Commission Delegated Regulation (EU) 2023/2175 of 7 July 2023 on supplementing Regulation (EU) 2017/2402 of the European Parliament and of the Council with regard to regulatory technical standards specifying in greater detail the risk retention requirements for originators, sponsors, original lenders, and servicers

New Commission Delegated Regulation (EU) 2023/2175 specifying the risk retention requirements under the Securitization Regulation (SECR) was published in the Official Journal (OJ) of the EU. The delegated regulation aims to harmonize risk retention practices of originators, sponsors, and servicers and specify various ways to fulfill the risk retention requirement, including the use of synthetic or contingent retention.
Among others, the new delegated regulation
– retains the 5% risk retention threshold which requires that the net economic interest in securitizations of the originator, sponsor, original lender, or servicer (subsequently also called „retainer“) amounts to 5% of the final securitization offered to investors and defines how such retention is to be split up in case more than one original lender or originator fulfills the retention requirement (pro-rated or in accordance with defined criteria);
– specifies that an entity solely established for purposes of securitizing exposures is not considered the originator of the securitization for purposes of the risk retention requirement;
– defines the methods for retaining the 5% net economic interest;
– specifies the criteria to be applied for compliance with asset selection requirements and determination of comparable assets;
– generally permits synthetic or contingent form of retention. However, if an entity other than a financial institution or insurance/reinsurance undertaking retains an economic interest through a synthetic or contingent form of retention, that interest should be fully collateralized in cash and held under specified arrangements;
– permits retainers the hedge of the net economic interest provided that such hedge is not for the purpose of hedging the „credit risk of either the retained securitization positions or the retained exposures“;
– permits retainers to use the retained net economic interest as collateral provided that certain conditions are met (the risk of the net economic interest must NOT be transferred to a third party);
– permits that a retainer be changed in case of exceptional circumstances such as insolvency of the retainer;
– requires that if the retainer belonging to a group is no longer included in the scope of supervision, one or more entities within the group should assume an exposure to the securitization;
– specifies that entities that securitize their own issued debt instruments will be considered in compliance with the retention requirements, provided that the underlying pool comprises solely debt instruments issued by same entities;
– clarifies how the retention requirement is to be met in the case of permitted re-securitizations as defined in Article 8 of the SECR („a retainer shall retain the material net economic interest in relation to each of the respective transaction levels“); and
– specifies skill requirement on the servicer of traditional NPE securitisations
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As these are only the key provisions provided in the new delegated regulation, please refer to the original legal document for more detailed, comprehensive information.