Commission Delegated Regulation (EU) 2024/1780 of 13 March 2024 supplementing Regulation (EU) No 575/2013 of the European Parliament and of the Council with regard to regulatory technical standards specifying the conditions under which institutions are allowed to calculate KIRB in relation to the underlying exposures of a securitisation transaction

• CELEX: Delegated Regulation (EU) 2024/1780
• Articles: 16

Article 1 Subject matter

This Regulation further specifies the conditions under which institutions may calculate K IRB in relation to the underlying exposures of a securitisation pursuant to Article 255(4) of Regulation (EU) No 575/2013.

Article 2 Definitions

For the purposes of this Regulation, the following definitions shall apply:

(a)

‘model development’ means the part of the process of the estimation of risk parameters that leads to an appropriate risk differentiation by specifying relevant risk drivers, building statistical or mechanical methods to assign exposures to obligor or facility grades or pools, and estimating intermediate parameters of the model, where relevant;

(b)

‘calibration segment’ means a uniquely identified subset of the scope of application of the probability of default (‘PD’) or loss given default (‘LGD’) model that is jointly calibrated;

(c)

‘qualifying securitised exposures’ means any of the following types of securitised exposures:

(i)

securitised exposures for which the institution calculating K IRB is not the servicer;

(ii)

securitised exposures for which the institution calculating K IRB is the servicer and fulfils both of the following conditions:

(1)

the institution was not involved in, or did not conclude, the original agreement that created the obligations or potential obligations of the debtor or potential debtor;

(2)

the institution has limited access to data and information on those securitised exposures;

(d)

‘internal model for calculating K IRB ’ means a rating system for the calculation of K IRB referred to in Article 255(4) of Regulation (EU) No 575/2013.

For the purposes of the first subparagraph, point (b), the PD and LGD models shall comprise all data and methods used as part of a rating system that deal with, respectively:

(a)

the differentiation and quantification of own estimates of PD, where such data and methods are used to assess the default risk for each obligor or exposure covered by the PD model;

(b)

the differentiation and quantification of own estimates of LGD, and the expected loss best estimate (‘EL BE ’), where such data and methods are used to assess the level of loss in the case of default for each facility covered by the LGD model.

Article 3 Common provisions

1.   For the purposes of this Regulation, the term:

(a)

‘seller of purchased receivables’ and ‘seller’ shall, in provisions of Regulation (EU) No 575/2013 that relate to purchased receivables and provided there is a SSPE, be read as ‘originator’;

(b)

‘purchasing institution’ in Article 154(7), Article 162(2), point (e), and Article 179(1), point (e), of Regulation (EU) No 575/2013 shall be read as ‘institution calculating K IRB in accordance with Article 255(4) of this Regulation’;

(c)

‘institution’s exposures and standards’ in Article 179(1), point (d), of Regulation (EU) No 575/2013 shall be read as ‘securitised exposures and standards applied to those exposures’;

(d)

‘type of exposures’ in Article 142(1), point (2), of Regulation (EU) No 575/2013 shall be read as groups of securitised exposures that would have been homogeneously managed by the institution calculating K IRB if they had not been securitised.

2.   For pools of non-homogeneous securitised exposures, institutions calculating K IRB in accordance with this Regulation may need to split such pools into sub-pools of homogeneous securitised exposures to determine the risk-weighted exposure amount separately for each sub-pool for the calculation of K IRB in accordance with Article 255(4) of Regulation (EU) No 575/2013. References to ‘pools’ in this Regulation shall be construed to include sub-pools, where appropriate.

Article 4 Conditions for calculating K IRB using K IRB -specific rating systems

For the purposes of Article 143 and Article 255(4) of Regulation (EU) No 575/2013, competent authorities may only grant an institution the permission to calculate K IRB for securitised exposures using K IRB -specific rating systems as part of the institution’s IRB approach where all of the following conditions are met:

(a)

the range of application of the K IRB -specific rating system includes only qualifying securitised exposures;

(b)

the institution has received permission to use the IRB approach in relation to at least one rating system within the exposure class to which the qualifying securitised exposures are assigned;

(c)

all requirements of Part Three, Title II, Chapter 3, of Regulation (EU) No 575/2013 relating to rating systems are met, subject to point (d) of this Article;

(d)

the institution complies with the conditions set out in Articles 5 to 15 of this Regulation instead of the corresponding conditions set out in Regulation (EU) No 575/2013, as set out in each of those Articles of this Regulation.

