EU recast risk retention rules are one step closer to being finalised

In May 2022 we shared with you some of our thoughts on the European Banking Authority (EBA) final report on the revised draft risk retention technical standards (the 2022 Draft RTS). To read our earlier briefing on the EBA final advice, please see link below.

We have been waiting for over a year for the European Commission to make a decision on the 2022 Draft RTS. Finally, on 7 July 2023, the Commission endorsed the 2022 Draft RTS and published the Commission-adopted text on the Register of Commission Documents (the 2023 Draft RTS).

While in a number of places the 2023 Draft RTS have been amended compared to the 2022 Draft RTS, on balance, in our view, the changes are not material and it remains to be the case that various guidance is open to interpretation. Therefore, the position on the analysis of the recast risk retention guidance, some of which we discussed in our earlier briefing, largely remains the same.

In terms of the next steps, these are largely procedural and will not give rise to any material changes. That is, the Commission-adopted text will now be subject to scrutiny by the European Parliament and Council, which can take two months. It is expected that the Parliament and Council will sign off the 2023 Draft RTS without raising any objection, following which the final text will be published in the Official Journal and will enter into force on the 20th day of its publication.

Once the final recast risk retention RTS enters into force (likely at some point in Q4 2023/Q1 2024), the transitional provisions under Article 43(7) of the EU Securitization Regulation that provide for continued application of Chapters I, II and III and Article 22 of the pre-2019 risk retention RTS (Delegated Regulation (EU) 625/2014) will fall away. At that point, the final recast risk retention RTS will apply to all new and existing securitizations in-scope of the EU Securitization Regulation.

From the perspective of the UK Securitization Regulation, this development is relevant to consider on UK securitizations for the purposes of the EU institutional investor due diligence requirements. In addition, later in 2023, we also expect to see a consultation on the recast UK risk retention rules and it will be interesting to see to what extent UK supervisors follow the Commission-adopted text when proposing revised and new guidance on UK risk retention.

We encourage interested clients to contact us with any questions. Click here for contact details of our global securitization team.

Read here our alert from May 2022 on the EBA Final Advice.