Busy Week for the EBA - Homogeneity(Final draft) RTS and Green Lending

Last week was a busy week for the EBA when it comes to items of importance to securitisations.

First, the EBA published a final draft RTS on homogeneity for synthetic securitisations. 

In PCS’ view, this is a thoughtful and altogether excellent proposal. 

First, it leaves unchanged the division for corporate loans between SMEs and larger corporates but without an artificial line being drawn between the two.  On the contrary, the EBA makes it clear that the dividing line should lie where it is drawn by the bank’s own underwriting procedures (and therefore as approved by their prudential regulator. as part of the latter’s overall oversight functions).  This approach is to be commended as it preserves the legislative intent by avoiding artificial and arbitrary definitions of homogeneity.  It therefore favours true homogeneity over simplistic binary formulas.

Secondly, and in line with an approach prioritising true homogeneity over artificial definitions, the EBA has taken the opportunity of recognising in auto loans and credit cards that some loans to micro-SMEs are really identical in underwriting and servicing to loans to individuals and can therefore be treated as a single category.

Finally, the draft RTS provides fair grandfathering provisions for all types of STS securitisations (including synthetic transactions) that avoid punishing unfairly transactions which meet the spirit of the homogeneity rules but might otherwise have been caught out by the technical details of the new text.

All in all, the EBA’s proposal balances the spirit of the legislation and a practical real world approach to the matter of homogeneity.

The RTS now goes for approval by the European Commission. 

Also of note, the EBA has launched an industry survey to receive input from credit institutions on their green loans and mortgages as well as market practices related to these loans.  Responses are due by April 7^th.  Although not technically a securitisation matter, the outcome of this survey will, in due course, feed into the framework for green securitisations issued under the forthcoming EU Green Bond Standard legislation and the securitisation community should therefore not stay on the sidelines of this discussion.