Securitisation 2022 Germany: Law & Practice Dr Patrick Scholl, Andreas Lange, Dr Ralf Hesdahl and Kirsten Schürmann Mayer Brown LLP
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Definitive global law guides offering comparative analysis from top-ranked lawyers Securitisation 2022 Germany: Law & Practice Dr Patrick Scholl, Andreas Lange, Dr Ralf Hesdahl and Kirsten Schürmann Mayer Brown LLP practiceguides.chambers.com
GERMANY
Law and Practice Berlin
Poland
Contributed by: Germany
Dr Patrick Scholl, Andreas Lange, Czech Republic
Dr Ralf Hesdahl and Kirsten Schürmann France Slovakia
Mayer Brown LLP see p.21 Austria
CONTENTS
1. Structurally Embedded Laws of General 4.12 Material Forms of Credit Enhancement p.14
Application p.3 4.13 Participation of Government-Sponsored
1.1 Insolvency Laws p.3 Entities p.15
1.2 Special-Purpose Entities (SPEs) p.4 4.14 Entities Investing in Securitisation p.15
1.3 Transfer of Financial Assets p.5
5. Documentation p.15
1.4 Construction of Bankruptcy-Remote
5.1 Bankruptcy-Remote Transfers p.15
Transactions p.6
5.2 Principal Warranties p.17
2. Tax Laws and Issues p.6 5.3 Principal Perfection Provisions p.17
2.1 Taxes and Tax Avoidance p.6 5.4 Principal Covenants p.17
2.2 Taxes on SPEs p.6 5.5 Principal Servicing Provisions p.17
2.3 Taxes on Transfers Crossing Borders p.7 5.6 Principal Defaults p.17
2.4 Other Taxes p.7 5.7 Principal Indemnities p.17
2.5 Obtaining Legal Opinions p.7
6. Roles and Responsibilities of the
3. Accounting Rules and Issues p.7 Parties p.17
3.1 Legal Issues with Securitisation Accounting 6.1 Issuers p.17
Rules p.7 6.2 Sponsors p.17
3.2 Dealing with Legal Issues p.8 6.3 Underwriters and Placement Agents p.17
4. Laws and Regulations Specifically 6.4 Servicers p.17
Relating to Securitisation p.8 6.5 Investors p.17
4.1 Specific Disclosure Laws or Regulations p.8 6.6 Trustees p.17
4.2 General Disclosure Laws or Regulations p.9
7. Synthetic Securitisation p.18
4.3 Credit Risk Retention p.10
7.1 Synthetic Securitisation Regulation and
4.4 Periodic Reporting p.10 Structure p.18
4.5 Activities of Rating Agencies p.11
8. Specific Asset Types p.20
4.6 Treatment of Securitisation in Financial Entities p.11
8.1 Common Financial Assets p.20
4.7 Use of Derivatives p.12
8.2 Common Structures p.20
4.8 Investor Protection p.13
4.9 Banks Securitising Financial Assets p.13 9. Impact of COVID-19 p.20
4.10 SPEs or Other Entities p.13 9.1 Pandemic-Related Legal Issues p.20
4.11 Activities Avoided by SPEs or Other
Securitisation Entities p.14
2
GERMANY Law and Practice
Contributed by: Dr Patrick Scholl, Andreas Lange, Dr Ralf Hesdahl and Kirsten Schürmann,
Mayer Brown LLP
1 . S T R U C T U R A L LY the credit risk, the risk that the obligor would
EMBEDDED LAWS OF have to pay – on condition of its solvency – the
G E N E R A L A P P L I C AT I O N receivables on the agreed date) to the purchaser.
In contrast with a retained seller participation in
1.1 Insolvency Laws the credit risk of a sold and assigned receivable,
Although the term “legal true sale” is used in any retained seller risk in the verity or dilution risk
German market practice by the parties to finan- will not be taken into account for German true
cial transactions, it cannot be defined by refer- sale analysis purposes.
ence to a specific provision of German law. A
German “legal true sale” as the term is used in Insolvency Proceedings
the following document, and in German market If the seller is subject to insolvency proceed-
practice, means: ings under German law, there are no additional
requirements for a legal true sale if the sale and
• the insolvency-proof assignment/transfer of assignment is non-recourse with respect to the
a financial asset from a seller (the originator) credit risk of the receivables that have been sold.
to a purchaser, with the effect that the sold The transfer of the credit risk should not be ques-
and assigned/transferred assets cease to tioned or re-characterised as an assignment of
form part of the seller’s insolvency estate in receivables for security purposes (Sicherungsz-
the event that the seller becomes insolvent ession) with respect to receivables that will be
subsequent to the assignment/transfer of the purchased on a non-recourse basis, provided
respective asset; and that the terms of the receivables purchase do
• that the assigned/transferred asset is not not have the economic effect that the credit risk
exposed to the risk that the seller’s insolvency (Delkredererisiko) of the receivables has (despite
administrator may successfully challenge the the sale and assignment of them) in fact been
assignment/transfer of the asset, or that the retained by the seller. This would be the case if
seller’s insolvency administrator may suc- the seller’s retained credit risk participation (due
cessfully raise claw-back rights with respect to retained purchase price provisions, default
to the sold and assigned/transferred asset. risk reserves, etc) were not at arm’s length for
a non-recourse receivables sale. It is notable
This requires that the seller is subject to German in this context that retained dilution reserves
law insolvency proceedings. If there is a risk that or yield reserves or deemed collections due to
a seller of the receivables/assets shall not be broken representations and warranties will not
subject to German law insolvency proceedings, impact the German legal true sale analysis.
then it is advisable to examine whether or not
a perfection of the sale and assignment/trans- The transfer of a sold and assigned receiv-
fer of the receivables/assets under the receiva- able under a receivables purchase agreement
bles purchase agreement will be acknowledged could be questioned and re-characterised as an
under the non-German insolvency proceedings assignment of receivables for security purposes
applying to the seller. (Sicherungszession) – ie, as a secured lending
transaction, with respect to receivables that will
For the German legal true sale analysis, the be purchased on a recourse basis. In the latter
most important aspect to consider in connec- case, the acquirer of receivables for security pur-
tion with the sale and assignment of a receivable poses will, in the case of the commencement of
is whether or not the seller has also transferred German law insolvency proceedings against the
3
Law and Practice GERMANY
Contributed by: Dr Patrick Scholl, Andreas Lange, Dr Ralf Hesdahl and Kirsten Schürmann,
Mayer Brown LLP
seller, be treated as a preferred creditor and will financial collateral has the effect of excluding
have a right to separate satisfaction (Absonder- some of the reasons to challenge the transac-
ungsrecht). If the transaction contemplates a tion, but not as many as would be excluded in a
secured loan facility (as opposed to a receiva- cash transaction.
