4. Criteria relating to simplicity

For the purposes of Article 26b(3) of Regulation (EU) 2017/2402, the term balance sheet should be interpreted as the accounting balance sheet of the originator or of an entity that belongs to the same group as the originator.

No double hedging (Article 26b(4) of Regulation (EU) 2017/2402)

Hedge beyond the protection obtained through the credit protection agreement

The criterion in accordance with Article 26b(4) of Regulation (EU) 2017/2402 should be understood to disallow multiple credit protection in respect of the credit risk of the pool of underlying exposures, irrespective of whether such additional credit protection relates to protection against the credit risk of a tranche, part of a tranche or an underlying exposure, so as to ensure that the credit risk of the pool of underlying exposures is not hedged more than once.

For the purposes of Article 26b(4) of Regulation (EU) 2017/2402, separate credit protection provided for separate tranches, separate parts of the tranches or separate underlying exposures under the credit protection agreement should not be considered as a hedge beyond the protection obtained through the credit protection agreement.

Representations and warranties (Article 26b(6) of Regulation (EU) 2017/2402)

An entity of the group to which the originator belongs

For the purpose of Article 26b(6) of Regulation (EU) 2017/2402, the ‘group’ should be interpreted as the consolidated group to which the entity belongs for accounting or prudential purposes.

An entity which is included in the scope of supervision on a consolidated basis

For the purposes of Article 26b(6) of Regulation (EU) 2017/2402, the ‘entity which is included in the scope of supervision on a consolidated basis' should be interpreted within the meaning of Article 26b(3) of that Regulation.

No less stringent underwriting standards

For the purposes of Article 26b(6), point (e), of Regulation (EU) 2017/2402, the underwriting standards applied to securitised exposures should be compared to the underwriting standards applied to similar exposures at the time of origination of the securitised exposures.

Compliance with the previous paragraph should not imply that either the originator or the original lender is required to hold similar exposures on its balance sheet at the time of the selection of the securitised exposures or at the exact time of their securitisation, nor should it require that similar exposures were actually originated at the time of origination of the securitised exposures.

To the best of the originator’s knowledge

For the purposes of Article 26b(6), point (f), of Regulation (EU) 2017/2402, the ‘best knowledge’ standard should be considered to be fulfilled where the originator uses information obtained from any of the following sources and circumstances or from any combination of those sources and circumstances:

• a. information on obligors obtained at the origination of the exposures;
• b. i nformation obtained in the course of the originator’s servicing of the exposures or in the course of its risk management procedures;
• c. notifications to the originator by a third party;
• d. publicly available information or information on any entries in one or more credit registries of persons with adverse credit history at the time of origination of an underlying exposure, only to the extent that this information had already been taken into account in the context of the information referred to in points (a), (b) or
• (c) above, and in accordance with the applicable regulatory and supervisory requirements, including with respect to sound credit granting criteria as specified in Article 9 of Regulation (EU) 2017/2402.

Eligibility criteria, active portfolio management (Article 26b(7) of Regulation (EU) 2017/2402)

Active portfolio management

For the purposes of Article 26b(7) of Regulation (EU) 2017/2402, active portfolio management should be understood as portfolio management to which either of the following applies:

• a. the portfolio management makes the performance of the securitisation dependent on both the performance of the underlying exposures and the performance of the portfolio management of the securitisation, thereby preventing the investors from modelling the credit risk of the underlying exposures without considering the portfolio management strategy of the portfolio manager;
• b. the portfolio management is performed for speculative purposes aiming to achieve better performance, increased yield, overall financial returns or other purely financial or economic benefit.

The techniques of portfolio management that should not be considered active portfolio management include:

• a. substitution of the underlying exposures that are subject to regulatory dispute or investigation, where the purpose of such substitution is the facilitation of the resolution of that dispute or the end of the investigation;
• b. acquisition of new underlying exposures during the ‘ramp - up’ period to increase the value of the underlying exposures up to the value of the securitisation obligations.

Clear eligibility criteria

For the purposes of Article 26b(7) of Regulation (EU) 2017/2402, the eligibility criteria should be understood to be ‘clear’ where compliance with them is possible to be determined by a court or tribunal, as a matter of law or fact or both.

Eligibility criteria to be met for exposures added after the closing of the transaction

For the purposes of Article 26b(7) of Regulation (EU) 2017/2402, meeting ‘ eligibility criteria that are no less stringent than those applied in the initial selection of the underlying exposures’ should be understood to mean that eligibility criteria are no less strict than the eligibility criteria applied to the initial underlying exposures at the closing of the transaction.