Article 5 Conditions under which institutions may calculate K IRB using a rating system that has been approved for the use for own-originated exposures

An institution may calculate K IRB in accordance with Article 255(4) of Regulation (EU) No 575/2013 using a rating system that has been approved for use for its own-originated exposures where all of the following conditions are met:

(a)

the rating system is used only for calculating the PD of non-retail qualifying securitised exposures;

(b)

if not being securitised, the non-retail qualifying securitised exposures would fall within the range of application of the rating system that will be used;

(c)

the institution calculating K IRB uses the LGD values set out in Article 8(3) of this Regulation;

(d)

all requirements of Part Three, Title II, Chapter 3 of Regulation (EU) No 575/2013 relating to rating systems are met, subject to point (e) of this Article;

(e)

the requirements laid down in Article 7 and Article 12(3) of this Regulation are met with regard to the application of the purchased receivable requirements of Regulation (EU) No 575/2013 in the particular context of securitisation, instead of the corresponding requirements laid down in that Regulation, as set out in each of those Articles of this Regulation;

(f)

the requirements laid down in Articles 14 and 15 of this Regulation are met with regard to the use of data.

Article 6 Prior experience when calculating K IRB

For the purposes of this Regulation, an institution that has received permission to apply the IRB approach for at least one rating system for own-originated exposures within the exposure class to which the qualifying securitised exposures are assigned shall be considered to have gained the experience required by Article 145 of Regulation (EU) No 575/2013.

Article 7 Requirements for qualifying securitised exposures

1.   For the purposes of this Regulation, when quantifying the risk parameters to be associated with rating grades or pools for qualifying securitised exposures, institutions calculating K IRB shall be considered to comply with the requirements laid down in Article 184 of Regulation (EU) No 575/2013 where they comply with the requirements laid down in paragraphs 2 to 7 of this Article.

Institutions calculating K IRB may ensure compliance with paragraphs 2 to 7 through a party to the securitisation acting for and in the interest of the investors in the securitisation in accordance with the terms of the related securitisation documents.

2.   For the purposes of this Regulation, when quantifying the risk parameters to be associated with rating grades or pools for qualifying securitised exposures, institutions calculating K IRB shall ensure that the structure of the securitisation meets all of the following requirements:

(a)

the SSPE or the institution calculating K IRB has effective ownership and control of all cash remittances from the securitised exposures;

(b)

the ownership of the securitised exposures and cash receipts is protected against bankruptcy stays or legal challenges that could materially impair the ability of the SSPE or the institution calculating K IRB to liquidate or assign the securitised exposures or retain control over cash receipts.

3.   Where an obligor makes payments directly to an originator or servicer, the institution calculating K IRB shall have in place procedures to verify regularly that those payments are forwarded completely and within the contractually agreed terms.

4.   The institution calculating K IRB shall monitor both the quality of the qualifying securitised exposures and the financial condition of the originator, seller, and servicer. For that purpose, the institution shall in particular:

(a)

assess the correlation between the quality of the qualifying securitised exposures, including the potential of recovery in the case of default, and the financial condition of the originator, seller, and servicer;

(b)

have in place internal policies and procedures that provide adequate safeguards to protect against any contingencies, including the assignment of an internal risk rating to the originator, seller, and servicer;

(c)

have clear and effective policies and procedures for determining the eligibility of an originator, a seller and a servicer;

(d)

conduct periodic reviews of originators, sellers and servicers to verify whether the reports of those originators, sellers or servicers are accurate, to detect fraud or operational weaknesses and to verify the quality of the originator’s or seller’s credit policies and servicer’s collection policies and procedures, and shall document the findings of those periodic reviews;

(e)

assess:

(1)

the characteristics of the pools of qualifying securitised exposures, including over-advances;

(2)

the history of the originator’s or seller’s arrears, bad debts and bad debt allowances;

(3)

the payment terms and potential contra accounts of the pools of qualifying securitised exposures;

(f)

have in place effective policies and procedures for monitoring, on an aggregate basis, single-obligor concentrations both within and across pools of qualifying securitised exposures;

(g)

ensure that it receives from the originator, seller, or servicer timely and sufficiently detailed reports of securitised exposures’ ageings and dilutions;

(h)

have in place systems and procedures for detecting at an early stage deteriorations in the originator’s or seller’s financial condition and the qualifying securitised exposures’ quality and for addressing emerging problems pro-actively.

