Response to consultation on RTS on risk retention
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ESBG proposes to allow a combination of 2 retention options for the 5% fulfilment such as retention of for instance a 1% first loss tranche (d) and 4% retention of randomly selected exposures (c).
ESBG proposes to include the fixed excess spread in synthetic securitization transactions under retention option (d): retention of the first loss tranche. As the fixed excess spread in a synthetic securitization fulfils the function of the first loss in the transaction.
We agree with the disclosure in the prospectus mentioned in the EBA’s draft technical standard. In any case, disclosing risk retention globally in a universally agreed format would be beneficial.
From an originator’s perspective we consider the provisions of Article 12(3) as useful and not harmful.
Question 1: Do you have any general comments on the draft technical standards?
ESBG does not understand why the same wording under Article 6 retention option of not less than 5% of the nominal value of each of the securitized exposures is also applied under Article 5 retention of not less than 5% of the nominal value of the tranches in 1. (a).ESBG proposes to allow a combination of 2 retention options for the 5% fulfilment such as retention of for instance a 1% first loss tranche (d) and 4% retention of randomly selected exposures (c).
ESBG proposes to include the fixed excess spread in synthetic securitization transactions under retention option (d): retention of the first loss tranche. As the fixed excess spread in a synthetic securitization fulfils the function of the first loss in the transaction.
Question 2: Considering the mandate granted to ESMA in Article [7(3)] of the STS Regulation, do you believe that these technical standards should include disclosure-related provisions relevant to risk retention and, if so, do you agree with the scope of the obligations set out in the draft technical standards?
ESMA’s consultation paper on disclosure requirements already includes disclosure fields regarding the risk retention method and the risk retention holder.We agree with the disclosure in the prospectus mentioned in the EBA’s draft technical standard. In any case, disclosing risk retention globally in a universally agreed format would be beneficial.
Question 3: Do you believe that the provisions in Article 11 of the draft technical standards (relating to the measurement of retention for the undrawn amounts in exposures in the form of credit facilities) are needed?
These provisions seem helpful especially for dynamic and bespoke securitisation programs and should be preserved.Question 4: Do you consider the provisions of Article 12(3) of the draft technical standards to be useful and how would you see such a transaction working in practice, including following a default by the retainer under the secured funding arrangements?
From an investor’s perspective, the retention should only be financed so that the effective risk remains with the ultimate beneficiary of the securitisation. Otherwise incentives would not remain aligned. If the transfer of risk can be avoided, the resolution of the financing arrangement following a retainer default could be a formal matter.From an originator’s perspective we consider the provisions of Article 12(3) as useful and not harmful.