Eligibility criteria to be applied to the underlying exposures in accordance with the previous paragraph should be specified in the transaction documentation and should refer to eligibility criteria applied at exposure level.

Permitted removals

Article 26b(7), fourth subparagraph, of Regulation (EU) 2017/2402 lays down an exhaustive list of circumstances under which an underlying exposure may be removed from the transaction.

Homogeneity, obligations of the underlying exposures, periodic payment streams, no transferable securities (Article 26b(8) of Regulation (EU) 2017/2402)

Contractually binding and enforceable obligations

For the purposes of Article 26b(8), second subparagraph, of Regulation (EU) 2017/2402, ‘obligations that are contractually binding and enforceable, with full recourse to debtors and, where applicable, guarantors’ should be understood to refer to all obliga tions contained in the contractual specification of the underlying exposures that are relevant to investors because they affect any obligations on the debtor and, where applicable, the guarantor to make payments or provide security.

Exposures with periodic payment streams

For the purposes of Article 26b(8), third subparagraph, of Regulation (EU) 2017/2402, exposures with defined periodic payment streams should include:

• a. exposures payable in a single instalment in the case of revolving securitisation, as referred to in Article 26b(12), point (a), of Regulation (EU) 2017/2402;
• b. exposures related to credit card facilities;
• c. exposures with instalments consisting of interest and where the principal is repaid at maturity, including interest-only mortgages;
• d. exposures with instalments consisting of interest and repayment of a portion of the principal, where either of the following conditions is met:

• e. exposures with temporary payment holidays as contractually agreed between the debtor and the lender.

Underwriting standards, originator’s expertise (Article 26b(10) of Regulation (EU) 2017/2402)

Disclosure of material changes from prior underwriting standards

For the purposes of Article 26b(10), first subparagraph, of Regulation (EU) 2017/2402, material changes to the underwriting standards that are required to be fully disclosed should be understood to be those material changes to the underwriting standards that are applied to the exposures that are added to the pool of underlying exposures after the closing of the securitisation in the context of replenishment or portfolio management as referred to in paragraphs 20 and 21.

Changes to such underwriting standards should be deemed material where they refer to either of the following types of changes to the underwriting standards:

• a. changes that affect the requirement of the similarity of the underwriting standards further specified in Article 1, first paragraph, point (b), of Delegated Regulation (EU) 2019/1851;
• b. changes that materially affect the overall credit risk or expected average performance of the pool of underlying exposures without resulting in substantially different approaches to the assessment of the credit risk associated with the underlying exposures.

The disclosure of all changes to underwriting standards should include an explanation of the purpose of such changes.

With regard to trade receivables which are not originated in the form of a loan, the reference to underwriting standards in Article 26b(10), first subparagraph, of Regulation (EU) 2017/2402 should be understood to refer to credit standards applied by the seller to short-term credit of the same type giving rise to the securitised exposures in the context of payment targets agreed with its customers in relation to the sales of its products and services.

Residential loans

In accordance with Article 26b(10), second subparagraph, of Regulation (EU) 2017/2402, the pool of underlying exposures has not to include residential loans that were both marketed and underwritten on the premise that the loan applicant or intermediaries were made aware that the information provided might not be verified by the lender.

Residential loans that were underwritten but were not marketed on the premise that the loan applicant or intermediaries were made aware that the information provided might not be verified by the lender, or that the loan applicant or intermediaries become aware after the loan was underwritten, should not be deemed to be captured by this requirement.

For the purposes of Article 26b(10), second subparagraph, of Regulation (EU) 2017/2402, the ‘information’ provided should be considered to include relevant information only. The relevance of the information should be based on whether the information is a relevant underwriting metric, such as information considered relevant for assessing a borrower’s creditworthiness, for assessing access to collateral and reducing the risk of fraud.

Relevant information for general non-income-generating residential mortgages should normally be considered to constitute income, and relevant information for income-generating residential mortgages should normally be considered to constitute rental income. Information that is not useful as an underwriting metric, such as mobile phone numbers, should not be considered relevant information.