bles purchase agreement) secured by the receiv-
ables, then the assignment of the receivables 1.2 Special-Purpose Entities (SPEs)
would be deemed a security assignment rather Issuers of German asset-backed securities are
than a true sale. typically organised as bankruptcy remote spe-
cial-purpose entities (SPEs). Depending on the
Re-characterisation type of the securitised asset, SPEs are either
Under German law, it is not possible to com- located in Germany (eg, in the case of a bank
bine both principles: there is no “true sale for loan, auto loan or consumer loan securitisations)
security purposes”. In the case of a re-charac- or outside of Germany (eg, in the case of auto
terisation of a sale of receivables as a secured leases or trade receivables) – mostly Luxem-
lending transaction, and in the case of the com- bourg, Ireland and The Netherlands. The choice
mencement of German insolvency proceedings of appropriate SPE jurisdiction is driven mainly
against the transferor, German insolvency law by tax considerations, set-up and maintenance
provides that the insolvency administrator of the costs and confidence in the legal system’s ability
German transferor will mandatorily enforce and to ensure a ring-fencing of the assets.
collect receivables that had been transferred for
security purposes (unless such security quali- An SPE is typically established as an “orphan”
fies as financial collateral in the sense of Direc- by corporate service providers. Its share capital
tive 2002/47/EC), meaning that the acquirer is held by charitable trusts or charitable founda-
would be barred from enforcing the receivables tions.
assigned to it itself or through an agent. The
insolvency administrator is, however, obliged The corporate structure and organisation of an
to transfer the proceeds from such an enforce- SPE follows (for public term transactions) the
ment of receivables for security purposes to the requirements of the applicable rating criteria or
acquirer. The German insolvency administrator securitisation platform provider – eg, True Sale
will, however, deduct fees from such enforce- International GmbH (TSI as brand for German
ment proceeds, as provided for under German quality securitisations) or Prime Collateralised
insolvency law. These fees amount to 4% of the Securities (PCS) UK Limited (True Sale PCS
enforcement proceeds for the determination of Label).
the receivables, plus up to a further 5% for the
enforcement process (or, under certain condi- Restriction of Activities
tions, more or less than 5%) plus applicable VAT. An SPEs activities will be restricted by negative
covenants in the transaction documentation as
A true sale should be structured as a so-called required by the rating agencies or the respec-
“cash transaction”, which means that the receiv- tive securitisation platform (TSI/PCS) in order to
ables are sold for immediate and equivalent ensure that the activities of the SPE are limited to
consideration. If the sale is characterised as a those required in connection with the acquisition
cash transaction, then most of the reasons to of the securitised assets and the issued asset-
challenge the sale and transfer under German backed securities. An SPE will, in particular,
insolvency law are excluded. Qualification as refrain from having its own employees, incurring
4GERMANY Law and Practice
Contributed by: Dr Patrick Scholl, Andreas Lange, Dr Ralf Hesdahl and Kirsten Schürmann,
Mayer Brown LLP
indebtedness or granting security other than in 1.3 Transfer of Financial Assets
connection with the securitisation. All transaction Usually, the seller and purchaser of financial
parties contracting with the SPE need to agree assets (ie, receivables) will enter into a receiva-
on non-petition clauses not to commence insol- bles purchase agreement (RPA).
vency proceedings against the SPE, and limited
recourse provisions limiting each party’s claims German law distinguishes between the sale and
against the SPE on the assets acquired by it and purchase at the contractual level and the actual
the enforcement of such claims in accordance in rem transfer of title to the receivables, which
with the provisions of the transaction documents is achieved by an assignment. The RPA usually
and the agreed priority of payments (“waterfall deals with both aspects: the contractual rela-
payments”). tionship (ie, the sale and purchase) between the
seller and the purchaser, and the assignment of
Under German insolvency legislation each legal the receivables, by means of which the actual
entity will be treated as an independent insol- title to the receivables is transferred to the pur-
vency subject, with the consequence that an chaser.
independent SPE will not be consolidated with
the originator for insolvency purposes. The sale and assignment of receivables is per-
fected by entering into the RPA, which provides
Legal Opinions for the assignment of the sold receivables. No
Legal opinions obtained in connection with secu- further registration or notification steps are
ritisation transactions will typically include state- required.
ments that the SPE has been validly established
in the relevant jurisdiction, as well as statements German law does not recognise any bona fide
relating to the corporate capacity of the SPE. acquisition (gutgläubiger Erwerb) of claims and
In the case of a German SPE, a German legal receivables. As a consequence, pledges over
opinion will not usually contain non-consolida- claims and receivables governed by German
tion opinions regarding the consolidation of the law cannot be validly granted on a bona fide
SPE’s assets and liabilities with the originator basis. Hence, receivables need to exist at the
for insolvency purposes. German legal opinions time of assignment to the purchaser, and need
issued for securitisation transactions will, how- to be owned by the seller. Once title to a receiv-
ever, address the legal, valid and binding transfer able has been transferred to another person, the
of the assets by the originator to the SPE that seller cannot validly transfer or encumber title to
grants a right for segregation in the case of the the receivable to any third party.
originator’s subsequent insolvency, as well as
the legal, valid and binding granting of security True Sale
by the SPE to the transaction trustee that can The legal true sale of a German law-governed
be segregated from the transaction trustee’s receivable is perfected under the terms of the
insolvency estate should the transaction trustee RPA between the seller and the purchaser. Noti-
become insolvent. German legal opinions issued fication to the obligor is not required under Ger-
for securitisation transactions will also address man law for the perfection of the German law
the validity of limited-recourse and non-petition receivables assignment. However, from a practi-
provisions. cal perspective, obligor notification is required if
the purchaser wants to enforce the collection of
due receivables directly.
