EBA Issues Final Guidelines on Implicit Support for Securitizations

The European Banking Authority (EBA) published final guidelines on Monday, October 3rd on implicit support for securitization transactions. In the press release, it explained that the objective of the guidelines is “to clarify what constitutes arm's length conditions and to specify when a transaction is not structured to provide support for securitisations.”

As described in the EBA’s release, the guidelines “propose an objective test for the definition of arm's length conditions and for assessing when a transaction is not structured to provide support”. Additionally, “guidance is provided on the notification requirements applicable to such transactions and provisions are included to avoid a scenario whereby support is provided on behalf of the originator by another entity.” The scope of the guidelines relate to the support provided by sponsor institutions and originator institutions beyond their contractual obligations. An example of this is captured in step-in risk, which the Basel Committee on Banking Supervision (BCBS) requested comment on in its December 2015 consultation titled “Identification and measurement of step-in risk”. SFIG commented on the BCBS consultative document on March 17, 2016.

The final guidance comes after the April 20th close of the comment period for the January 2016 consultation, and takes into account the feedback received during the public consultation. The EBA announcement also notes that these guidelines should be read in conjunction with the guidelines on significant risk transfer for securitization published in July 2014. The new guidelines go into effect on March 1, 2017.
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