European Commission Adopts Rules on Securitisation Risk Retention

On 7 July 2023, the European Commission (“EC”) approved the text of a delegated regulation supplementing the EU Securitisation Regulation (the “EUSR”) regarding regulatory technical standards on risk retention (the “RR RTS”). The RR RTS were one of the last rulemakings left to be finalised under the EUSR.

Broadly, Article 6 of the EUSR requires the originator, sponsor or original lender of a securitisation to retain, on an ongoing basis, a material net economic interest in the securitisation of not less than 5%. Such net economic interest can be held in one of five ways permitted by Article 6. The RR RTS detail, among other things, the various permissible methods of retaining risk, measuring the level of retention, and the prohibition on hedging or selling the retained interest to ensure that the relevant parties have sufficient “skin in the game” in the securitisation.

The RR RTS were initially published in draft form by the European Banking Authority in July 2018. After a consultation in June 2021, a revised final draft was published in April 2022. The RR RTS as adopted by the EC adds a new Article addressing the fulfilment of the risk retention requirement when an entity securitises its own issued debt instruments. Otherwise, the text is substantively similar to the earlier drafts.

The RR RTS will now be subject to scrutiny by the European Parliament and Council, following which the final text will be published in the Official Journal and will enter into force following the 20th day of its publication. Upon entering into force, the RR RTS will replace the previous risk retention rules, set out in technical standards published under the EU Capital Requirements Regulation (Commission Delegated Regulation (EU) 625/2014).

 The text of the RR RTS can be found here.