5Law and Practice GERMANY
Contributed by: Dr Patrick Scholl, Andreas Lange, Dr Ralf Hesdahl and Kirsten Schürmann,
Mayer Brown LLP
It is market standard, in particular for rated trans- bles owned by the refinancing enterprise, may
actions, that true sale-opinions will be obtained, register such assets in the refinance register
such true-sale opinions address: (Refinanzierungsregister). Assets eligible for reg-
istration that have been properly registered with
• the insolvency-proof assignment/transfer of the refinance register operated by the refinance
a financial asset from a seller (the originator) enterprise can be segregated (ausgesondert)
to a purchaser, with the effect that the sold pursuant to Section 47 German Insolvency Code
and assigned/transferred assets cease to (InsO) from the insolvency estate of such refi-
form part of the seller’s insolvency estate in nance enterprise should the refinance enterprise
the event that the seller becomes insolvent become insolvent subsequent to such refinance
subsequent to the assignment/transfer of the register registration.
respective asset; and
• that the assigned/transferred asset is not It is not market standard in Germany to obtain
exposed to the risk that the seller’s insolvency separate insolvency opinions. The insolvency
administrator may successfully challenge the aspects of German transactions, ie, the features
assignment/transfer of the asset, or that the of a bankruptcy remote structure of the transac-
seller’s insolvency administrator may suc- tion, will be covered by the true-sale opinion.
cessfully raise claw-back rights with respect For details see 1.1 Insolvency Laws and 1.3
to the sold and assigned/transferred asset. Transfer of Financial Assets.
For further details, see 1.1 Insolvency Laws.
2 . TA X L A W S A N D I S S U E S
1.4 Construction of Bankruptcy-
Remote Transactions 2.1 Taxes and Tax Avoidance
As outlined in 1.1 Insolvency Laws, for ensur- Payments on receivables (eg, trade receivables),
ing a bankruptcy remote transaction structure including interest payments, are not generally
it is essential that in addition to the insolvency subject to withholding taxes in Germany. Excep-
proof sale and assignment of the financial asset tions may apply, for example, to receivables
from the seller to the purchaser or SPE it is cru- qualifying as hybrid debt instruments, receiva-
cial that the sale and assignment must not re- bles the obligor of which is a bank or financial
characterised due to the retention of credit risk services institution in Germany, securitised
participation to a secured lending transaction receivables, and – in limited circumstances –
and is structured to meet for German insolven- receivables secured by German real estate.
cy proceeding purposes the requirements as a
so-called “cash transaction”, which significantly Germany does not impose any stamp duty or
reduces the risk that the sale and assignment of other documentary taxes on the sale of receiva-
the financial asset is exposed to challenge and bles.
claw-back rights of seller’s insolvency admin-
istrator. 2.2 Taxes on SPEs
The purchase of receivables would not generally
Under the German Banking Act (KWG), credit result in German tax liability for a non-German
institutions acting as refinancing enterprises purchaser if the purchaser did not conduct any
owing certain other entities receivables, or other business in Germany and the receivables
mortgages or land charges securing receiva- did not give rise to income from German sourc-
6GERMANY Law and Practice
Contributed by: Dr Patrick Scholl, Andreas Lange, Dr Ralf Hesdahl and Kirsten Schürmann,
Mayer Brown LLP
es (where receivables may generate German- ally exist if and to the extent that the purchaser
source income, see the exceptions in 2.1 Taxes pays a consideration for the receivables to the
and Tax Avoidance). free disposition of the seller.
German tax liability could arise for the purchas- 2.5 Obtaining Legal Opinions
er if the receivables were collected, monitored From a tax perspective, legal opinions in relation
and/or administrated by a German originator or to securitisations usually cover:
servicer, and the services provided resulted in a
permanent representative, a permanent estab- • potential stamp taxes and withholding taxes;
lishment or an effective place of management • the tax treatment of the SPE;
of the purchaser situated in Germany. To limit • potential VAT on the transfer of the receiva-
the risk of this, a non-German purchaser should bles and the services provided to the SPE;
display a substantial presence outside Germany and
and not maintain a fixed place of business inside • secondary tax liability.
Germany. Moreover, all relevant business deci-
sions of the purchaser, especially in relation to
the acquisition of receivables and its financing, 3. ACCOUNTING RULES
should be made abroad. Further, the purchaser AND ISSUES
should not provide instructions in respect of the
collection services performed by the originator 3.1 Legal Issues with Securitisation
or servicer, and such entities should not have the Accounting Rules
power to represent or legally bind the purchaser. The Institute of Auditors (Institut der Wirtschaft-
sprüfer) summarised the requirements for a true
2.3 Taxes on Transfers Crossing sale for German commercial balance sheet pur-
Borders poses in its statement dated 1 October 2003
In general, the sale of receivables is exempt from (IDW RS HFA 8, as amended on 9 December
German VAT. An exception might apply if not 2003 – the IDW statement). Pursuant to this
only receivables but entire contractual relations statement, a true sale of receivables for account-
were transferred. However, this is not usually the ing purposes can be assumed if the economic
case in a true sale securitisation. ownership of the receivables is passed to the
purchaser of the receivables. This is the case
VAT may be imposed on factoring services – eg, if, among other things, the following criteria are
on collection services provided by the purchas- fulfilled:
er. However, no factoring services are generally
provided if, following a sale, the seller continues • from an economic perspective, the credit risk
to collect the receivables (as is frequently the (ie, the risk that the debtor of the receivables
case in a true sale securitisation). does not meet its payment obligations) is
assumed by the purchaser;
2.4 Other Taxes • the sale of the receivables is final (which
In respect of a sale of trade receivables that would not be the case, for example, if the
originate from the sale of goods and services reassignment/resale of the receivables had
being subject to VAT, a purchaser may become already been agreed at the time of the sale);
secondarily liable for any VAT not duly paid by • there are no default guarantees from the
the seller. A secondary liability does not gener- seller and no total return swap is entered into
7Law and Practice GERMANY
Contributed by: Dr Patrick Scholl, Andreas Lange, Dr Ralf Hesdahl and Kirsten Schürmann,
Mayer Brown LLP
between the seller and the purchaser, nor an 4. LAWS AND
agreement pursuant to which the purchase R E G U L AT I O N S
price will be adjusted in accordance with the S P E C I F I C A L LY R E L A T I N G
losses of the sold receivables;
T O S E C U R I T I S AT I O N
• the seller of the receivables does not hold
equity in the purchaser and does not acquire 4.1 Specific Disclosure Laws or
debt securities issued by the purchaser Regulations
(either in full or in a significant amount); and There is no specific German disclosure law
• any purchase price discount agreed between applying to securitisations. However, relevant
the parties is either non-adjustable or, if regulations pursuant to applicable European law
adjustable, qualifies as appropriate and cus- include, in particular, Regulation (EU) 2017/2402
tomary in the market (eg, because it is deter- of the European Parliament and of the Council of
mined in accordance with the quota of actual 12 December 2017 laying down a general frame-
past losses plus a reasonable risk surcharge). work for securitisation and creating a specific
framework for simple, transparent and stand-
3.2 Dealing with Legal Issues ardised securitisation, and amending Directives
Accounting analysis in relation to a securitisa- 2009/65/EC, 2009/138/EC and 2011/61/EU and
tion is generally undertaken separately from the Regulations (EC) No 1060/2009 and (EU) No
legal analysis. 648/2012 (the Securitisation Regulation or SR),
and any regulatory technical standards author-
In order to provide an opinion that the asset ised thereunder.
