New securitisation regulation regime readiness

We helped our client to prepare their infrastructure for a material change in securitisation regulation

The challenge

Since the 2017, securitisation markets have remained subdued, in large part because of the US originated sub-prime crisis, where highly rated securities suffered significant default rates. On the other hand, equivalently rated European securities suffered default rates far below their US counterparts. As part of the European Capital Markets Union directive, reinvigoration of securitisation is seen as a key component to jobs and growth – and could generate some EUR 150 billion into the economy. Within this context, a revised securitisation framework is mandated across the Union, and these rules aim to differentiate simple, transparent and standardised (STS) securitisation products from more opaque and complex ones. STS compliant securitisations will receive a lower risk weight floor than non-STS securitisations. Compliance with the new regulatory framework involves new RWA and Capital calculation methods for internal model, standardised and external approaches, requiring new and more risk sensitive parameter inputs.

Our approach

We helped our client achieve a state of readiness ahead of the new regulatory framework. Our scope encompassed front office origination and structuring, middle office credit approval and audit plus end-to-end capital chain processing and reporting – spanning numerous existing and inter-dependent technology systems. Our work involved, but was not limited to:

  • defining data, calculation and risk parameter input requirements
  • sourcing new data, especially granular loan-level asset pools
  • coordinating requirement enhancements across the group capital processing and reporting infrastructure
  • defining data ownership and governance from front-office through to regulatory reporting
  • producing best in class reference documentation to serve internal and external (regulator) purposes

Our impact

Through a small, senior team we delivered a focused and direct path to successful compliance, and a low-client overhead to accomplish readiness, given the complex structured finance subject matter.