments of ECAIs and export credit agencies may be considered
according to the provisions of Part 3 Title II Chapter 2 of the CRR based on the assumption
that all corresponding ECAIs and export credit agencies have been nominated for the relevant
class of items.”1
Although originators often use the assessments of ECAIs in the credit process as additional
piece of information it cannot be expected that originators have nominated ECAIs. This would
entail that the external ratings would have to be used continuously and worldwide for all group
companies of the supervised group according to Article 138 sentence 4 of the CRR that does
not allow a selective use of external ratings. Hence, the requirements of the CRR to use the
assessments of ECAIs are often not implemented and thus no ECAI is often nominated by the
originators for corporate exposures. However, it seems that the expectation of EBA is that
ECAIs have to be nominated by originators whose ratings have to be used to determine the
standardised risk weight according to the standardised approach.
The obligation to use the assessment of ECAIs would contradict the political aim to reduce
reliance on external ratings and thus the assessment of ECAIs. It would increase again the
dependencies on external ratings
If originators were forced by a later guideline of the European Supervisory Authorities to pro-
vide investors with such external ratings based on the nomination of external rating agencies
then this would mean to force originators to use external ratings continuously throughout the
group worldwide also for those corporate exposures that are not intended to be securitised
although they are used for the time being only on the case by case basis, because also origi-
nators that use the credit standardised approach have application scorecards or internal rating
1 EBA Report on qualifying securitization – Response to the Commission´s call for advice of January
2014 on long-term financing, published on 7th July 201
5: http://www.eba.europa.eu/-/eba-issues-advice-
on-securitisation
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procedures in place that are validated regularly to assess the credit quality of the corporates.
An obligation to use external ratings on a continuous basis including the permanent updates
would raise the costs for originators significantly and deteriorate the deal economics dramati-
cally because they have to pay additionally for such external ratings for the securitised and
non-securitised portfolios.
This criterion is very problematic and could preclude the securitisation of corporate exposures
including SME corporate exposures as STS securitisation and should not be adopted. The
securitisation of corporate exposures as to Auto-ABS including that of corporate SMEs is nota-
bly of major significance and importance in the leasing business.
Our proposal warrants that originators will not be obliged to deliver external ratings that they do
not use. This is to avoid an increasing dependency from rating agencies and additional undue
costs for originators.
Our proposal
Article 243 par. 2 (c) should be supplemented by the following sentence:
“the risk weights under the Standardised Approach for exposures to corporates
(including corporate SMEs) according to Article 112 (g) may be determined without the
use of an ECAI if the originator has not nominated an ECAI for this exposure class
according to Article 138;”
Article 254 par. 3 CRR-D: Option to use the SEC-SA instead of the SEC-ERBA
The option was introduced to enable credit institutions to benefit from lower risk weights for
certain kinds of securitisations. Those securitisation can particularly benefit from lower risk
weights whose standardised risk weights under the Standardised Approach are low and the
risks in terms of expected and unexpected losses are high. In contrast, due to the high quality
of Auto-ABS and low loss levels as to the underlying exposures the risk weights under the
SEC-SA would be extremely high both for STS- and non-STS-securitisations. Hence, it is in
most cases no option to use the SEC-SA to lower the risk weights.
Our proposal:
“Institutions using the SEC-ERBA may apply the ratings before any sovereign rating
cap for European securitisations and European counterparties involved in such
securitisation structure for the determination of risk weights of securitisation
positions.”
In addition, we propose to amend Regulation (EC) No 1060/2009 on credit rating agencies as
follows:
Article 10 par. 3: Disclosure and presentation of credit ratings for structured finance
instruments should be supplemented by the following sentence:
“In addition, a credit rating agency shall disclose the credit rating for structured
finance instruments before any sovereign rating cap as well.”
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Article 260 CRR-D: Treatment of STS securitisations under the SEC-IRBA
“Under the SEC-IRBA, the risk weight for position in an STS securitisation shall be calculated
in accordance with Article 259, subject to the following modifications:
risk weight floor for senior securitisation positions = 10%”
We welcome the reduction of risk weightings for qualifying securitisations compared to the
securitisation framework to be implemented by 1 January 2018. However, we note that even a
reduction of the floor risk weight from 15% to 10% for qualifying securitisations in the IRB
approach means an increase of the floor from 7% to 10% compared to the current situation.
