Article 129(1) of the Capital Requirements Regulation (CRR) grants preferential treatment to covered bonds collateralized by senior units issued by French Fonds Communs de Titrisation or equivalent securitization entities, securitising residential (point (d)) or commercial (point (f)) property exposures, provided that certain conditions are met:
- they qualify for credit quality step 1 under the credit risk rules in the CRR;
- their amount does not exceed 10% of the nominal amount of the outstanding covered bonds issued; and
- they are backed by residential/commercial mortgage loans eligible under Article 129 of the CRR.
However, Article 496(1) of the CRR waives the second condition (10% limit) until 31 December 2017 provided that:
- the securitised property was originated by a member of the same consolidated group of which the issuer of the covered bond is a member; and
- a member of the same group retains the whole first loss tranche of the senior units.
Article 503(4) of the CRR requires the European Commission (Commission) to review the waiver in order to determine whether it is still appropriate and if so, to adopt delegated acts to make it permanent.
The Commission has now adopted Commission Delegated Regulation (EU)…/… of 11.8.2017 amending the CRR as regards the waiver on own funds requirements for certain covered bonds. The Delegated Regulation amends Article 496(1) of the CRR by replacing the introductory sentence with the following:
“Competent authorities may waive in full or in part the 10% limit for senior units issued by French Fonds Communs de Créances or by securitisation entities which are equivalent to French Fonds Communs de Créances laid down in points (d) and (f) of Article 129(1), provided that both of the following conditions are fulfilled.”
The Delegated Regulation enters into force 20 days after its publication in the Official Journal of the EU and will apply from 1 January 2018.