Equivalent requirements in third countries

For the purposes of Article 26b(10), third subparagraph, of Regulation (EU) 2017/2402, the assessment of the creditworthiness of borrowers in third countries should be carried out based on the following principles, where appropriate, as specified in Directives 2008/48/EC and 2014/17/EC:

• a. before the conclusion of a credit agreement, on the basis of sufficient information, the lender assesses the borrower’s creditworthiness on the basis of sufficient information, where appropriate obtained from the borrower and, where necessary, on the basis of a consultation of the relevant database;
• b. if the parties agree to change the total amount of credit after the conclusion of the credit agreement, the lender should update the financial information at its disposal concerning the borrower and should assess the borrower’s creditworthiness before any significant increase in the total amount of credit;
• c. the lender should make a thorough assessment of the borrower’s creditworthiness before concluding a credit agreement, taking appropriate account of factors relevant to verifying the prospect of the borrower’s meeting his or her obligations under the credit agreement;
• d. the procedures and information on which the assessment is based should be documented and maintained;
• e. the assessment of creditworthiness should not rely predominantly on the value of the residential immovable property exceeding the amount of the credit or the assumption that the residential immovable property will increase in value unless the purpose of the credit agreement is to construct or renovate the residential immovable property;
• f. the lender should not be able to cancel or alter the credit agreement once concluded to the detriment of the borrower on the grounds that the assessment of creditworthiness was incorrectly conducted;
• g. the lender should make the credit available to the borrower only where the result of the creditworthiness assessment indicates that the obligations resulting from the credit agreement are likely to be met in the manner required under that agreement;
• h. the borrower’s creditworthiness should be reassessed on the basis of updated information before any significant increase in the total amount of credit is granted after the conclusion of the credit agreement unless such additional credit was envisaged and included in the original creditworthiness assessment.

Criteria for determining the expertise of the originator or original lender

For the purposes of determining whether an originator or original lender has expertise in originating exposures of a similar nature to those securitised in accordance with Article 26b(10), fourth subparagraph, of Regulation (EU) 2017/2402, both of the following should apply:

• a. the members of the management body of the originator or original lender and the senior staff, other than the members of the management body, responsible for managing the originating of exposures of a similar nature to those securitised should have adequate knowledge and skills in the origination of exposures of a similar nature to those securitised;
• b. any of the following principles on the quality of the expertise should be taken into account:

An originator or original lender should be deemed to have the required expertise when either of the following applies:

• a. the business of the entity, or of the consolidated group to which the entity belongs for accounting or prudential purposes, has included the origination of exposures similar to those securitised for at least five years;
• b. where the requirement referred to in point (a) is not met, they comply with both of the following:

For the purposes of demonstrating the number of years of professional experience, the relevant expertise should be disclosed in sufficient detail and in accordance with the applicable confidentiality requirements to permit investors to carry out their obligations under Article 5 of Regulation (EU) 2017/2402.

Exposures of a similar nature

For the purposes of Article 26b(10), fourth subparagraph, of Regulation (EU) 2017/2402, exposures should be considered to be of a similar nature if one of the following conditions is met:

• a. the exposures belong to one of the asset categories referred to in Article 1, first paragraph, points (a)(i) to (a)(iii) or (a)(v) to (a)(vii), of Delegated Regulation (EU) 2019/1851;
• b. the exposures belong to the asset category referred to in Article 1, first paragraph, point (a)(iv), of Delegated Regulation (EU) 2019/1851, and to the same type of obligor referred to in Article 2(3), point (a), of that Regulation;
• c. the exposures belong to the asset category referred to in Article 1, first paragraph, point (a)(viii), of Delegated Regulation (EU) 2019/1851, and they share similar characteristics with respect to any of the homogeneity factors referred to in Article 2(6) of that Regulation.

No exposures in default and to credit-impaired debtors/guarantors (Article 26b(11) of Regulation (EU) 2017/2402)

Exposures in default

For the purposes of Article 26b(11) of Regulation (EU) 2017/2402, the exposures in default should be interpreted within the meaning of Article 178(1) of Regulation (EU) No 575/2013, as further specified by the Delegated Regulation on the materiality threshold for credit obligations past due developed in accordance with Article 178(6) of that Regulation, and by the EBA Guidelines on the application of the definition of default developed in accordance with Article 178(7) of that Regulation.

Where an originator or original lender is not an institution and is therefore not subject to Regulation (EU) No 575/2013, the originator or original lender should comply with the guidance provided in the previous paragraph to the extent that such application is not deemed to be unduly burdensome. In that case, the originator or original lender should apply the established processes and the information obtained from debtors on origination of the exposures, information obtained from the originator in the course of its servicing of the exposures or in the course of its risk management procedures, or information notified to the originator by a third party.

Exposures to a credit-impaired debtor or guarantor

For the purposes of Article 26b(11) of Regulation (EU) 2017/2402, the circumstances specified in points (a) to (c) of that paragraph should be understood as definitions of credit-impairedness. Other possible circumstances of credit-impairedness that are not captured in points (a) to (c) should be understood to be excluded from this requirement.

