The European Banking Authority ("EBA") published a consultation paper containing draft regulatory technical standards on risk retention requirements ("risk retention RTS") under the new European Union regulation on securitization (the "Securitization Regulation"). The new regulation is intended to lay down common rules on securitization and create a European framework for "simple, transparent and standardized" securitization.

The Securitization Regulation was signed by the President of the European Parliament and by the President of the Council of the European Union on December 12, 2017. In a memorandum, Cadwalader attorneys noted that the Securitization Regulation will apply to securitizations, the securities of which are issued (or where no securities are issued, the securitization positions of which are created) on or after the application date of January 1, 2019. As the Securitization Regulation does not contain full details of the securitization regime, the aim of the risk retention RTS is to provide greater detail on the risk retention requirement. The risk retention RTS are to be submitted by the EBA to the European Commission within six months of the date of entry of force of the Securitization Regulation.

The memorandum includes discussion of the following:

  • a comparison of the draft risk retention RTS provisions with those in the risk retention RTS made under the current regime;
  • transitional provisions in the Securitization Regulation regarding the application of the current risk retention RTS;
  • minimum risk retention levels set out in the Securitization Regulation and in the draft risk retention RTS;
  • prohibition of hedging or selling the retained net economic interest;
  • "Originator" definition for risk retention and the sole purpose test;
  • selection of assets to be securitized; and
  • jurisdictional scope of the "direct" obligation to comply with the risk retention requirements.

Going forward, the consultation period for commenting on the draft risk retention RTS will remain open until March 15, 2018. After the consultation period has ended, the EBA will finalize the risk retention RTS and submit them to the European Commission, who will then adopt them by way of a delegated EU Act. The attorneys encouraged industry participants to share their views on the proposals with the EBA or their trade associations.

The memorandum was authored by Suzanne Bell, Robert Cannon, Assia Damianova, Stephen Day, Neil Macleod, Sabah Nawaz, Claire Puddicombe, David Quirolo, Nick Shiren, Daniel Tobias and Jeremiah Wagner.

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