Articles 94 to 96, paragraphs (1) and (5) of Article 97 , Article 99, Article 100(1) and Article 101;
Points 8 and 9 of Annex V; and
Parts 2, 3 (in part) and 4 of Annex IX;
of the Banking Consolidation Directive.
Since transactions may be structured in many different ways, the capital treatment of a position should be determined on the basis of its economic substance rather than merely its legal form. A firm should look to the economic substance of a transaction to determine whether the securitisation framework is applicable for purposes of determining regulatory capital. A firm should consult the appropriate regulator when there is uncertainty about whether a given transaction should be considered a securitisation.
The risks arising from securitisation transactions in relation to which a firm is investor,3 originator or sponsor, including reputational risks,3 must be evaluated and addressed through appropriate policies and procedures, to ensure in particular that the economic substance of the transaction is fully reflected in risk assessment and management decisions.
[Note: BCD Annex V point 8]3
The appropriate regulator expects an originator to continue to monitor any risks that it may be subject to when it has excluded the securitised exposures from its calculation of risk weighted exposure amounts. The originator should consider capital planning implications where risks may return and the impact that securitisation has on the quality of the remaining exposures held by the originator.
The appropriate regulator expects firms to conduct regular stress testing in relation to their securitisation activities and off-balance sheet exposures. The stress tests should consider the firm-wide impact of those activities and exposures in stressed market conditions and the implications for other sources of risk, for example, credit risk, concentration risk, counterparty risk, market risk, liquidity risk and reputational risk. Stress testing of securitisation activities should take into account both existing securitisations and pipeline transactions, as there is a risk that these would not be completed in a stressed market scenario.2
BIPRU 9 deals with:
- (1) 3