The PCS Risk Transfer Label – An Outline

This section sets out the principles underpining the PCS Risk Transfer Eligibility Criteria.

The PCS Risk Transfer Label is grounded in both the existing PCS True Sale Label and the lessons of the crisis of 2007-2008 which PCS first outlined in its 2013 White Paper.

Therefore, the PCS Risk Transfer Label criteria seek to address the four key issues with those, primarily US, pre-2007 securitisations that performed so badly during the crisis:

  • originate to distribute/alignment of interest
  • iterative credit tranching (ie re-securitisations)
  • embedded maturity transformations
  • lack of transparency

(For a full analysis of these elements, please refer back to the White Paper or to our response to question 5 in the Bank of England/ECB joint consultation)

The PCS Risk Transfer Label also seeks to support risk transfer instruments which assist in the funding of the real economy.  Together with concerns around alignment of interest, this explains why the PCS Risk Transfer Label is not available to arbitrage risk transfer transactions.

When looking at those PCS Risk Transfer Label criteria that deal with the securitised assets, PCS sees no reason to distinguish between assets securitised via a true sale securitisation and those securitised via a risk transfer instrument.  This is why the asset criteria in the new PCS Risk Transfer Label are the same as those for the PCS True Sale Label.

Obviously, criteria that are only relevant to True Sale securitisations, such as criteria around the sale of the assets, have not been carried over into the PCS Risk Transfer Label criteria.

On the other hand, many new criteria have been introduced to reflect the specific characteristics of risk transfer instruments.

For a fuller description, please refer to our Eligibility Criteria Summary here or consult the full PCS Risk Label Criteria may be found here.