For the purposes of the first subparagraph, point (g), the reports shall provide all the necessary information on the qualifying securitised exposures:

(a)

to assess the exposures’ compliance with the securitisation’s eligibility criteria and with the advancing policies governing such qualifying securitised exposures;

(b)

to monitor and confirm the originator’s or seller’s terms of sale and dilution.

5.   The institution calculating K IRB shall have in place clear and effective policies, procedures, and information systems to monitor covenant violations, to initiate legal actions and to deal with problematic qualifying securitised exposures.

6.   The institution calculating K IRB shall have clear and effective policies and procedures for the monitoring or, where applicable, the control of the qualifying securitised exposures, credit, and cash, including all of the following:

(a)

written internal policies specifying all material elements of the securitisation, including the advancing rates, eligible collateral, the required documentation, concentration limits, and the way cash receipts are to be handled;

(b)

effective policies and procedures to ensure that the material elements referred to in point (a) take account of all relevant and material factors, including the originator’s, seller’s and servicer’s financial condition, risk concentrations and trends in the quality of the qualifying securitised exposures and the originator’s customer base;

(c)

internal systems to ensure that funds are advanced only against specified supporting collateral and documentation.

7.   The institution calculating K IRB shall have in place an internal process to assess compliance with the internal policies and procedures referred to in paragraphs 3 to 6, including all of the following:

(a)

regular audits of all critical phases of the securitisation;

(b)

verification of the separation of duties for the assessments of the originator, seller, and servicer, referred to in paragraph 4, on the one hand, and of the obligor, on the other hand;

(c)

verification of the separation of the respective duties for the assessments of the originator, seller and servicer, referred to in paragraph 4 from the field audit of the originator, seller and servicer;

(d)

evaluations of the institution’s back-office operations, including their qualifications, experience, staffing levels and supporting IT systems.

Article 8 General conditions for risk differentiation

1.   When assigning exposures to grades or pools, institutions calculating K IRB shall consider the originator’s or, where the originator acquired the securitised exposures from the original lender, the original lender’s underwriting standards and the servicer’s recovery practices and servicing standards, as potential risk drivers, unless those institutions use, for the quantification of the risk parameters associated with those grades or pools, different calibration segments for different originators, original lenders, and servicers.

2.   Institutions calculating K IRB may set LGD at 50 % for retail qualifying securitised exposures.

3.   Institutions calculating K IRB may set the following values for LGD, instead of the values laid down in Article 161(1), points (e) and (f), of Regulation (EU) No 575/2013:

(a)

50 % for non-retail senior qualifying securitised exposures;

(b)

100 % for non-retail subordinated qualifying securitised exposures.

Article 9 Eligibility for the retail treatment of non-retail qualifying securitised exposures

1.   An institution calculating K IRB may, for non-retail qualifying securitised exposures, use the risk quantification standards for retail exposures laid down in Part Three, Title II, Chapter 3, Section 6, of Regulation (EU) No 575/2013 where all of the following conditions are met:

(a)

it would be unduly burdensome for the institution to use the risk quantification standards for corporate exposures laid down in Part Three, Title II, Chapter 3, Section 6, of Regulation (EU) No 575/2013;

(b)

the following requirements are met, instead of the requirements laid down in Article 154(5), points (a) to (d), of Regulation (EU) No 575/2013:

(i)

the SSPE or the institution calculating K IRB has purchased the non-retail qualifying securitised exposures from third-party originators or sellers unrelated to the institution calculating K IRB , and the exposure of the SSPE or the institution calculating K IRB to the obligors in the pool of qualifying securitised exposures does not include any exposures that are directly or indirectly originated by the institution calculating K IRB

(ii)

the non-retail qualifying securitised exposures have been generated on an arm’s-length basis between the originator or seller and the obligor and, accordingly, do not contain inter-company accounts receivables and receivables subject to contra-accounts between firms that buy and sell to each other;

(iii)

the SSPE or the institution calculating KIRB has a claim on all or part of the proceeds from the non-retail qualifying securitised exposures or a pro-rata interest in the proceeds;

(iv)

the pool of qualifying securitised exposures is sufficiently diversified.

