Background
Homogeneity requirements were developed to facilitate due diligence by investors on the risks of the underlying assets by ensuring that the underlying exposures of a securitisation share similar risk profiles. The 2019 RTS, in force since 26 November 2019, were mandated under the Articles 20(14) and 24(21) of the European Union Securitisation Regulation (“EUSR”)1, to specify homogeneity requirements for underlying exposures in ABCP and non-ABCP securitisations. The EBA was mandated to develop the Draft RTS following amendments to the EUSR by the Capital Markets Recovery Package ("CMRP")2 .
On 14 February 2023, the EBA published the Final RTS which will amend the existing Commission Delegated Regulation (EU) 2019/1851 and extend homogeneity requirements to on-balance-sheet securitisations, with a few modifications which also apply to non-ABCP and ABCP securitisations. On 28 July 2022, the EBA published a Consultation Paper on draft RTS specifying the criteria for the underlying exposures in on-balance-sheet simple, transparent and standardised (“STS”) securitisation to be deemed homogeneous (the "Draft RTS"). For our report on the EBA's initial consultation of 28 July 2022 please see Engage Article - EBA consults on draft RTS on homogeneity of underlying exposures in on-balance-sheet securitisations
What has changed in the Final RTS?
Key changes made to the Draft RTS include:
- The EBA removed proposed adjustments distinguishing between corporates and large corporates in relation to the “type of obligor” homogeneity factor. Proposals to amend the "type of obligor" homogeneity factor for auto loans and leases and credit card receivables relating to enterprises where the originator applies the same approach for assessing the credit risk associated with exposures to such enterprises as for exposures to individuals remain. Determination of exposures to enterprises will be based on an institution's own internal and regulatory requirements.
- Servicing must be in accordance with similar procedures of the originator or on the asset side of the securitisation special purpose entity. The originator has been added to the servicing requirement taking into account that some on-balance-sheet securitisations may not involve a special purpose entity.
- Grandfathering will apply for all ABCP and non-ABCP STS securitisations that are compliant with the 2019 RTS and that were issued before the application date of the Final RTS and have been notified to ESMA. Also, on-balance-sheet STS securitisations notified to ESMA prior to entry into force of the Final RTS will not be subject to the Final RTS requirements.
Next steps
The Final RTS will be sent to the European Commission. Once it is clear that the EU Parliament and Council of the EU do not object to the RTS, they will be published in the Official Journal and enter into force after 20 days after being published in the Official Journal.
This note is for guidance only and should not be relied on as legal advice in relation to a particular transaction or situation. Please contact your normal contact at Hogan Lovells if you require assistance or advice in connection with any of the above.
Authored by David Palmer, Sebastian Oebels, and Jane Griffiths.
References
1 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.
2 Regulation (EU) 2021/557 of the European Parliament and of the Council of 31 March 2021 amending Regulation (EU) 2017/2402 laying down a general framework for securitisation and creating a specific framework for simple, transparent and standardised securitisation to help the recovery from the COVID-19 crisis.