has been assigned on a true-sale basis for
accounting purposes, legal practitioners ordi- The SR is applicable since 1 January 2019 to
narily ensure through the documentation that all securitisations (as defined therein) other than
the assignor bears no risk for the due realisation securitisations existing prior to that date to the
of the assigned assets and that representations extent that they are grandfathered.
and warranties are limited to title. To the extent
that the assignor provides any undertaking to Prior to holding a securitisation position, an
ensure realisation of any of the assets, or part institutional investor, other than the originator,
thereof, the opinion is qualified to state that the sponsor or original lender, shall verify that (if
true sale has not occurred to that extent. Hence, established in the European Union) the origi-
the receivables/assets which have not been sub- nator, sponsor or original lender retains on an
ject to a true sale will continue to be accounted ongoing basis a material net economic interest
in the books of the assignor as a receivable. and the risk retention is disclosed to the institu-
tional investor each in accordance with the SR.
New Regulations
On 3 September 2020, two regulations were pub-
lished regarding the detailed disclosure require-
ments under the SR (the Disclosure Technical
Standards). These consist of regulatory techni-
cal standards concerning the information to be
made available and the details of a securitisa-
tion by Commission Delegated Regulation (EU)
8GERMANY Law and Practice
Contributed by: Dr Patrick Scholl, Andreas Lange, Dr Ralf Hesdahl and Kirsten Schürmann,
Mayer Brown LLP
2020/1224 of 16 October 2019 supplementing Public German asset-backed securities issu-
the SR with regard to regulatory technical stand- ances are mostly structured as “wholesale trans-
ards specifying the information and the details of actions” – ie, with a denomination of at least
a securitisation to be made available by the origi- EUR100,000 and listed on the regulated mar-
nator, sponsor and SPE (the Disclosure RTS) and ket of Luxembourg or the Irish Stock Exchange.
implementing technical standards with regard Such listing prospectus needs to comply with
to the standardised templates by Commission the requirements of the Prospectus Regulation
implementing Regulation (EU) 2020/1225 of 29 for “wholesale” transactions.
October 2019 laying down implementing tech-
nical standards with regard to the format and Asset-backed securities that are intended to be
standardised templates for making available the placed with institutional investors (as defined in
information and details of a securitisation by the the SR) – eg, credit institutes, insurance enter-
originator, sponsor and SPE (the Disclosure ITS). prises, reinsurers, AIFMs or UCITs, need to com-
The Disclosure Technical Standards entered into ply with the transparency requirements of Article
force on 23 September 2020. 7 of the SR.
Certain specific disclosure requirements will also In order to achieve a uniform and clear imple-
apply if the notes are intended to be admitted mentation of the SR, the SR requires ESMA and
to trading on the regulated market at a stock EBA to issue numerous RTS and ITS (Regula-
exchange, or admitted as eligible collateral with tory and Implementing Technical Standards) as
the European Central Bank. well as Guidelines. In particular, the extensive
STS criteria need to be specified in terms of how
4.2 General Disclosure Laws or they are to be interpreted and how compliance
Regulations with the STS criteria can be demonstrated and, if
In practice, asset-backed securities are not necessary, verified by an independent third party
offered to the public or retail clients (as defined verifier.
under Directive 2014/65/EU of the European
Parliament and of the Council of 15 May 2014 on Where originators, sponsors and securitisa-
markets in financial instruments and amending tion vehicles wish to use the STS designation
Directive 2002/92/EC and Directive 2011/61/EU for their securitisations, investors, competent
(recast) (MIFID II)), but only to qualified investors authorities and ESMA must be notified that the
(as defined in Regulation (EU) 2017/1129 of the securitisation complies with the STS require-
European Parliament and of the Council of 14 ments and how the individual STS criteria are
June 2017 on the prospectus to be published met. ESMA must then include the securitisation
when securities are offered to the public or in a list of reported STS securitisations which
admitted to trading on a regulated market, and it makes available on its website for informa-
repealing Directive 2003/71/EC – the Prospectus tion purposes. Article 28 of the SR requires the
Regulation). Therefore, no key information docu- involvement of an independent third party in the
ment pursuant to Regulation (EU) No 1286/2014 review of a securitisation for compliance with
of the European Parliament and of the Council the STS requirements for investors, originators,
of 26 November 2014 on key information docu- sponsors and securitisation special purpose
ments for packaged retail and insurance-based vehicles. These third parties, known as STS veri-
investment products (PRIIPs) is required. fier, will be approved by the competent national
supervisory authority (in Germany: BaFin). Their
9Law and Practice GERMANY
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Mayer Brown LLP
assessment is included in the originator’s, spon- • the retention of the originator’s interest of not
sor’s or SPV’s notification to ESMA in accord- less than 5% of the nominal value of each
ance with Article 27 (2) of the SR and provides securitised exposures (in the case of revolv-
some certainty in the market that the rules will ing securitisations);
be applied in high quality and uniform manner. • the retention of randomly selected exposures,
equivalent to not less than 5% of the nominal
German STS Verification International GmbH value of the securitised exposures;
(SVI) is such a STS third-party verifier licensed • the retention of the first loss tranche; or
in accordance with Article 28 of the SR for all • the retention of a first loss exposure of not
asset classes for all countries of the European less than 5% of every securitised exposure in
Union for the transaction types ABS and ABCP. the securitisation.
