7. Criteria specific to on-balance-sheet securitisation

For the purposes of Article 26e(1), first subparagraph, of Regulation (EU) 2017/2402, the requirement for the credit protection agreement to cover at least the credit events set out in that subparagraph should not prevent the parties from agreeing on additional credit events or stricter definitions of the events referred to in Chapter 4 of Title II of Part Three of Regulation (EU) No 575/2013.

Credit protection payments (Article 26e(2) of Regulation (EU) 2017/2402)

Proportional to the share of the outstanding nominal amount of the underlying exposure

For the purposes of Article 26e(2) of Regulation (EU) 2017/2402, if the amount of the underlying exposure covered by the credit protection agreement is lower than the outstanding notional amount of the underlying exposure, the interim and final credit protection payments should be calculated in the same proportion (pro rata) to the share of the outstanding nominal amount covered by the credit protection agreement.

Determination of interim credit protection payment

For the purposes of Article 26e(2), second subparagraph, point (b), of Regulation (EU) 2017/2402, ‘where applicable’ should be understood as applicable only if the originator has received permission from the competent authority to apply the IRB Approach to determine the expected loss amount for the respective underlying exposure in respect of which the ‘higher of’ condition is being assessed, and where the rating system used for the underlying exposure has accordingly been assessed by the competent authority for use under the IRB Approach.

Expected loss amount

For the purposes of Article 26e(2) of Regulation (EU) 2017/2402, the expected loss amount should be calculated at the level of individual underlying exposures for which a credit event has occurred. As a derogation, the expected loss amount may be calculated at sub-pool level for retail exposures in accordance with the draft RTS on the calculation of KIRB in accordance with the purchased receivables approach, developed according to Article 255(9) of Regulation (EU) No 575/2013. Debt workout and credit protection premiums (Article 26e(3) of Regulation (EU) 2017/2402)

Contingent on the outstanding nominal amount of the performing securitised exposures at the time of the payment

For the purposes of Article 26e(3), third subparagraph, of Regulation (EU) 2017/2402, where the credit protection agreement covers the performing securitised exposures only in part, the credit protection premiums to be paid under the credit protection agreement should be structured as contingent on the part of the outstanding nominal amount of the performing securitised exposures that is covered by the credit protection agreement.

Third-party verification agent (Article 26e(4) of Regulation (EU) 2017/2402)

Party executing the verification

For the purposes of Article 26e(4) of Regulation (EU) 2017/2402, the third-party verification agent should meet both of the following conditions:

• a. it has the experience and capability to carry out the verification;
• b. it is none of the following:
• i. a credit rating agency;
• ii. a third party verifying STS compliance in accordance with Article 28 of Regulation (EU) 2017/2402;
• iii. an entity affiliated to the originator, sponsor, investor or SSPE.

Sample verification in the case of securitisations with mezzanine positions

For the purposes of Article 26e(4), third subparagraph, of Regulation (EU) 2017/2402, without prejudice to the right of investors to request the verification of the eligibility of any particular underlying exposure, for securitisations with mezzanine positions the parties to the securitisation may agree for the sample verification process to start after the detachment point of the first loss tranche decreases below a certain percentage of that detachment point determined at the closing date of the transaction.

Final loss amount

For the purposes of Article 26e(4), first subparagraph, point (e), of Regulation (EU) 2017/2402, the ‘final loss amount’ should be understood as the ‘originator’s final loss estimate’ referred to in Article 26e(3), first subparagraph, of that Regulation, where no final credit protection payment has been made for an underlying exposure subject to a credit event at the end of the extension period specified in the credit protection agreement. Early termination events by originator (Article 26e(5) of Regulation (EU) 2017/2402)

Calculation of the weighted average life of the initial reference portfolio

For the purposes of Article 26e(5), first subparagraph, point (d), of Regulation (EU) 2017/2402, the weighted average life (WAL) of the initial reference portfolio of underlying exposures should be calculated by time-weighting only the repayments of principal amounts and should not take into account any prepayment assumptions or any payments relating to fees or interest to be paid by the obligors of the underlying exposures.