2.   For the purposes of paragraph 1, point (a), when assessing whether the use of the risk quantification standards for corporate exposures laid down in Part Three, Title II, Chapter 3, Section 6, of Regulation (EU) No 575/2013 is unduly burdensome, institutions shall take into account all of the following factors:

(a)

whether the cost of using the risk quantification standards for corporate exposures on non-retail qualifying securitised exposures is disproportionate;

(b)

whether the institution’s access to and control of the relevant data on the securitised exposures is subject to significant impediments when compared to the ease of access to and control of data on retail exposures;

(c)

whether the institution has limited capability to integrate any external or proxy data into existing risk and reporting systems;

(d)

whether the pool of securitised exposures to which the risk quantification standards for retail exposures are to be applied is sufficiently granular to justify the assessment of undue burden in relation to the factors referred to in points (a), (b) and (c);

(e)

whether the size and frequency of the institution’s exposures to securitisations do not pose a material risk to that institution.

For the purposes of the first subparagraph, point (a), an institution may take into account the costs of developing a non-retail internal model for calculating K IRB , integrating a new calibration segment into an existing one, or integrating the data into the institution’s existing risk and reporting systems.

For the purposes of the first subparagraph, point (d), a pool of qualifying securitised exposures shall be deemed to be sufficiently granular where the number of underlying exposures of the securitisation to which the retail treatment is to be applied exceeds 100 and the aggregate exposure value of all such exposures to a single obligor in the pool does not exceed 2 % of the aggregate outstanding exposure values of the pool of qualifying securitised exposures. For the purposes of that calculation, loans or leases to a group of connected clients that have been funded by the SSPE or the institution calculating K IRB shall be considered as exposures to a single obligor.

Article 10 Eligibility for the retail treatment of retail qualifying securitised exposures

For the purposes of this Regulation, for retail qualifying securitised exposures to be eligible for the risk quantification standards for retail exposures as set out in Part Three, Title II, Chapter 3, Section 6, of Regulation (EU) No 575/2013, all of the following requirements shall be met instead of the requirements laid down in Article 154(5) of that Regulation:

(a)

the qualifying securitised exposures have been generated on an arm’s-length basis between the originator and the obligor and, accordingly, those exposures do not contain inter-company accounts receivables and receivables subject to contra-accounts between firms that buy and sell to each other;

(b)

the SSPE, or the institution calculating K IRB, have a claim on all proceeds from the qualifying securitised exposures or a pro-rata interest in those proceeds;

(c)

the pool of qualifying securitised exposures is sufficiently diversified.

Article 11 Determination of relationship between parties, arm’s-length and connected clients

For the purposes of Article 9(1), points(b)(i) and (b)(ii), Article 9(2), point (d), and Article 10, point (a), institutions calculating K IRB shall, as applicable, assess the relationship between parties, the arm’s-length requirement, or the connectedness of clients, as referred to in those points, to the best of their knowledge, on the basis of either of the following types of information:

(a)

information on the debtors, obtained at the time of the origination of the exposures from the originator, the seller or the original lender;

(b)

information obtained from the servicer in the course of its servicing the exposures or in the course of its risk-management procedure.

Article 12 Calculation of risk-weighted exposure amounts for credit risk of qualifying securitised exposures

1.   For retail qualifying securitised exposures that meet the requirements set out in Article 10, institutions calculating K IRB shall calculate risk-weighted exposure amounts for credit risk in accordance with Articles 154 of Regulation (EU) No 575/2013, and, where applicable, Article 156, point (b), of that Regulation.

2.   For retail qualifying securitised exposures that do not meet the requirements set out in Article 10, institutions calculating K IRB shall calculate risk-weighted exposure amounts for credit risk in accordance with Article 153 of Regulation (EU) No 575/2013, and, where applicable, Article 156, point (b), of that Regulation.

3.   To calculate K IRB for non-retail qualifying securitised exposures, irrespective of whether the conditions of Article 9 of this Regulation for applying retail risk quantification standards are met in respect of such exposures, institutions shall calculate risk-weighted exposure amounts for credit risk in accordance with Article 153 of Regulation (EU) No 575/2013, and, where applicable, Article 156, point (b), of that Regulation.

Article 13 Requirements on data and primary data

1.   Where the qualifying securitised exposures and the obligors of those exposures were not exposures or obligors of the institution calculating K IRB before the transfer of such exposures to the SSPE or to the institution calculating K IRB , instead of the requirement of representativeness of the data used for model development laid down in Article 174, point (c), of Regulation (EU) No 575/2013, the representativeness of the data shall be assessed in relation to the qualifying securitised exposures.

2.   Instead of the requirement laid down in the first sentence of Article 180(2), point (c), of Regulation (EU) No 575/2013, institutions shall regard the data relating to the qualifying securitised exposures, the data of the portfolio of the originator or original lender based on similar underwriting standards from which they have been extracted, and the data relating to the collection and recovery policies adopted by the servicer as the primary source of information for estimating risk parameters for the model development, for the quantification of risk parameters, and for the application of the internal model for calculating K IRB .