Where in respect of a securitisation reported The material net economic interest shall not be
as an STS securitisation, a competent author- split among different types of retainers, or be
ity has determined that the securitisation does subject to any credit-risk mitigation or hedging.
not comply with the requirements and there is
reason to believe that the originator acted neg- It is an administrative offence pursuant to Sec-
ligently and not in good faith, the responsible tion 56 (5c) of the German Banking Act (KWG)
authority, ie, the regulator of the originator, shall to infringe the SR by deliberately or negligently
impose administrative sanctions and shall also failing to hold the required risk retention contrary
inform ESMA without delay to include the sanc- to Article 6(1) of the SR. Administrative penalties
tions concerned in its list of STS notifications in awarded against legal entities and partnerships
order to inform investors of the sanctions and must not exceed the higher of EUR5 million or
the reliability of the STS notifications. Therefore, 10% of the entities’ turnover (Section 56 (6a) of
originators, sponsors or securitisation vehicles the German Banking Act (KWG)).
are required to prepare their reports carefully in
order to avoid damage to their reputation. 4.4 Periodic Reporting
Asset-backed securities that are intended to be
4.3 Credit Risk Retention placed with institutional investors (as defined in
Asset-backed securities that are intended to be the SR) need to comply with the transparency
placed with institutional investors (as defined in requirements of Article 7 of the SR. In case
the SR) – ie, credit institutes, insurance enter- of asset-backed securities quarterly investor
prises, reinsurers, AIFMs or UCITs, must comply reports, or, in the case of ABCP, monthly inves-
with the risk retention requirements pursuant to tor reports, are to be published to the competent
Article 6 of the SR. The originator, sponsor or authorities and, upon request, to potential inves-
original lender of a securitisation shall retain, on tors (as per Article 7 of the SR). The originator
an ongoing basis, a material net economic inter- and the sponsor in case of asset-backed securi-
est in the securitisation of not less than 5%. This ties and the sponsor at ABCP programme level
retention of the material net economic interest in shall be responsible for compliance with Article
the securitisation can only be achieved by: 7 of the SR.
• the retention of not less than 5% of the nomi- The originator, sponsor and SPE of a securiti-
nal value of each tranche sold or transferred sation shall designate amongst themselves one
to investors (“vertical slice”); entity to fulfil the information requirements. The
10GERMANY Law and Practice
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Mayer Brown LLP
entity designated shall make the information for agencies and are structured to comply with ECB
a securitisation transaction available by means collateral eligibility criteria.
of a securitisation repository. Where no secu-
ritisation repository is registered in accordance 4.6 Treatment of Securitisation in
with Article 10 of the SR, the entity designated to Financial Entities
fulfil the requirements shall make the information Credit institutions and investment firms have to
available by means of a website which meets calculate their regulatory capital as provided for
certain requirements as set forth in Article 7(2) under the CRR.
of the SR.
The regulatory capital risk weight of a securiti-
If an originator, sponsor, original lender or SPE sation position will depend, in particular, on the
breaches the requirements of, inter alia, Article question of whether a securitisation position
7 of the SR, the supervisory authority may order results from a traditional securitisation or meets
the permanent cessation of the acts or conduct the requirements of a simple, transparent and
that gave rise to the breach and may require that standardised securitisation (an STS securitisa-
their repetition be prevented (Section 48(1) of the tion) as defined by the SR.
German Banking Act (KWG)).
Articles 20 to 22 of the SR define the STS criteria
It is an administrative offence to infringe the SR for non-ABCP securitisations as:
by deliberately or negligently failing to provide
information, or by failing to do so correctly, com- • for simple securitisation (Article 20 of the SR):
pletely, in the prescribed manner or in good time, (a) legal true sale and no severe claw-back
contrary to the first to fourth or fifth subpara- risk;
graphs of Article 7(1) of the SR. For Germany, (b) specified perfection triggers;
the competent authority is BaFin pursuant to (c) the seller’s rep assets are neither encum-
Article 7(1) and Article 29(4) of the SR and the bered, nor is transfer of them unenforce-
implementation law Gesetz zur Anpassung von able;
Finanzmarktgesetzen an die Verordnung (EU) (d) clear eligibility criteria, no active portfolio
2017/2402 und an die durch die Verordnung management on a discretionary basis,
(EU) 2017/2401 geänderte Verordnung (EU) Nr. and any later-transferred assets meet the
575/2013. initial criteria;
(e) the assets are homogenous in terms of
4.5 Activities of Rating Agencies asset type, with full recourse to debtors
Regulation (EU) No 462/2013 of the European (and guarantors), defined periodic pay-
Parliament and of the Council of 21 May 2013, ments (and sale proceeds) and no trans-
amending Regulation (EC) No 1060/2009 on ferrable securities other than unlisted
credit rating agencies (the CRA3 Regulation), corporate bonds;
sets out a compulsory process of registra- (f) the assets do not include securitisations;
tion with the European Securities and Markets (g) the assets originated in ordinary course of
Authority (ESMA) for rating agencies (RA). Ger- business, there are credit underwriting cri-
man public asset-backed securities that shall teria and no “self-cert” residential loans;
serve as collateral for Eurosystem purposes (h) there are no assets in default, or expo-
(ECB collateral) are typically rated by two rating sures to credit-impaired obligors;
(i) at least one payment has been made (with
11Law and Practice GERMANY
Contributed by: Dr Patrick Scholl, Andreas Lange, Dr Ralf Hesdahl and Kirsten Schürmann,
Mayer Brown LLP
exceptions); and formance;
(j) repayment does not depend substantially (e) disclosure by the originator and sponsor
on the refinancing or sale of assets; as per Article 7 of the SR – ie, of loan level
• for standardised securitisation (Article 21 of data before pricing, transaction docu-
the SR): ments, prospectus or transaction sum-
(a) risk retention as per Article 6 of the SR; mary and STS notification drafts before
(b) interest rate and currency risks are pricing; and
hedged as per common standards, and (f) provision of final documents within 15 days
there are no other derivatives; after closing.
