On 4 May 2020, the European Banking Authority (EBA) published its final guidelines on the determination of the weighted average maturity (WAM) of the contractual payments due under the tranche of a securitisation transaction, as laid down in the Capital Requirements Regulation (as amended).

The guidelines have been developed in accordance with Article 257(4) of the Capital Requirements Regulation (as amended). This Article mandated the EBA to monitor the range of practices on the determination of tranche maturity with particular regard to the application of the WAM and, in addition, in accordance with Article 16 of Regulation (EU) No 1093/2010, to issue the guidelines by 31 December 2019.

The purpose of the guidelines is to provide guiding principles for those institutions that opt for the use of the WAM approach instead of the final legal maturity approach when calculating the risk-weighted exposure amounts for the specific purpose of determining the capital requirement of a securitisation position.

The main areas covered by the guidelines are:

  • meaning of contractual payments due under the tranche;
  • data and information requirements;
  • methodologies for determining the contractual payments of the securitised exposures due under the tranche both for traditional and synthetic securitisations; and
  • implementation and use of the WAM model

The guidelines apply from 1 September 2020