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Covid-19 coronavirus: Points to note for EEA securitisations regarding EBA 22 April ‘Statement on additional supervisory measures in the Covid-19 pandemic’

On 22 April 2020, the EBA published a “statement on additional supervisory measures in the COVID-19 pandemic” [1] (the Statement). The Statement clarifies, amongst other things, the application of the EBA’s 2 April 2020 “guidelines on legislative and non-legislative moratoria on loan repayments applied in light of the COVID 19 crisis” [2] (the Guidelines) to securitisations. 

Notably, the Statement provides guidance in relation to the interaction of ‘general payment moratoria’ (as defined in the Guidelines, GPMs) and the implicit support prohibition applicable to SRT securitisations. The guidance indicates that implementation of a GPM, and specified actions of an originator or sponsor in connection with a GPM, are not automatically regarded as implicit support, though they must be notified to the competent authority in the usual way under Article 250(3) CRR and the EBA implicit support guidelines. 

The guidance is striking in light of the concern articulated, in other contexts, by the EBA (and other international regulators) about a perceived tendency of originators, in bad times (including the 2007-8 financial crisis), to support investors for reputational and relationship reasons, and associated moral hazard. It does not, however, preclude the specified actions completely from constituting implicit support and potentially difficult (subjective) decisions remain. So, for example, there is some room for debate about the point at which action ceases to be “motivated by compliance with a general payment moratorium” and becomes “motivated by reducing the actual or potential losses to investors from the securitised assets”.

This publication is co-authored by Jo Goulbourne Ranero, a consultant in our London regulatory practice with over 18 years’ experience with the firm, advising on a wide range of financial services regulatory matters, with a particular focus on regulatory capital (structuring to optimise, and providing and advice and opinions in respect of, institutions’ capital, liquidity, leverage and large exposures positions - EU CRR, Basel, PRA/FCA & ECB requirements) and securitisation regulation.


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