(c) interest payments match market rates or
the “sectoral” cost of funds, and are not 4.7 Use of Derivatives
complex – ie, there are: Derivatives can be used in securitisation in dif-
(i) sequential payments and no cash ferent forms. In true sale securitisations, deriva-
trapping after enforcement or ac- tives are most often used to hedge mismatches
celeration notice; in the interest rate calculation (eg, fixed income
(ii) specified triggers for sequential from receivables against floating interest under
payments; the notes or no interest-bearing receivables
(iii) specified triggers for early amor- against floating interest under the notes, but also
tisation or termination of revolving different sources of interest rate calculations).
periods (if any); In multi-jurisdictional trade receivables transac-
(iv) provisions for continuity of servic- tions, there can be also mismatches between
ing, replacement of liquidity and the sources and uses if different currencies are
derivatives, etc; involved and currency swaps become neces-
(v) servicer experience and docu- sary.
mented policies, procedures and
controls; There are different ways to hedge the currency
(vi) clear and consistent definitions, or interest risks: there can be an exact match
remedies and actions relating to of hedging like under a balance-guaranteed
delinquency, default, etc; and swap where the notional amount of the swap
(vii) provisions for timely resolution of is automatically adjusted to the corresponding
conflicts between classes of inves- receivables balance. Balance-guaranteed swaps
tors, clearly defined voting rights are rather expensive because of the unpredict-
allocated to noteholders, etc; and ability of the receivables balance. Part of the
• for transparent securitisation (Article 22 of the unpredictability can be hedged by a back-to-
SR): back swap which needs to be structured in a
(a) at least five years of historical data for simi- way that issues on the back swap do not affect
lar exposures; the front swap and no credit risk must be taken
(b) third-party verification of asset samples back by the originator through the back swap.
before issuance; Alternatively, corridors can be used either for the
(c) provision of a liability cash flow model to interest rate by using caps or floors or for the
investors before pricing, and on an ongo- notional amount which oblige the SPE to enter
ing basis; into swap amendments if the corridor between
(d) for residential loans and auto loans or the notional amount of the swap and the receiva-
leases, disclosure of environmental per- bles balance exceeds a certain level.
12GERMANY Law and Practice
Contributed by: Dr Patrick Scholl, Andreas Lange, Dr Ralf Hesdahl and Kirsten Schürmann,
Mayer Brown LLP
In synthetic securitisation transactions deriva- 4.8 Investor Protection
tives are used by banks for the regulatory risk The SR intends to provide investor protection
transfer and by SPEs to hedge interest rate to institutional investors (as defined in the SR)
risks and to hedge currency exchange risks. To – ie, credit institutes, insurance enterprises, rein-
the extent the SPE invests proceeds in eligible surers, AIFMs or UCITs. Investor protection is
investments asset protection swaps (eg, total achieved in particular by means of:
return swaps) may also become necessary.
• pre-investment due diligence requirements for
Regulation of Derivatives institutional investors (Article 5 of the SR);
Derivatives are generally regulated by Regula- • the originator, sponsor and original lender
tion (EU) 648/2012 of the European Parliament of a securitisation retaining, on an ongoing
and of the Council of 4 July 2012 as amended basis, a material net economic interest in the
by Regulation (EU) 2019/834 of the European securitisation of not less than 5% (Article 6 of
Parliament and of the Council of 20 May 2019 the SR);
(EMIR). EMIR provides, inter alia, for central • transparency requirements for the underlying
clearing of derivatives (because the bespoke exposures (loan-level information, documen-
nature of the derivatives used in securitisations tation, investor reporting) (Article 7 of the SR);
in most cases does not apply) or for collater- • the ban on re-securitisations (Article 8 of the
al posting. Such collateral posting obligation SR);
applies already to non-financial counterparties • the obligation to disclose the originator’s
exceeding a certain threshold for the type of criteria for the granting of credit (Article 9 of
derivative. Naturally, the SPE would not have the the SR); and
financial resources to provide such collateral if • the obligation to hold data in a securitisation
the threshold is exceeded. repository (Article 17 of the SR).
For STS-compliant securitisations there is an 4.9 Banks Securitising Financial Assets
exemption from the clearing obligation (and col- The legal environment for securitisations of
lateral posting obligation) if the relevant deriva- German regulated institutions is governed by
tive contract is concluded by a securitisation the provisions of the CRR and the Securitisa-
special purpose entity in connection with an tion Regulation. When German financial institu-
STS-securitisation and if the counterparty credit tions securitise financial assets, they often use
risk is adequately mitigated in accordance with the German securitisation platform provider True
Article 2 of the Commission Delegated Regula- Sale International and often structure securiti-
tion (EU) 2020/447. This means that the transac- sation transactions in line with the collateral
tion must provide for the following features (in requirements of the European Central Bank.
addition to being STS-compliant):
4.10 SPEs or Other Entities
• the swap counterparty must rank at least pari German law does not provide for specific legis-
passu with the most senior investors (unless lation relating to SPEs as securitisation compa-
the counterparty is the defaulting or affected nies, however, the German Banking Act (KWG)
party); and contains for regulatory purposes definitions of
• the most senior notes are subject to a credit the terms refinance enterprise, refinance inter-
enhancement of more than 2% of the out- mediary and special purpose entity (Section 1
standing balance of these notes.
13Law and Practice GERMANY
Contributed by: Dr Patrick Scholl, Andreas Lange, Dr Ralf Hesdahl and Kirsten Schürmann,
Mayer Brown LLP
(24) to (26) German Banking Act (KWG)) (for fur- Credit enhancement means a contractual
ther details, see 1.2 Special-Purpose Entities). arrangement whereby the credit quality of a
position in a securitisation is improved in relation
4.11 Activities Avoided by SPEs or to what it would have been if the enhancement
Other Securitisation Entities had not been provided, including the enhance-
There is no legislation available in Germany that ment provided by more junior tranches in the
defines activities to be avoided by SPEs or other securitisation and other types of credit protec-
securitisation entities. Restrictions on SPEs or tion (Article 4 (1) 65 of the CRR).
other securitisation entities result from rating cri-
teria or the requirements defined by securitisa- Credit enhancement can be provided to a secu-
tion platform providers like TSI or PCS. For fur- ritisation transaction in various forms, for exam-
ther details, see 1.2 Special-Purpose Entities. ple:
4.12 Material Forms of Credit • the subordination of junior notes or the grant-
Enhancement ing of subordinated loans to the issuer;
German securitisations can benefit from various • deferred purchase price provisions; over-
forms of credit enhancement. However, if the collateralisation (sale and transfer of financial
issuer retains a significant interest in the credit assets to the issuer at a value greater than
risk attached to a sold and transferred financial that of the consideration paid for them);
asset, there is a risk that the transfer of a sold • excess spread (interest-bearing financial
and assigned receivable under a receivables assets generating a greater interest cash flow
purchase agreement could be questioned and than the coupon of the issued asset-backed
re-characterised as an assignment of receiva- security, or, in the case of non-interest-bear-
bles for security purposes (Sicherungszession) ing assets, the discount being greater than
– ie, as a secured lending transaction – with the coupon); and/or
respect to receivables that will be purchased on • cash reserves.
a recourse basis.
