EBA Consults On Draft Guidelines On Implicit Support For Securitization Transactions

On January 20, the EBA published a consultation paper (EBA/CP/2016/01) on draft guidelines on implicit support for securitization transactions under Article 248(2) of the Capital Requirements Regulation (Regulation 575/2013) ("CRR").

Examples of implicit support include the purchase of deteriorating credit risk exposures from the underlying pool, improving the quality of credit enhancements, the sale of discounted credit risk exposures into the pool of securitised credit risk exposures, the purchase of underlying exposures at above market price, ad hoc credit enhancements or an increase in the first loss position according to the deterioration of the underlying exposures. The provision of implicit support undermines the achievement of significant risk transfer, hence, under Article 248 of the CRR, there are restrictions on providing implicit support to securitisations. The draft guidelines recognise the fact that implicit support should not cover support that