On 8 April 2019, the European Banking Authority (EBA) published a report containing the final draft regulatory technical standards (RTS) specifying the conditions that allow institutions to calculate the capital requirements of the securitised exposures (KIRB) in accordance with the purchased receivables approach under Article 255 of the Capital Requirements Regulation (CRR).

The draft RTS, in accordance with Article 255(9) of the CRR, are designed to specify in greater detail the conditions that allow institutions to calculate KIRB for the underlying pools of securitisations in accordance with paragraph 4 of Article 255 of the CRR.

The main areas that the draft RTS cover are:

  • general approach to the relationship between the internal ratings based (IRB) rules on purchased receivables and the securitisation internal ratings-based approach framework;
  • eligibility conditions to compute KIRB under the draft RTS;
  • internal ratings-based permissions and prior experience;
  • eligibility to use the retail risk quantification standards; and
  • use of proxy data.

The EBA states that the draft RTS are developed to strike the right balance between the need to acknowledge the specific circumstances of institutions calculating capital requirements in the context of a securitisation transaction and the need to maintain appropriately safe and prudent requirements on the internal modelling of capital requirements, making the IRB provisions workable in a securitisation context, and taking into account the different roles that an institution calculating KIRB in relation to a given securitisation transaction may play in the context of that transaction.

The EBA also states that in order to achieve such a balance, and to maximise legal clarity, the draft RTS specify that the entire set of both Level 1 and Level 2 regulations, as well as the guidelines, relating to the IRB framework, apply to institutions calculating KIRB in accordance with Article 255(4) of the CRR, unless specified differently in the draft RTS.

The final draft RTS will be submitted to the European Commission for adoption. Following the submission, the draft RTS will be subject to scrutiny by the European Parliament and the Council before being published in the Official Journal of the EU.