Re-characterisation
This risk should be mitigated if the terms of the In particular, deferred purchase price provisions,
receivables purchase do not have the economic excessive discounts or the transfer of receiva-
effect that the credit risk (Delkredererisiko) of the bles on a recourse basis could result in the risk
receivables has been factually retained by the (due to the participation in the sold and trans-
seller, despite the sale and assignment of them. ferred receivable retained by the originator) that
This would be the case if the credit risk partici- the sale and assignment of a receivable could be
pation retained by the seller (due to, for exam- re-characterised as an assignment for security
ple, retained purchase price provisions, default purposes (Sicherungsabtretung).
risk reserves, etc) were not at arm’s length for a
non-recourse receivables sale. It should be not- It is the prevailing view among legal practition-
ed in this context that retained dilution reserves ers that re-characterisation is dependent on the
or yield reserves or deemed collections due to degree of default risk retained by the seller. A
broken representations and warranties will not re-characterisation is excluded if the securi-
impact the German legal true sale analysis. tised assets have been properly registered in
a refinance register (Refinanzierungsregister),
because the securitised and registered assets
14GERMANY Law and Practice
Contributed by: Dr Patrick Scholl, Andreas Lange, Dr Ralf Hesdahl and Kirsten Schürmann,
Mayer Brown LLP
can be segregated in case of a subsequent assets to be securitised is typically achieved by
insolvency of the refinance enterprise (seller) as core transaction documents, consisting of:
provided for under Section 22j of the German
Banking Act (KWG) (see 1.4 Construction of • a receivables purchase agreement (RPA),
Bankruptcy-Remote Transactions). entered into between the originator and the
issuer;
Treatment as a Secured Loan • a servicing agreement entered into between
Where a transaction which is intended to con- the originator in its capacity as servicer, the
stitute a sale results in the sold receivables no security trustee as trustee and the issuer;
longer being entered in the originator’s bal- • a security trust agreement entered into
ance sheet under generally applicable German between, among others, the issuer and the
accounting rules, it is less likely to be treated as transaction security trustee; and
a secured loan, because the analysis of whether • a data trust agreement in the case of sensitive
a sale constitutes a secured loan or a sale must personal obligor data or aspects which are
follow a commercial approach. covered by the principle of banking secrecy
(Bankgeheimnis).
Where a transaction is treated as a secured loan
for accounting and/or tax purposes, the risk of Core Provisions of the RPA
it also being treated as a secured loan for legal The RPA defines in detail the receivables to be
purposes (including for the purposes of an analy- sold to the issuer (eg, by reference to an asset
sis in the context of Section 166 of the Insolven- list), the purchase price to be paid by the issuer
zordnung or Insolvency Statute) increases (see to the originator as equivalent for the transfer, as
the final paragraph of 1.1 Insolvency Laws). well as any collateral transferred by the origina-
tor to the issuer that secures the performance
4.13 Participation of Government- of the sold receivables. The originator typically
Sponsored Entities warrants that the sold receivables legally exist
There are currently no German government- and will not be impaired or reduced by obligor
sponsored entities active in German securitisa- defences or set-off rights, that the originator
tions. holds good and unencumbered title to the sold
receivables, that the sold receivables comply
4.14 Entities Investing in Securitisation with the eligibility criteria, that the originator will
According to True Sale International in 2018, UK not amend its credit and collection policy with-
investors (41%) followed by Benelux investors out the issuer’s consent, and that the credit and
(11%) and US investors (10%) invested in Euro- collection policy applied by the originator to the
pean ABS. In 2018, European ABS was placed sold receivables is consistent with the credit and
predominantly to funds (52%), pension funds collection policy applied by the originator to its
(15%) and banks (29%). own (not securitised) receivables.
The RPA further stipulates that the originator
5 . D O C U M E N TAT I O N must be deemed to have received deemed col-
lections or benefits from indemnities if collec-
5.1 Bankruptcy-Remote Transfers tions on the sold receivables will be reduced by
Under German law-governed true sale securiti- non-credit risk or non-default risk related short-
sations, the bankruptcy remote transfer of the falls. Under German law, notification of the obli-
15Law and Practice GERMANY
Contributed by: Dr Patrick Scholl, Andreas Lange, Dr Ralf Hesdahl and Kirsten Schürmann,
Mayer Brown LLP
gor on the sale of a securitised receivable is not al acquired from the originator, and all claims
a requirement for the perfection of the issuer’s against the servicer and other transaction par-
title in the acquired receivables. ties, as note collateral to the security trustee. The
security trustee will hold the collateral in trust for
German RPAs typically provide that the obligor the beneficiaries, which include the noteholders.
of the sold receivables is not notified on the sale The key element of the trust agreement are the
of the securitised receivables by the originator to definition of the priority of payments (waterfall
the issuer as long as the originator is in compli- provisions), as well as the acceptance of the
ance with its contractual obligations under the limited recourse and non-petition clauses by all
RPA and the servicing agreement and in good transaction parties. The trust agreement con-
financial standing. However, the issuer reserves tains issuer undertakings to the security trustee
the right to inform the obligor of the acquisition not to sell or charge the collateral, to refrain from
of the securitised receivables upon occurrence all actions and omissions to act which may result
of an obligor notification event, which is typically in a significant decrease in the value or loss of
combined with a servicer replacement event. the collateral, to have independent directors and
not to enter into any other agreements unless
Core Provisions of the Servicing Agreement such agreements contain limited recourse, non-
Under a tripartite servicing agreement entered petition and limitation on payments provisions,
into between the originator in its capacity as ser- as defined in detail in the trust agreement.
