Skip to content

Towards an EU STS framework for balance sheet synthetic securitisations – EBA final report published

The European Banking Authority (EBA) is mandated, under Article 45 of the EU Securitisation Regulation (the Securitisation Regulation)[1], to produce a report (the Report) on the feasibility of a regime for simple, transparent and standardised (STS) balance-sheet synthetic securitisations. On 24 September 2019, the EBA published a discussion paper (the DP)[2] in connection with the Report, which we analysed in our briefing of 16 October 2019 (linked here). On 6 May 2020, the EBA published its long awaited Report.[3]

In line with the DP, the Report, recommends the creation of a cross-sectoral STS framework for balance-sheet synthetic securitisations (excluding arbitrage synthetic securitisations) (the Proposed Balance Sheet Synthetic STS Framework). As in the DP, the EBA stops short of positively recommending a differentiated prudential regime to accompany the Proposed Balance Sheet Synthetic STS Framework. However, it indicates that such treatment could be justified based on the analysis undertaken, and the scope of a possible regime is newly outlined.

While the eligibility criteria for STS synthetics contained in the Report are broadly in line with the DP’s proposals, certain improvements have been made and industry concerns addressed, including the addition of collateral in the form of cash deposits with the originator to the (limited) collateral types previously permitted for funded credit protection, and the sanctioning of synthetic excess spread (SES) in STS synthetics subject to specified conditions. (We provided input to the industry response to the DP via an AFME working group).[4]

This briefing provides an overview of the key points to note about the Report, setting out in Appendix 1 at the end of this briefing an overview table on the proposed balance sheet synthetic STS criteria, as set out in the Report (including a redline against the earlier proposals set out in the DP).

The Report and this briefing will be of interest to originators and investors currently active in the synthetic securitisation markets and to entities that may be interested in participating in those markets.

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.