Response to consultation on the draft RTS on homogeneity of underlying exposures in securitisation
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The ABCP sponsor is generally in a different position from a typical ABS investor as it is able to structure the risk and overcollateralization of the securitised portfolio based on an in-depth analysis and applying his own methodology. For these reasons the sponsor is usually more flexible in incorporating a variety of assets going beyond traditional selection criteria in ABS securitisations.
Should an ABCP transaction not be seen as homogeneous under the proposed EBA rules, there could be a simple - although very expensive - way to comply with this criterion, consisting in separating further the assets of the seller into several sub-portfolios.
For this reason, and to avoid this uneconomic approach for ABCP transactions which are usually of a small size, we advocate a more flexible approach to the definition of homogeneity in ABCP transactions. We propose that in order that ABCP transactions comply with homogeneity requirements, it should be sufficient that underlying exposures fall under a single asset category in accordance with article 1.c and as a result article 1.d would not apply.
Some French banks currently securitise portfolios that comprise credit facilities to natural persons and credit card receivables. Furthermore, in France some exposures can be considered both as credit facilities to natural persons and credit card receivables as well. Hence we suggest merging these two asset categories.
We believe that dealer floorplan finance should be added to the list as a separate asset category.
As regards SME, we believe that a specific definition is not necessary. The asset category is broad enough to include loans to all enterprises and corporates, including micro, small and medium sized enterprises and corporates."
Besides, there is a typing error (“typo”) in the draft RTS under Article 3 (1) for points (e), (f) and (g). It should be:
e) for the asset category referred to in point (e) of Article 2, the risk factors referred to in points (a), (c), (d), (g), (i) and (j) of paragraph 2;
f) for the asset category referred to in point (f) of Article 2, the risk factors as defined in points (a), (i) and (j) of paragraph 2;
g) for the asset category referred to in point (g) of Article 2, the risk factors as referred to in point (h) of paragraph 2;
Question 1: Do you agree with the focus of the RTS, general approach and underlying assumptions on which the RTS are based? Does the proposed approach provide sufficient clarity and certainty on the interpretation and application of the criterion of homogeneity?
Yes, the French Banking Federation agrees with the general approach and rationale, which provides sufficient clarity. However it should be clarified that the criteria supporting the homogeneity analysis are not risk criteria, as by definition securitisation can combine a diversity of risks (for the same asset class).Question 2: Do you agree with the assessment of the homogeneity of underlying exposures based on criteria specified under (a) to (d)? Should other criteria be added or should any of the criteria be disregarded?
We agree in general with the criteria specified under (a) to (d). Regarding the requirement for similar underwriting standards" in criterion (a), we believe that it should refer to underwriting standards designed to measure similar types of risks rather than the same underwriting criteria precisely. As an illustration, it could be the case that different rating/scoring models are used (depending on the size of the client in the underwriting process for example in SME transactions). The same would apply to servicing in criterion (b): for instance the servicing measures applied to a borrower of an auto loan who is an individual would differ from the servicing measures applied to a corporate borrower, although the process would remain controlled by the originator (and ultimately be subject to common governance rules)."Question 3: Are there any impediments or practical implications of the criteria as defined? Are there any important and severe unintended consequences of the application of the criteria?
It is important to have some flexibility in the application of the criteria. Especially it would be important to get clarity on mixed pools falling under the same process in terms of underwriting, recoveries, cash flows and servicing procedures and where underlying risks can be so assessed on the basis of common methodologies and parameters (e.g., pools combining auto loans and consumer loans can be viewed as homogeneous).Question 4: Do you agree that when considering the relevance of the risk factors, the asset category, type of securitisation (non-ABPC or ABCP), and specific characteristics of the pool of exposures, should be taken into account? Should other elements be considered as important determinants of the relevance of the individual risk factors?
We agree.Question 5: Do you agree that the same set of criteria should be applied to non-ABCP and ABCP securitisation? Or do you instead consider that additional differentiation should be made between criteria applicable to non-ABCP and ABCP securitisation, and if so, which criteria?