Replenishment period or revolving period

For the purposes of Article 26e(5), first subparagraph, point (d), of Regulation (EU) 2017/2402, in the case of the existence of a replenishment or revolving period, the WAL should be the sum of the replenishment or revolving period and the estimated WAL calculated at the end of the replenishment or revolving period. For this estimation, for each securitised exposure maturing before the end of the replenishment or revolving period, the originator should adjust the scheduled maturity to equal the sum of its current maturity and the longest permitted maturity of an exposure that is eligible to be added to the securitised portfolio during the replenishment or revolving period. The adjustments should be made as many times as necessary for that purpose when the term of the adjusted maturity is shorter than the term of the replenishment or revolving period.

Investor

For the purposes of Article 26e(5), first paragraph, point (b), in the case of credit-linked notes issued by an SSPE, the reference to the investor should be understood as a reference to the SSPE or any protection provider which has entered into the credit protection agreement with the originator.

Synthetic excess spread (Article 26e(7) of Regulation (EU) 2017/2402)

Calculation of one-year expected loss

For the purposes of Article 26e(7) of Regulation (EU) 2017/2402, the one-year regulatory expected loss amounts on all underlying exposures for that year should be calculated taking into account a number of payment periods equivalent to one year, and by multiplying the percentage that the expected loss amount represented on the securitised exposures at the closing date of the transaction with the total outstanding portfolio balance of the performing securitised exposures at the beginning of that one year period.

For the purposes of Article 26e(7), point (a), of Regulation (EU) 2017/2402, the term ‘ fixed synthetic excess spread ’ refers to the amount of the synthetic excess spread that the originator commits to using as credit enhancement every period. This amount is expressed as the product of a fixed percentage of the outstanding performing portfolio balance every period.

For the purposes of Article 26e(7), point (d), of Regulation (EU) 2017/2402, for the originators not using the IRB Approach referred to in Article 143 of Regulation (EU) No 575/2013 the calculation of the ‘one - year expected loss’ should be done in accordan ce with the risk provisioning under the applicable accounting framework or, where that approach results in a loss coverage that is not sufficiently representative of the expected future losses on the securitised exposures, the originator institution should model expected loss amounts based on other internal risk parameters, such as those considered in its internal capital adequacy assessment process (ICAAP), which should be clearly set out in the transaction documentation.

Using the IRB Approach for the purposes of point (c)

Article 26e(7), point (c), of Regulation (EU) 2017/2402, should apply where the originator determines the own funds requirements using the IRB Approach referred to in Article 143 of Regulation (EU) No 575/2013 for the entire pool of underlying exposures.

Payment period

For the purposes of Article 26e(7), point (a), the term ‘ payment period ’ should be understood to refer to the period in which the synthetic excess spread is designated in accordance with the transaction documentation.

Requirements for recourse to high-quality collateral (Article 26e(10) of Regulation (EU) 2017/2402)

Acceptable collateral

For the purposes of Article 26e(10), first subparagraph, point (a), of Regulation (EU) 2017/2402, the term ‘collateral in the form of 0% risk - weighted debt securities’ should be understood as collateral in the form of debt securities issued by those entities to which a 0% risk weight is assigned in accordance with Part Three, Title II, Chapter 2, of Regulation (EU) No 575/2013.

Maturity requirements with regard to acceptable high-quality collateral

Article 26e(10), first subparagraph, point (a)(i), of Regulation (EU) 2017/2402 should be understood to refer to debt securities which, irrespective of their original maturity, have a remaining maturity of no more than three months. Where the period until the next payment date under the credit protection agreement is less than three months, the remaining maturity of the debt securities should be no longer than that period in order to avoid any maturity mismatch between the date when the debt securities are repaid and the next payment date under the credit protection agreement. Investments in credit-linked notes

For the purposes of Article 26e(10), first subparagraph, point (b), of Regulation (EU) 2017/2402, the requirement relating to the collateral in the form of cash should be considered to be fulfilled in the case of investments in credit-linked notes issued by the originator in accordance with Article 218 of Regulation (EU) No 575/2013.