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 KIRB 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 KIRB 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 KIRB shall ensure that the structure of the securitisation meets all of the following requirements:
|
(a) |
the SSPE or the institution calculating KIRB 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 KIRB 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 KIRB shall have in place procedures to verify regularly that those payments are forwarded completely and within the contractually agreed terms.
4. The institution calculating KIRB 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:
|
|
(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 KIRB 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 KIRB 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 KIRB 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. |