On 31 July 2019, the European Banking Authority (EBA) published a consultation paper proposing draft guidelines on the determination of the weighted average maturity (WAM) of the contractual payments due under the tranche of a securitisation transaction.
The framework under the Capital Requirements Regulation (CRR) for securitisations has introduced a tranche maturity as an additional parameter in the formulae to calculate the capital requirement of securitisation positions. The CRR provides that two alternative approaches may be applied when determining the maturity of a tranche: (i) the WAM of the contractual payments due under the tranche; or (ii) the final legal maturity of the tranche. The choice between the WAM approach and the final legal maturity approach is left to the full discretion of institutions.
The purpose of the draft guidelines is to provide fundamental guiding principles on the WAM approach to be followed by institutions opting to use the WAM approach instead of the final legal maturity approach. Current market practices have constituted a major starting point for the drafting of the guidelines but some deviations are proposed to ensure that the calculation of the WAM is comparable across EU institutions and is made in a sufficiently prudent manner.
The deadline for comments to the consultation paper is 31 October 2019.