vicer, the issuer and the security trustee as trus-
tee, the issuer appoints the originator as its ser- Core Provisions of the Data Trust Agreement
vicer to service, administer, collect and enforce In order not to disclose sensitive obligor data
the securitised receivables and available receiv- to the issuer which are subject to restrictions
ables collateral (eg, financed or leased vehicles) resulting from data privacy and are subject to
in accordance with the originator’s credit and disclosure restrictions resulting from the princi-
collection policy and to transfer collections on ple of banking secrecy (Bankgeheimnis), the RPA
securitised receivables to the issuer. The servic- will contain provisions that the originator will dis-
ing agreement typically provides for indemnifica- close the identity (ie, name and address) of the
tions for any losses or damages arising from the obligor of bank loan receivables to the issuer
issuer’s reliance on information, representations, only in encrypted form and that the decryption
warranties and reports derived from or included key will be safe kept by a data trustee. BaFin pro-
in servicer reports or any claims which arise poses to use as data trustee a credit institution
from the servicer’s collection activities. Servic- licensed to do banking business in the EU or the
ing agreements typically provide for the replace- EEA. However, in practice, data trustees are not
ment of the originator/servicer by a third-party always credit institutions. The data trust agree-
replacement servicer if a servicer replacement ment provides that the identity of the respective
event is triggered. obligors will not be disclosed to the issuer as
long as the originator/servicer services the secu-
Core Provisions of the Trust Agreement ritised receivables on behalf of the issuer. Upon
The security trustee, originator/servicer, the replacement of the originator/servicer by a third-
issuer and all other transaction parties enter party replacement servicer (eg, in the case of
into a trust agreement. Pursuant to the terms servicer’s insolvency or of a significant default of
of this trust agreement, the security trustee will its obligations), the data trustee will provide the
on-transfer all assets and the related collater- replacement servicer with the decryption key,
16GERMANY Law and Practice
Contributed by: Dr Patrick Scholl, Andreas Lange, Dr Ralf Hesdahl and Kirsten Schürmann,
Mayer Brown LLP
enabling the replacement servicer to collect the 6.2 Sponsors
securitised receivables on behalf of the issuer. The sponsor is the party that usually initiates the
securitisation transaction. The sponsor can be
Corporate Administration Agreement the originator of the receivables to be securitised
The issuer and a corporate service provider (as or an affiliate, often being the parent company
administrator) enter into a corporate administra- of the originator.
tion agreement to provide corporate services to
the issuer. The independent directors provided 6.3 Underwriters and Placement Agents
by the corporate service provider to the issuer Underwriters are usually also referred to as man-
have the obligation to ensure that the issuer agers and/or arrangers, and are typically banks.
does not carry out any activities, and in particu- Underwriters are responsible for arranging the
lar does not incur any financial indebtedness, securitisation transactions and for the marketing
other than as required for the specific securitisa- thereof. Together with the originator – which may
tion transaction. also act as arranger – the underwriters under-
write the notes issued by the issuer.
5.2 Principal Warranties
See 5.1 Bankruptcy-Remote Transfers. 6.4 Servicers
Servicing is usually undertaken by the seller (also
5.3 Principal Perfection Provisions referred to as originator) of the receivables.
See 5.1 Bankruptcy-Remote Transfers.
6.5 Investors
5.4 Principal Covenants Investors are typically banks or other financial
See 5.1 Bankruptcy-Remote Transfers. institutions. The investors fund the issuer by
subscribing the notes and paying the respec-
5.5 Principal Servicing Provisions tive purchase price.
See 5.1 Bankruptcy-Remote Transfers.
6.6 Trustees
5.6 Principal Defaults Trustees are usually also referred to as “security
See 5.1 Bankruptcy-Remote Transfers. trustees” or “collateral agents”. Their function is
to hold and administer (and in an enforcement
5.7 Principal Indemnities scenario, also to enforce) the security granted
See 5.1 Bankruptcy-Remote Transfers. over the assets of the issuer. The security is to be
held in favour of the secured parties, in particular
the noteholders. Trustees are often professional
6. ROLES AND trust corporations, in some cases being affiliates
RESPONSIBILITIES OF THE of banks.
PA R T I E S
6.1 Issuers
Issuers are insolvency remote special-purpose
vehicles, see 1.2 Special-Purpose Entities.
17Law and Practice GERMANY
Contributed by: Dr Patrick Scholl, Andreas Lange, Dr Ralf Hesdahl and Kirsten Schürmann,
Mayer Brown LLP
7. SYNTHETIC of a credit derivative or a financial guarantee,
S E C U R I T I S AT I O N and the exposures being securitised remain
exposures of the originator institution (Arti-
7.1 Synthetic Securitisation Regulation cle 242, paragraph 11 of the CRR). The credit
and Structure derivative and financial guarantee is granted by
Institutions in Germany primarily use and have in a securitisation SPV (or directly by the protection
the past often used synthetic securitisations for seller) to the originator with respect to a specific
the purpose of regulatory risk transfer. The regu- loan portfolio. By setting the relevant attach-
latory regime of synthetic securitisations is gov- ment point and detachment point for losses of
erned by the CRR. The current SR provides that interest and capital under the loan portfolio, the
the criteria for simple, transparent and stand- synthetic securitisation and first loss piece will
ardised securitisations (STS securitisations) do be tranched.
not apply to synthetic securitisations. On 2 July
2019, the EBA presented during a public hear- Interest or Capital Loss
ing, together with a legislative proposal, a report If an interest or capital loss is determined under
on the feasibility of a specific framework for STS the loan portfolio due to a failure to pay, a bank-
securitisations limited to balance-sheet syn- ruptcy or, under certain conditions, a restructur-
thetic securitisation. EBA published a discus- ing, and is verified under the credit derivative
sion paper on 24 September 2019 with the title or the financial guarantee within the relevant
“Draft Report on STS Framework for Synthetic attachment and detachment points, then the
Securitisation Under Art. 45 of Regulation (EU) securitisation SPV will be required to make a
2017/2402”. relevant payment to the originator under the
credit derivative or financial guarantee. These
In June 2020, the High Level Forum for the com- payment obligations are funded by way of the
pletion of the capital market union presented its proceeds from the issuance of a credit-linked
final report which contained recommendations note to investors. The cash proceeds from such
on securitisation, including synthetic securitisa- an issuance serve as collateral and funding basis
tion. Further, the European Commission pub- for the potential loss payments under the credit
lished, on 24 July 2020, a proposal for a Regu- derivative or the financial guarantee.
lation amending the SR and setting out certain
standards for a synthetic simple, transparent A synthetic securitisation will be recognised for
and standardised synthetic securitisation. On 16 regulatory risk transfer purposes if the require-
December 2020, the Council of the European ments of Article 244 of the CRR have been sat-
Union published final compromise proposals. isfied. This requires, inter alia, that an originator
The European Parliament Committee on Eco- institution:
nomic and Monetary Affairs adopted them on 14
January 2021. ESMA submitted its Final Report • had transferred significant risk to third par-
on technical standards specifying content and ties, either through funded or unfunded credit
format of the STS notification for synthetic secu- protection; and
ritisations to the European Commission on 12 • the originator institution applies a 1.250% risk
October 2021. weight to all securitisation positions it holds
in the securitisation or deducts these securiti-
A synthetic securitisation is a securitisation sation positions from its common equity tier
where the transfer of risk is achieved by the use
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