Prudential Regulation Authority Rulebook

4.1

Originators must transfer a significant amount of credit risk associated with securitised exposures to third parties to be able to apply the securitisation risk weights set out in Chapter 5 of the CRR, and any associated reduction in capital requirements must be matched by a commensurate transfer of risk to third parties.

4.2

As part of the notification and permissions process, the PRA expects a firm to inform it of the methodology the firm intends to use to calculate securitisation capital requirements. The PRA will generally be more sceptical of the achievement of commensurate risk transfer for transactions where the regulatory capital calculation used produces very low capital requirements. Where the method used to calculate regulatory capital requirements post-securitisation results in a particularly significant reduction in capital requirements, the PRA will apply a high degree of scrutiny in its assessment of whether commensurate risk transfer is achieved.

4.3

When evaluating SRT transactions which apply the Securitisation External Ratings Based Approach (SEC-ERBA), the PRA will also have regard to whether the chosen credit rating agency has appropriate expertise in the asset class being rated, in accordance with Chapter 9 of the EBA Guidelines on Significant Risk Transfer.

4.4

Pending further international regulatory guidance, the PRA considers it appropriate to clarify its interpretation of the Loss Given Default (LGD) value firms should use for the purpose of calculating regulatory capital requirements using SEC-IRBA, for SRT securitisations of income-producing real estate (IPRE) assets where firms have adopted the slotting approach. For this purpose, the PRA expects firms to use the LGD value specified in CRR Article 259(6).

(CRR Articles 243, 244 and 337 and Chapter 9 of EBA Guidelines on Significant Risk Transfer (EBA/GL/2014/05))