(1)

For the purposes of the application of the backward-looking triggers referred to in Article 26c(5), third subparagraph, point (a), of Regulation (EU) 2017/2402, it is necessary to specify the starting point as of which either the increase in the cumulative amount of defaulted exposures or the increase in the cumulative losses is to be measured. As a general rule, the closing date of the transaction should be taken as a starting measuring point. There may, however, be cases where it is not possible to use that closing date of the transaction as a starting measuring point, including where the transaction includes a replenishment period, or a pre-defined period in which the securitised portfolio is built up, after the closing date. It is therefore necessary to lay down specific rules for those cases.

(2)

The detachment point (D) of a tranche determines the point at which the principal of that tranche is completely eroded as a result of losses in the underlying pool. Consequently, when the protected tranche starts bearing losses, the detachment point decreases correspondingly. To prevent that the tranches providing credit enhancement have already been amortised when significant losses occur at the end of the transaction, the additional backward-looking trigger referred to in Article 26c(5), third subparagraph, point (b), of Regulation (EU) 2017/2402 should be linked to a reduction of the detachment point of the most senior protected tranche, so as to guarantee the credit enhancement provided by the most senior protected tranche relative to more senior tranches retained by the originator throughout the life of the transaction. For the same reason, the forward-looking trigger referred to in Article 26c(5), third subparagraph, point (c), of Regulation (EU) 2017/2402 should occur where the expected performance of the pool of underlying exposures is reduced by an increase in the concentration risk in the securitisation over time or, for transactions where concentration risk is less pronounced, by a deterioration of the average credit quality of that pool of underlying exposures over time.

(3)

A highly concentrated pool of underlying exposures increases the risk of major losses in the securitisation. Since concentration risk is more prevalent in pools of underlying exposures which have a low granularity, it is necessary to lay down a threshold for the minimum granularity of the pool of underlying exposures measured by the effective number of exposures in the pool. Where the concentration risk is less prevalent, the forward-looking trigger should be subject to the average credit quality of the underlying portfolio. To set that trigger, the credit quality of the underlying portfolio should be measured since origination of the securitisation.

(4)

Since it is not possible to provide for a one-size-fits-all calibration that would be applicable to all transactions, given the variety in the types of underlying portfolios and structures in on-balance-sheet securitisations, it is necessary to set out criteria for setting the levels of the performance-related triggers referred to in Article 26c(5), third subparagraph, of Regulation (EU) 2017/2402. To ensure that there is no significant risk that tranches providing credit enhancement amortise to an extent that there would not be sufficient protection to absorb significant losses occurring at the end of the transaction, those criteria should be set in a prudent manner. For that purpose, the parties to the securitisation should test the effectiveness of the backward-looking triggers in a back-loaded loss distribution scenario taking into account the losses expected over the entire maturity of the transaction at its closing date.

(5)

In order not to interfere with existing contracts concluded before the specification of the mandatory performance-related triggers and the criteria for their calibration, it is necessary to provide for a transitional regime for outstanding STS on-balance-sheet securitisations.

(6)

This Regulation is based on the draft regulatory technical standards submitted to the Commission by the European Banking Authority.

(7)

The European Banking Authority has conducted open public consultations on the draft regulatory technical standards on which this Regulation is based, analysed the potential related costs and benefits and requested the advice of the Banking Stakeholder Group established in accordance with Article 37 of Regulation (EU) No 1093/2010 of the European Parliament and of the Council (2),

(1)

‘most senior protected tranche’ in a securitisation means the least subordinated tranche in terms of distribution of losses that benefits from eligible credit protection under the credit protection agreement;

(2)

‘credit risk bucket’ means a segment of the underlying portfolio to which the exposures from that portfolio are assigned in accordance with Article 4(5) and that entails a degree of credit risk as measured on the basis of credit risk-related criteria, where each mutually exclusive segment entails a credit risk that is greater than or less than another segment;

(3)

‘back-loaded loss distribution scenario’ means a scenario in which two-thirds of the absolute amount of losses expected to occur over the entire maturity of the transaction at its closing date take place in the last third part of its expected maturity.

(a)

the triggers are activated before the tranches providing credit protection have been amortised to an extent that those tranches cannot absorb significant losses occurring in the last part of the maturity of the transaction;

(b)

in relation to backward-looking triggers, the effectiveness of those triggers has been tested in a back-loaded loss distribution scenario;

(c)

where the originator applies Part Three, Title II, Chapter 5 of Regulation (EU) No 575/2013 to determine the own funds requirements for its exposure to the securitisation, both the calculation of the lifetime expected losses and the assumptions to be made under a back-loaded loss distribution scenario are consistent with those used for the significant and commensurate risk transfer assessment under Article 245 of that Regulation.