ECB Fast-Track for Significant Risk Transfer (SRT) Securitisations

Following the start of development work on an accelerated procedure for the regulatory recognition of significant risk transfer ("SRT") securitisations last year, the European Central Bank ("ECB") published guidance addressed to significant institutions¹ ("SIs" or "SI") for certain simpler and more standardised traditional and synthetic securitisations ("SRT Fast-Track").

The new SRT Fast-Track process is currently tested by the ECB and is expected to continue until the end of the first half of 2025. Participation in the test is voluntary. The testing phase is designed as a parallel run, meaning that institutions are expected to continue to follow the 2016 ECB public guidance on the recognition of significant risk transfer (the "Public Guidance"). Thus, SIs should still inform the ECB by means of a pre-notification at the latest 3 months before the expected closing date of the securitisations. The ECB will then, on the basis of the results of the test phase, decide how to introduce the SRT Fast-Track on a permanent basis. Accordingly, participating SI's will have the advantage of first-hand experience with the SRT Fast-Track process.

Key points of the SRT Fast-Track process

The main expected benefit is a shift towards further simplification and standardization for eligible transactions. The objective of the SRT Fast-Track process is to significantly reduce the time needed to assess an individual securitisation transaction for sufficiently simple and standardised securitisations that do not include complex features. In this way, the competent authorities should be able to assess in a shorter period of time whether the securitisation meets the criteria set out in  the Capital Requirements Regulation (EU) 575/2013 ("CRR"), in particular in Art. 244 and Art. 245 CRR, and to assess whether the institution's capital requirements can be reduced.

Eligibility criteria for qualifying for the SRT Fast-Track process

The ECB will in principle accept an SRT notification for a securitisation under the SRT Fast-Track process, if the following criteria are met:

• Size - A securitisation's total aggregated notional amount shall not exceed EUR 8 billion.
• Capital relief - in terms of CET1 by such originations shall not exceed 25 basis points.
• Granularity - At origination, at least 100 effective exposures must be assured, while no individual aggregate exposure value shall exceed 2 % of the pool's value.
• Underlying - Pool of securitised exposures shall only include credit risk exposures in the banking book which have defined periodic payment streams. Rental, principal, interest payments or similar rights may differ in their instalment amounts. However underlying exposures shall not include transferable securities, with the exception of non-listed corporate bonds.
• Performing Assets - No exposures in default under the Arti. 178 para. 1 CRR definition.
• Premiums - should be contingent on outstanding amounts to the protected tranche. Mechanisms which avoid allocation of losses to investors should not be featured in SRT transactions.
• Verification - Originators shall appoint a third-party verification agent as defined in Art. 26e para. 4 of the Securisation Regulation (EU) 2017/2402 ("Securitisation Regulation"), without the obligation to identify such in an SRT notification. Alternatively, self-assessment by internal audit may be allowed if protection agreements do not require third-party agents.
• Regulatory - Compliance with minimum criteria of CRR and applicable criteria for credit protection in this new guidance is ensured.

Additional criteria for securitisations with an internal risk-based ("IRB") approach:

• The limitations imposed by ECB directly impact K_irb and SEC-IRBA risk weights OR
• The bank conservatively includes relevant limitation(s) in the calculation of said risk weights when assessing SRTs AND
• commits to reflect their impact in regulatory reporting via a self-imposed margin of conservatism according to Art. 3 CRR.

For portfolios with no effects on their SEC-IRBA formulas from ECB imposed limitations, individual agreements with the ECB about the conservative approach should be made before any notifications of a securitisation under the SRT Fast-Track process. All following securitisations covered by an internal model agreed upon are subject to the SRT Fast-Track process.

Exclusion: Securitisations with at least one of the following features are not eligible for the SRT Fast-Track:

• First-time SRT securitisations (assessed at a group level), non-performing loans ("NPL") and any securitisation with defaulted exposures at origination according to Art. 178 para. 1 CRR.
• Securitisations with a ramp-up period for the securitised exposures or that incorporate full pro-rata amortisation or lack clearly specified contractual triggers for switching to sequential priority.
• Synthetic securitisations with synthetic excess spreads or securitisations that include any securitised exposure that meets the definition of leveraged transactions in accordance with the 2017 ECB guidance on leveraged transactions.
• Securitisations where the originating SI has close links with investors, or provides financing related to the investment in the securitisation and securitisations with individual early termination clauses that are not aligned with standard wording according to Annex 2 of the Public Guidance.

Description of the SRT Fast-Track process

• SIs intending to use the SRT Fast-Track process to recognize SRT in accordance with Art. 244 para. 2 or Art. 245 para. 2 CRR, should inform the ECB of their intention at least one month ahead of the expected closing date of the securitisation. The SRT Fast-Track notification should be made latest 10 working days before expected closing date in electronic form to:
  • srt_notifications@ecb.europa.eu AND
  • the respective Joint Supervisory Team (JST) of each originator institution.
• The SRT Fast-Track documentation is submittable to the ECB via the ASTRA portal and needs to contain:
  • The SRT Fast-Track template (as published by ECB),
  • Necessary legal and accounting opinions for traditional and synthetic securitisations, AND
  • A summary document outlining key elements of the securitisation (e.g. call options, triggers, amortization, use of proceeds, volatility adjustment, methodology for the calculation of cost of capital and capital relief, hedging).
    The closing documentation is to be submitted to the ECB not later than 15 working days after the securitisation's closing and includes a final version of the SRT Fast-Track template or confirmation of a former version as well as all documents foreseen in the Public Guidance.
• Supervisory Feedback from ECB:
  • In case of a positive outcome, the ECB will provide feedback to the SI at the latest 8 working days after receipt of the SRT Fast-Track notification via e-mail.
  • In case of a negative outcome, the ECB will inform the SI as to the unmet criteria and assess the notification in accordance with the Public Guidance, taking up to 3 months. A negative outcome hereunder will take the form of a formal ECB decision.
  • In case that SRT Fast-Track documentation differs from final documentation and certain criteria are not met, the ECB will undertake a comprehensive ex-post SRT assessment. A negative outcome hereunder will take the form of a formal ECB decision.
• The ECB may conduct further examinations, ensuring information from the SRT Fast-Track template is accurate. SIs remain solely responsible for correctness and reliability of data provided in the SRT Fast-Track process. In case of material inaccuracies, the ECB retains its right to exercise its supervisory powers.

Guidance to fill-in the SRT Fast-Track template and list of call options allowed in transactions

Annex 1 contains guidance on how to complete the SRT Fast-Track template. For each securitisation, in accordance with the required cashflow model and the technical implementation of the Commensurateness Risk Transfer ("CRT"), banks should submit to the ECB the template for cash flow models provided by the ECB, which contains 6 categories of tabs, covering the following aspects:

• Key information on the securitisation as well as on the eligility criteria for the SRT Fast-Track assessment.
• Quantitative elements on the securitised exposures.
• Input parameters needed to execute the cashflow model that include specific information (e.g. start and end date of the securitisation, portfolio size, risk parameters, recovery rate, etc.).
• Cashflow models with different scenarios.
• Results of the CRT test under all scenarios mentioned.
• Information on the cost of protection and of capital relief (for synthetic transactions).

Annex 2 provides for a list of call options that are allowed in SRT Fast-Track transactions.