Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) No 575/2013 as regards to Adjustments to the Securitization Framework to Support the Economic Recovery in Response to the COVID-19 Pandemic.

In order to address the impact on the citizens, companies, health systems, economies and environmental conditions of member states, the European Commission (‘EC’) has proposed an amendment to adjust the securitization framework in order to support economic recovery and encourage environmental sustainability. The EC High-Level Expert Group on Sustainable Finance will assess the introduction and preferential treatment of sustainability factors, the implementation of disclosure and due diligence requirements, and the related impacts, potential effects, and bank lending capacity. The European Banking Authority (‘EBA’) in conjunction with the European Systemic Risk Board (‘ESRB’) will then consider whether dedicated prudential treatment of exposures related to assets, securitizations and other activities substantially associated with environmental objectives would be justified. The EC, EBA and ESRB will report on this assessment by 31 December 2021.

The proposed amendment aligns the regulation with the Basel III framework to assist institutional strategies to securitize non-performing exposures (NPEs) after the pandemic. An unregulated provider of unfunded credit protection is now required to have credit quality step 2 at inception, and step 3 thereafter. There is also a mandate to closely monitor NPE securitizations and requires the submission of reports to the European Parliament and Commission, reviewing the regulatory capital treatment of such securitizations. There is also a grandfathering rule applied to outstanding senior positions in synthetic securitizations which applied the current Article 270.

Link to resource