Further to the release of a Consultative Document in December 2014 which proposed a set of Criteria for identifying "Simple, Transparent and Comparable" (STC) securitisations (see Edition 14 of this SCM Briefing for a detailed summary), the Basel Committee and International Organisation of Securities Commissions (IOSCO) have taken into account the feedback received during the consultation process and in July 2015 released their final set of global Criteria for identifying STC securitisations. The STC Criteria apply only to term transactions and are non-exhaustive and non-binding (with additional Criteria to be added over time where necessary, possibly considering short-term instruments such as asset-backed commercial paper (ABCP)). Setting out the objectives of simple, transparent and comparable securitisations, the Criteria are intended to help transaction parties evaluate the risks of a particular securitisation across similar products, and assist investors with their due diligence (although they are not a substitute for that due diligence). Based on feedback to the Consultative Document, some technical amendments have been made to the 14 Criteria, such that the final Criteria (which are "mapped" to the three key types of risk in the securitisation process - asset risk, structural risk and fiduciary and servicer risk) are less prescriptive and more clearly articulated than originally proposed. The European Commission's proposed legislative framework for "Simple, Transparent and Standardised" (STS) securitisations under the Capital Markets Union (CMU) Action Plan (for detail on which, please see the Feature Piece in this Edition of the SCM Briefing) build on the Basel Committee / IOSCO Criteria, although the CMU legislative proposals go further in terms of extending the STS legislative framework to encompass short-term (ABCP) transactions. Both the STC Criteria and the STS legislative framework envisage that a more risk-sensitive prudential treatment could be applied to these transactions in future. The Basel Committee is currently exploring how the STC Criteria could be incorporated into its already-finalised Revisions to the Securitisation Framework which take effect from 1 January 2018 (and which we summarised at length in Edition 14 of this SCM Briefing), and the Commission's framework to some extent anticipates that work-stream by proposing an accompanying legislative proposal amending the Capital Requirements Regulation to adjust the regulatory capital requirements for (all) securitisations and then "recalibrate" that framework for STS deals.
Basel Committee and IOSCO Criteria for Identifying Simple, Transparent and Comparable Securitisations