ABCP securitisations are used as a very flexible tool to provide funding to sellers where a market placement via ABS issuance is often not possible: whether assets are too short-term (receivables), do not, or have not yet reached critical mass, exhibit specific features etc.The ABCP sponsor is generally in a different position from a typical ABS investor as it is able to structure the risk and overcollateralization of the securitised portfolio based on an in-depth analysis and applying his own methodology. For these reasons the sponsor is usually more flexible in incorporating a variety of assets going beyond traditional selection criteria in ABS securitisations.
Should an ABCP transaction not be seen as homogeneous under the proposed EBA rules, there could be a simple - although very expensive - way to comply with this criterion, consisting in separating further the assets of the seller into several sub-portfolios.
For this reason, and to avoid this uneconomic approach for ABCP transactions which are usually of a small size, we advocate a more flexible approach to the definition of homogeneity in ABCP transactions. We propose that in order that ABCP transactions comply with homogeneity requirements, it should be sufficient that underlying exposures fall under a single asset category in accordance with article 1.c and as a result article 1.d would not apply.
Question 6: Do you agree with providing a list of asset categories in the RTS? Do you agree with the asset categories listed? Should other asset categories be included or some categories be merged? For example, should separate asset categories of project finance, object finance, commodities finance, leasing receivables, dealer floor plan finance, corporate trade receivables, retail trade receivables, credit facilities to SMEs and credit facilities to corporates, be included? Please substantiate your reasoning.
Our understanding of the draft RTS is that residential loans secured by mortgages and guaranteed residential loans fall into the same asset category. The FBF supports this rule, as French banks currently include both in their residential loans securitisations and consider that this is not inconvenient for investors. Indeed, both guaranteed loans and mortgage loans are very common practice in France and are underwritten and serviced under common procedures.Some French banks currently securitise portfolios that comprise credit facilities to natural persons and credit card receivables. Furthermore, in France some exposures can be considered both as credit facilities to natural persons and credit card receivables as well. Hence we suggest merging these two asset categories.
We believe that dealer floorplan finance should be added to the list as a separate asset category.
Question 7: Do you agree with the definitions of the asset categories provided? For example, do you consider that the asset category of credit facilities to SMEs and corporates should be further specified and for the SMEs should refer to the definition provided in the Commission Recommendation 2003/361/EC, or should other reference be used (for example to Art. 501 of the CRR)? Please substantiate your reasoning.
We believe that the description of auto loans and leases as being secured by automobile vehicles" is not correct. In auto finance securitisations, security will generally only be taken over payment streams related to the vehicles rather than the vehicles themselves. In addition, auto loan securitisations can include loans financing different types of vehicles such as motorcycles, light trucks and vans (all being granted by the seller under common procedures).As regards SME, we believe that a specific definition is not necessary. The asset category is broad enough to include loans to all enterprises and corporates, including micro, small and medium sized enterprises and corporates."
Question 8: Do you agree with the approach to determination of the homogeneity based on the risk factors, and the distinction between the concept of risk factors to be considered for each asset category, and relevant risk factors to be applied for a particular pool of underlying exposures, as proposed? Are there any impediments or practical implications of the risk factors as defined? Are there any important and severe unintended consequences of the application of the risk factors?
We agree in general with the approach. We believe that there should be more guidance on how to determine the relevance of risk factors. In addition we think that the term “risk factor” is not appropriate and that another term should be used such as “relevant homogeneity factor”.Question 9: Do you agree with the distribution of the risk factors that need to be considered for each asset category, as proposed? What other risk factors should be included for consideration for which asset category?
There should be some flexibility in the analysis of applicable risk factors in order not to unduly limit the diversification of the pools (in particular for ABCP transactions or mixed pools, as mentioned above).Besides, there is a typing error (“typo”) in the draft RTS under Article 3 (1) for points (e), (f) and (g). It should be:
e) for the asset category referred to in point (e) of Article 2, the risk factors referred to in points (a), (c), (d), (g), (i) and (j) of paragraph 2;
f) for the asset category referred to in point (f) of Article 2, the risk factors as defined in points (a), (i) and (j) of paragraph 2;
g) for the asset category referred to in point (g) of Article 2, the risk factors as referred to in point (h) of paragraph 2;