We believe that this sends the wrong signal and risks undermining the STS initiative. In
addition, it should be noted that the increase of the floor capital requirement was intended to
address model risks and structural risks, yet these risks are significantly reduced in the case of
STS securitisations.
An increase is the risk weighting from 7% to 10% is likely to result in increased financing costs
for the industry, with a resultant effect on the real economy. We urge the Commission to
maintain the 7% risk weight for qualifying securitisations.
Our proposal
“Under the SEC-IRBA, the risk weight for position in an STS securitisation shall be calculated
in accordance with Article 259, subject to the following modifications:
risk weight floor for senior securitisation positions = 7%”
Article 262 CRR-D: Treatment of STS securitisations under SEC-ERBA
The risk weights of table 4 should be reduced significantly to avoid that the capital require-
ments increase significantly in the SEC-ERBA compared to the current capital requirements
even it is a STS-securitisation. This applies especially for non-senior tranches.
In addition, it is proposed that the risk weights for STS-securitisation positions should generally
be calculated on the basis of the weighted–average maturity of the contractual payments due
under the respective tranche of the securitization instead of the final legal maturity of the
tranche. This would be justified in particular given the better predictability of simple, transpar-
ent and standardised securitisations (as to our general comments on the determination of the
tranche maturity see Article 257 below). It would reduce the impact on the risk weights by the
maturity factor. This is important for low risk medium term securitisations that cannot benefit
from lower risk weights in the SEC-SA. In addition, it should be kept in mind, that the capital
requirements under the SEC-SA are not dependent on any maturity. Otherwise the risk
weights for junior bonds in medium term securitisations such as Auto-ABS would significantly
increase and would be even for STS-securitisation often five times higher than currently.
Our proposal
Article 262 should be supplemented by the following paragraph 4:
“By derogation from paragraph 2 of Article 257, institutions may use the weighted–
average maturity of the contractual payments due under the respective tranche of the
securitisation in accordance with point (a) of paragraph 1 of Article 257 to determine its
maturity (MT).”
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V. Implementation of the Securitisation Framework of Basel Committee of December
2014 into CRR-D
Article 244 par. 1 (b) CRR-D: Application of the 1,250% risk weight
“(b) the originator institution applies a 1,250 % risk weight to all securitisation positions it holds
in the securitisation or deducts these securitisation positions from Common Equity Tier 1
items in accordance with Article 36 (1) (k).”
Par. 37 of the Securitisation Framework of the Basel Committee from December last year
stipulates that “originator banks can offset 1,250% risk-weighted securitisation exposures by
reducing the securitisation exposure amount by the amount of their specific provisions on
underlying assets of that transaction and non-refundable purchase price discounts on such
underlying assets.” The new Article 248 CRR-D is not catered for first loss securitisation
positions of originator banks from traditional securitisations comprising the cash reserve and
additional underlying exposures for the purpose of overcollaterisation to be considered
according to Article 244 par. 1 (b) CRR-D. In cases where a significant risk transfer has been
recognised but where the SSPE has still to be included in commercial consolidation according
to IFRS 10, the specific provisions from the underlying securitised exposures cannot be
released and are still available on the group level to absorb the losses. Thus, it shall be further
possible to deduct such specific provisions from the first loss position. Otherwise, the capital
requirements for originators would rise strongly.
Our proposal
Article 244 par. 1 (b) CRR-D should be supplemented by the following sentence:
“
Originator banks can offset securitisation positions according to number b) of
sentence 1 by reducing the amount of the securitisation position by the amount of their
specific provisions on underlying assets of that transaction and non-refundable
purchase
price
discounts
on
such
underlying
assets.”
Article 257 par. 2 CRR-D: Determination of tranche maturity
“(2) By derogation from paragraph 1, institution shal use the final legal maturity of the tranche
in accordance with point (b) of paragraph 1 where the contractual payments due under the
tranche are conditional or dependent upon the actual performance of the underlying
exposures.”