The prohibition of the inclusion of underlying exposures ‘to a credit -impaired debtor or guarantor’ in the pool of underlying exposures as referred to in Article 26b(11) of Regulation (EU) 2017/2402 should be understood as the requirement that, at the time of selection, there should be recourse for the full securitised exposure amount to at least one non-credit-impaired party, irrespective of whether that party is a debtor or a guarantor. Therefore, the underlying exposures should not include either of the following:

• a. exposures to a credit-impaired debtor, when there is no guarantor for the full securitised exposure amount;
• b. exposures to a credit-impaired debtor who has a credit-impaired guarantor.

To the best of the originator’s or original lender’s knowledge

For the purposes of Article 26b(11) of Regulation (EU) 2017/2402, the ‘best knowledge’ standard should be considered to be fulfilled on the basis of information obtained only from any of the following combinations of sources and circumstances:

• a. debtors on the origination of the exposures;
• b. the originator in the course of its servicing of the exposures or in the course of its risk management procedures;
• c. notifications to the originator by a third party;
• d. publicly available information or information on any entries in one or more credit registries of persons with adverse credit history at the time of origination of an underlying exposure, only to the extent that this information had already been taken into account in the context of (a), (b) and (c), and in accordance with the applicable regulatory and supervisory requirements, including with respect to sound credit granting criteria as specified in Article 9 of Regulation (EU) 2017/2402. This is with the exception of trade receivables that are not originated in the form of a loan, with respect to which credit granting criteria do not need to be met.

Exposures to credit-impaired debtors or guarantors that have undergone a debt restructuring process

For the purposes of Article 26b(11), point (a), of Regulation (EU) 2017/2402, the requirement to exclude exposures to credit-impaired debtors or guarantors that have undergone a debt restructuring process with regard to their non-performing exposures should be understood to refer to both the restructured exposures of the respective debtor or guarantor and those of its exposures that were not themselves subject to restructuring. For the purposes of this paragraph, restructured exposures which meet the conditions of Article 26b(11), points (a)(i) and (a)(ii), of Regulation (EU) 2017/2402 should not result in a debtor or guarantor becoming designated as credit-impaired. Credit registry

The requirement referred to in Article 26b(11), point (b), of Regulation (EU) 2017/2402 should be understood as being limited to exposures to debtors or guarantors to which both of the following conditions apply at the time of origination of the underlying exposure:

• a. the debtor or guarantor is explicitly flagged in a credit registry as an entity with adverse credit history due to a negative status or negative information stored in the credit registry;
• b. the debtor or guarantor is on the credit registry for reasons that are relevant to the purposes of the credit risk assessment.

Risk of contractually agreed payments not being made being significantly higher than for comparable exposures

For the purposes of Article 26b(11), point (c), of Regulation (EU) 2017/2402, the credit-impaired debtors or guarantors of exposures should not be considered to have a ‘credit assessment or a credit score indicating that the risk of contractually agreed payments not being made is significantly higher than for comparable exposures of other credit-impaired debtors or guarantors held by the originator which are not securitised’ when both of the following conditions apply:

• a. the most relevant factors determining the expected performance of the underlying exposures and the comparable exposures are similar;
• b. as a result of the similarity referred to in point (a) it could reasonably have been expected, on the basis of indications such as past performance or the applicable models, that, over the life of the transaction or over a maximum of four years, where the life of the transaction is longer than four years, the performance of the underlying exposures would not be significantly worse than that of the comparable exposures.

The conditions in the previous paragraph should be considered to have been met where either of the following applies:

• a. the underlying exposures do not include exposures that are classified as doubtful, impaired or non-performing, or classified to a similar effect under the relevant accounting principles;
• b. the underlying exposures do not include exposures to debtors or guarantors whose credit quality, based on credit ratings or other credit quality thresholds, is significantly worse than the credit quality of debtors or guarantors of comparable exposures that the originator originates in the course of its standard lending operations and credit risk strategy. At least one payment made (Article 26b(12) of Regulation (EU) 2017/2402)

Scope of the criterion

For the purposes of Article 26b(12) of Regulation (EU) 2017/2402, further advances and drawings in terms of one exposure or a restructuring of the same exposure to a certain borrower should not be deemed to trigger a new ‘at least one payment’ requirement with respect to such an exposure.

For the purposes of Article 26b(12) of Regulation (EU) 2017/2402, the intended selection of a different separate exposure to the same borrower should trigger a new ‘at least one payment’ requirement with respect to such an exposure.

At least one payment

For the purposes of Article 26b(12) of Regulation (EU) 2017/2402, the payment referred to in the requirement according to which ‘at least one payment’ should have been made at the time of the inclusion of the underlying exposures should be a rental, principal or interest payment or any other kind of ordinary payment specified in the contractual agreement related to the exposure.