Prudential Regulation Authority Rulebook

1

The originator, sponsor or original lender of a securitisation shall retain on an ongoing basis a material net economic interest in the securitisation of not less than 5%. That interest shall be measured at the origination and shall be determined by the notional value for off-balance-sheet items.

Where the originator, sponsor or original lender have not agreed between them who will retain the material net economic interest, the originator shall retain the material net economic interest.

There shall be no multiple applications of the retention requirements for any given securitisation.

The material net economic interest shall not be split amongst different types of retainers and shall not be subject to any credit-risk mitigation or hedging.

For the purposes of this Article and Chapter 4, an entity shall not be considered to be an originator where the entity has been established or operates for the sole purpose of securitising exposures.

2

Subject to paragraph 2A of this Article, originators shall not select assets to be transferred to the SSPE with the aim of rendering losses on the assets transferred to the SSPE, measured over the life of the transaction, or over a maximum of four years where the life of the transaction is longer than four years, higher than the losses over the same period on comparable assets held on the balance sheet of the originator.

2A

Originators may select assets to be transferred to the SSPE that ex ante have a higher than average credit risk profile as compared to the average credit risk profile of comparable assets, if any, that remain on the balance sheet of the originator provided that the higher credit risk profile of the assets transferred to the SSPE is clearly communicated to the investors or potential investors.

3

Only the following shall qualify as a retention of a material net economic interest of not less than 5% within the meaning of paragraph 1 of this Article:

1. (a) the retention of not less than 5% of the nominal value of each of the tranches sold or transferred to investors;
2. (b) in the case of revolving securitisations or securitisations of revolving exposures, the retention of the originator’s interest of not less than 5% of the nominal value of each of the securitised exposures;
3. (c) the retention of randomly selected exposures, equivalent to not less than 5% of the nominal value of the securitised exposures, where such non-securitised exposures would otherwise have been securitised in the securitisation, provided that the number of potentially securitised exposures is not less than 100 at origination;
4. (d) the retention of the first loss tranche and, where such retention does not amount to 5% of the nominal value of the securitised exposures, if necessary, other tranches having the same or a more severe risk profile than those transferred or sold to investors and not maturing any earlier than those transferred or sold to investors, so that the retention equals in total not less than 5% of the nominal value of the securitised exposures; or
5. (e) the retention of a first loss exposure of not less than 5% of every securitised exposure in the securitisation.

3A

By way of derogation from paragraph 3 of this Article, in the case of NPE securitisations, where a non-refundable purchase price discount has been agreed, the retention of a material net economic interest for the purposes of that paragraph shall not be less than 5% of the sum of the net value of the securitised exposures that qualify as non-performing exposures and, if applicable, the nominal value of any performing securitised exposures.

The net value of a non-performing exposure shall be calculated by deducting the non-refundable purchase price discount agreed at the level of the individual securitised exposure at the time of origination or, where applicable, a corresponding share of the non-refundable purchase price discount agreed at the level of the pool of underlying exposures at the time of origination from the exposure’s nominal value or, where applicable, its outstanding value at the time of origination.

In addition, for the purpose of determining the net value of the securitised non-performing exposures, the non-refundable purchase price discount may include the difference between the nominal amount of the tranches of the NPE securitisation underwritten by the originator for subsequent sale and the price at which these tranches are first sold to unrelated third parties.

4

Where:

1. (a) a mixed financial holding company;
2. (b) a UK parent institution;
3. (c) a financial holding company established in the UK; or
4. (d) a subsidiary of such a company or institution;

as an originator or sponsor, securitises exposures from one or more CRR firms, FCA investment firms or other financial institutions which are included in the scope of supervision on a consolidated basis, the requirements set out in paragraph 1 of this Article may be satisfied on the basis of the consolidated situation of the mixed financial holding company, UK parent institution or financial holding company concerned.

Subject to the modifications set out in the third subparagraph of SECN 5.2.9R of the FCA Handbook to the requirements set out in Article 79 of Directive 2013/36/EU of the European Parliament and of the Council in respect of FCA investment firms, the first subparagraph applies only if CRR firms, FCA investment firms or financial institutions which created the securitised exposures comply with the requirements set out in Article 79 of Directive 2013/36/EU of the European Parliament and of the Council and deliver the information needed to satisfy the requirements provided for in Article 5 of this Chapter, in a timely manner, to the originator or sponsor and, if the originator or sponsor is a subsidiary, to the mixed financial holding company, UK parent institution or financial holding company which is the parent undertaking of the subsidiary.

In this paragraph:

1. (a) ‘CRR firm’, ‘financial holding company’, ‘financial institution’, ‘FCA investment firm’, ‘subsidiary’ and ‘UK parent institution’ have the meaning given in Article 4 of CRR; and
2. (b) ‘mixed financial holding company’ has the meaning given in regulation 1(2) of the Financial Conglomerates Regulations.

5

Paragraph 1 of this Article shall not apply where the securitised exposures are exposures to or exposures fully, unconditionally and irrevocably guaranteed by:

1. (a) central governments or central banks;
2. (b) regional governments, local authorities and public sector entities within the meaning of point (8) of Article 4(1) of CRR;
3. (c) institutions to which a 50% risk weight or less is assigned under Part Three, Title II, Chapter 2 of CRR and Articles 132a to 132c of Chapter 3 of the Standardised Approach and Internal Ratings Based Approach to Credit Risk (CRR) Part;
4. (d) national promotional banks or institutions within the meaning of point (3) of Article 2 of Regulation (EU) 2015/1017; or
5. (e) the multilateral development banks listed in Article 117 of CRR.

6

Paragraph 1 of this Article shall not apply to transactions based on a clear, transparent and accessible index, where the underlying reference entities are identical to those that make up an index of entities that is widely traded, or are other tradable securities other than securitisation positions.