Securitisation Regulation

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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, better known as the Securitisation Regulation, is the European Union’s rules on asset-backed finance. Important if you are a sponsor and therefore have to retain risk to a portion of the bottom tranche of whatever you are securitising.

Risk retention

Of interest to sponsors is Article 6, Risk Retention: in a nutshell:

One of the originator, sponsor or original lender — and if they can’t agree, it will be the originator— must retain a material net economic interest in the securitization of not less than 5% of the notional value for off-balance-sheet items, measured at origination. The material net economic interest is not doubled up or split amongst different types of retainers and may not be hedged or otherwise credit-mitigated.

You don’t apply risk retention to multiple persons, or split it across multiple persons. One person takes the lot. and you can’t cheekily hedge it, or get someone else to underwrite the risk for you. You need to have skin in the game.

See also

• The text of the Securitisation Regulation
• Risk retention rules for US securitisation.