Aricle 257 par. 1 (a) CRR-D determines that the the tranche maturity can be measured on the
basis of the weighted-average maturity of the contractual payments due under the tranche.
We fully agree that this is the right approch to measure the tranche maturity. Unfortunately,
paragraph 2 of Article 257 CRR-D stipulates that the final legal maturity of the tranche shall be
used in accordance with point (b) of paragraph 1 where the contractual payments due under
the tranche are conditional or depenent upon the actual performance of the underlying
exposures.
However, it is the typical nature of securitisation tranches that they are conditional with regard
to the rank of the payment stream in the waterfall and depend upon the actual performance of
the underlyimg exposures. Thus, if the conditions in paragraph 2 are not amended, the tranche
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maturity will have to be calculated for all kinds of securitisation positions that are not
guaranteed by a third party on the basis of the final legal maturity. This would be overly
conservative and not justified from a risk perspective.
As a consequence, the capital requirements for medium term ABS, such as Auto-ABS for
instance, would significantly increase under the SEC-ERBA. This applies notably for non-
senior securitisation positions with a significant increase in risk weights in case of the required
application of the final legal maturity.
This applies both for non-STS and STS-securitisations.
In contrast, the risk weights for long term securitisations will not increase due to the cap of five
years according to Article 257 par. 3 CRR-D and the fact that even the weighted-average
maturity is in such cases often around 5 years or even more. However, the credit quality of a
securitisation position with a shorter weighted-average maturity can be assessed with a higher
degree of certainty and means less risk than a securitisation position with a weighted-average
maturity of five years or more. Such differences should be reflected appropriately in the risk
weight of the securitisation position.
At least for senior bonds and such junior bonds that directly rank after the senior bond and
whose credit quality is supported by a first loss position and a mezzanine securitisation
position the calculation of the tranche maturity should be based on the weighted-average
maturity of the contractual payments. Eventually, the calculation of the tranche maturity in the
SEC-ERBA should be based on the residual maturity, because the degree of uncertainty in the
assessment of a securitisatio position decreases with decreasing residual maturity.
Our proposal
Article 257 par. 2 CRR-D should be amended as follows:
“(2) By derogation from paragraph 1, institution shall only use the final
residual legal maturity
of
the first loss position and the mezzanine tranche
that directly ranks senior to the
first loss position to determine its maturity (MT) in accordance with point (b) of
paragraph 1 where the contractual payments due under the tranche are conditional or
dependent upon the actual performance of the underlying exposures.”
Berlin/Cologne/London/Paris, 5 November 2015
Arbeitskreis der Banken und Leasinggesellschaften der Automobilwirtschaft (AKA), Gut
Maarhausen, Eiler Straße 3 K1, 51107 Köln, Germany
Comité des constructeurs français d’automobiles (CCFA), 2, rue de Presbourg, 75008 Paris,
France
The Society of Motor Manufacturers & Traders Limited, 71 Great Peter Street, London. SW1P
2BN, United Kingdom
Verband der Automobilindustrie (VDA), Behrenstrasse 35, 10117 Berlin, Germany
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Supported by:
Banque PSA Finance, 75 avenue de la Grande Armée, 75116 Paris, France
BMW Bank GmbH, Heidemannstr. 164, 80939 München, Germany
FCA Bank S.p.A, Corso Agnelli 200, 10135 Torino, Italy
FCE Bank Plc., Eagle Way, Brentwood, Essex CM13 3AR, United Kingdom
Opel Bank GmbH, Mainzer Straße 190, 65428 Rüsselsheim, Germany
Honda Bank GmbH, Hanauer Landstr. 222-224, 60314 Frankfurt, Germany
MCE Bank GmbH, Schieferstein 5, 65439 Flörsheim, Germany
Mercedes-Benz Bank AG, Siemensstr. 7, 70469 Stuttgart, Germany
RCI Banque, 14 avenue du Pavé Neuf, 93168 Noisy le Grand, France
TOYOTA Financial Services Europe & Africa Region, Toyota Allee 5, 50858 Köln, Germany
Volkswagen Financial Services AG, Gifhorner Str. 57, 38112 Braunschweig, Germany
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