Article 14 Use of proxy data

1.   For the model development, for the quantification of risk parameters, for the application of the internal model for calculating K IRB , and for the completion of the data referred to in Article 13(2), institutions calculating K IRB may use any relevant data other than the data referred to in that Article as proxy data.

2.   The proxy data referred to in paragraph 1 can be internal, external, or pooled data in the sense used in Part Three, Title II, Chapter 3, Section 6, of Regulation (EU) No 575/2013.

3.   When institutions calculating K IRB make use of proxy data in the course of the estimation of risk parameters, the requirements of Article 179(1), point (f), of Regulation (EU) No 575/2013 on conservatism shall also apply when institutions use proxy data for the model development, the quantification of risk parameters, and the application of the internal model for calculating K IRB .

4.   Institutions calculating K IRB that use proxy data shall assess the representativeness of those proxy data with regard to the data referred to in Article 13(2) and make the necessary adjustments to the proxy data to align the quality of those data to the quality of the data referred to in that Article 13(2).

5.   Where it is not possible to overcome the difference in quality by adjustments in the proxy data, institutions calculating K IRB shall adopt an appropriate margin of conservatism in the estimation of risk parameters in accordance with Article 179(1), point (f), of Regulation (EU) No 575/2013.

6.   Institutions calculating K IRB may, for the model development, the quantification of risk parameters, and the application of the internal model for calculating K IRB , use the data on static and dynamic historical default and loss performance made available by originators and sponsors in accordance with Article 22, Article 24(14) and Article 26d(1) of Regulation (EU) 2017/2402, irrespective of whether those data meet the requirements for simple, transparent and standardised securitisations laid down in that Regulation.

Article 15 Use of data that are not consistent with the definition of default as referred to in Article 178(1) of Regulation (EU) No 575/2013

1.   The calibration of risk parameters shall be based on the institution’s definition of default that is applicable to the respective internal model for calculating K IRB in accordance with Article 255(4) of Regulation (EU) No 575/2013. Institutions calculating K IRB that use external data or proxy data for the calibration of risk parameters shall meet all of the following requirements:

(a)

they shall ensure that the definition of default used in the data is consistent with Article 178(1) of Regulation (EU) No 575/2013;

(b)

they shall ensure that the definition of default used in the data is consistent with the definition of default as implemented by the institution calculating K IRB in accordance with Article 255(4) of Regulation (EU) No 575/2013 for the relevant portfolio of qualifying securitised exposures, including all of the following:

(i)

the counting and number of days past due that triggers default;

(ii)

the structure and level of the materiality threshold for past due credit obligations;

(iii)

the definition of distressed restructuring that triggers default;

(iv)

the type and level of specific credit risk adjustments that triggers default;

(v)

the criteria to return to non-defaulted status;

(c)

they shall document sources of the data, the default definition used in those data, the analysis performed, and all identified differences.

2.   For each of the differences identified in the definition of default resulting from the assessment on the consistency of the definition of default referred to in paragraph 1, institutions calculating K IRB shall:

(a)

assess whether the adjustment to the internal definition of default would lead to an increased or a decreased default rate, or whether that is impossible to determine;

(b)

depending on the outcome of the assessment referred to in point (a), either adjust the data accordingly, or be able to demonstrate that the difference is negligible in terms of the impact on all risk parameters and own funds requirements, as appropriate.

3.   With regard to the totality of the differences identified in the definition of default resulting from the assessment referred to in paragraph 1,institutions calculating K IRB shall, and taking into account the adjustments performed in accordance with paragraph 2, point (b), achieve a broad equivalence with the internal definition of default used within the internal model for calculating K IRB , including, where possible, by comparing the default rate in internal data on a relevant type of exposures with external or proxy data.

4.   Where the assessment referred to in paragraph 1 identifies differences in the definition of default that are non-negligible but not possible to overcome by adjustments in the data, institutions calculating K IRB shall adopt an appropriate margin of conservatism in the estimation of risk parameters in accordance with Article 179(1), point (f), of Regulation (EU) No 575/2013. In that case, institutions calculating K IRB shall ensure that such additional margin of conservatism reflects the materiality of the remaining differences in the definition of default and their possible impact on all risk parameters.

Article 16 Entry into force

This Regulation shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union .