Cadwalader attorneys analyzed updated amendments to the EU Capital Requirements Regulation ("CCR"), which are designed to reduce regulatory burden to non-EU subsidiaries that are engaged in local securitization in non-EU countries. The updated amendments to Article 14 of CCR will become effective June 27, 2019.

As described more fully in the Cadwalader memorandum, Article 14 of CCR, as amended by the 2017 CRR Amendment Regulation, enacts (i) requirements concerning transparency, risk retention, due diligence and criteria for credit-granting and (ii) the ban on re-securitization to EU institutions subject to the CRR on a consolidated basis. The drafting of Article 14 provided that all of these requirements could apply on a consolidated basis to a non-EU subsidiary of an EU bank, requiring such a subsidiary to comply both with the EU transparency and risk retention requirements, and with any locally applicable rules.

On November 30, 2018, European Supervisory Authorities ("ESAs") made a joint statement, highlighting the difficulties that would arise for non-EU subsidiaries that are engaged in local securitization in non-EU countries. Specifically, ESAs noted that it would be difficult for non-EU subsidiaries to comply with the EU transparency and risk retention requirements. ESAs acknowledged that these practical issues were an unforeseen consequence of the 2017 CRR Amendment Regulation and indicated that these issues would be addressed through a further amendment in the wider CRR II / CRD V project.

The revised version of Article 14 of CRR replaces a reference to Chapter 2 of the Securitization Regulation (which sets out all of the key requirements under that law, including risk retention and transparency). Instead, the CRR will apply the Securitization Regulation's Article 5 due diligence requirements only on a consolidated basis.

This memorandum was authored by Suzanne Bell, Robert Cannon, Stephen Day, Claire Puddicombe, David Quirolo, Nick Shiren, Daniel Tobias and Michael Sholem.

Commentary / Robert Cannon

In practice, non-EU subsidiaries of EU banks have a reprieve from complying with the most onerous aspects of the Securitisation Regulation including retention and transparency. They will, however, be required to comply with the due diligence requirements. This effectively puts such entities in the same position they were in prior to the Securitisation Regulation becoming effective.

It will certainly be a relief to securitisation market participants to have this clarification added to the CRR, as previously participants had been relying on national regulators taking a risk-based, proportionate approach in determining not to enforce the original wider requirements of Article 14 after the Securitisation Regime took effect on 1 January 2019.