The Basel Committee on Banking Supervision (BCBS) and the International Organization of Securities Commissions (IOSCO) published final criteria for simple, transparent and comparable securitisations (STC) in July 2015. The background to the STC criteria is that it is intended to help transaction parties – including originators, investors and other parties with a fiduciary responsibility – evaluate more thoroughly the risks and returns of a particular securitisation, and to enable more straightforward comparison across securitisation products within an asset class. The criteria should assist investors in undertaking their due diligence on securitisations, but in no case would the criteria serve as a substitute for such due diligence.
When publishing the STC criteria, the BCBS and IOSCO noted that additional and/or more detailed criteria may be necessary with respect to setting regulatory capital requirements, especially for the credit risk of underlying assets. Whilst the STC criteria is believed to be detailed enough to serve as signposts for good practice, the use of the criteria for the setting of preferential regulatory capital requirements requires greater prescriptiveness. The BCBS has therefore decided to supplement the STC criteria with additional criteria for the specific purpose of differentiating the capital treatment between STC and other securitisation transactions and has published a consultative document.
The BCBS states that compliance with the proposed expanded set of STC criteria will provide additional confidence in the performance of transactions. The BCBS is proposing to reduce minimum capital requirements for STC securitisations by reducing the risk weight floor for senior exposures, and by rescaling risk weights for other exposures. A range for the potential reduction in capital charges is also suggested. The BCBS will make a final decision on calibration in 2016 based on further analysis and assessment of the quantitative impact of its proposals.
The deadline for comments on the consultative document is 5 February 2016.