On 18 July 2024 Consob published its Resolution no. 23208 of 17 July 2024 (the “Resolution 23208”) that implements a waiver to the provisions of Regulation (EU) no. 2017/2402 (the “Securitisation Regulation”) exercising the discretion granted to it pursuant to article 26e (10), third subparagraph of the Securitisation Regulation, following the publication of the European Banking Authority (“EBA”) Opinion of 7 June 2024 (the “EBA Opinion”). As a result, Italian banks would be able to carry out STS (as defined below) securitisations also if their rating is not in line with the relevant regulation.

1. The Securitisation Regulation and the relevant collateral provisions

The Securitisation Regulation has set out the regulatory framework for on-balance-sheet securitisations and the criteria for simplicity, transparency, standardisation as well as specific criteria for the credit protection agreement, the third-party verification agent and the synthetic excess spread (the “STS”). In particular, article 26e (10), first sub paragraph of the Securitisation Regulation requires that the credit protection referred to in article 26e (8), (c) of the Securitisation Regulation should meet the condition that the originator, as protection buyer, and the investor, as protection seller, should have recourse to high quality collateral in order to qualify as STS on-balance-sheet securitisation. Pursuant to article 26e (10), second subparagraph of the Securitisation Regulation, the originator may have recourse to high quality collateral in the form of cash on deposit with the originator, or one of its affiliates, if the originator or one of its affiliates qualifies as a minimum for credit quality step (“CQS”) 2.

2. The EBA Opinion

The EBA Opinion was issued in accordance with article 26e (10), third subparagraph of the Securitisation Regulation, pursuant to which, under certain conditions, the competent authorities may, after consulting with the EBA, allow collateral in the form of cash on deposit with the originator, or one of its affiliates, if the originator or one of its affiliates qualifies for CQS 3.

On 17 November 2023, Consob, acting in its capacity of competent authority designated in Italy pursuant to article 29 (5) of the Securitisation Regulation, consulted with the EBA on its intention to exercise the mentioned discretion, specifying that:

• none of the Credit Rating Agencies assign to the Italian sovereign debt a long-term rating that could qualify for CQS 1 or CQS 2;
• as regards the credit rating of Italian credit institutions, out of 23 credit institutions with available long-term credit ratings, none of them has an external credit rating qualifying for CQS 1, while only one Italian bank has an external long-term credit rating qualifying for CQS 2. Consob also stressed that the said Italian bank is part of a French banking group, while generally the credit rating of Italian banks/groups is capped by the country ceiling of Italian sovereign debt rating (e., BBB according to S&P, Fitch and DBRS and Baa3 for Moody’s which corresponds to CQS 3);
• the alternatives of providing high collateral in the form of (i) government bonds with a residual maturity of 3 months, or (ii) cash held at a third-party bank with a CQS of at least 3, are burdensome and complex for the Italian credit institutions due the involvement of a third-party and complex documentation and make the transaction less cost efficient. Furthermore, for cash held with a third-party bank, the originator will experience a reduced capital efficiency of the transaction due to the counterparty risk of the depository bank holding the cash collateral. Therefore, Italian credit institutions would be impaired with respect to foreign counterparties with negative results on their business capacity and risk management measures and this may negatively affect the market efficiency in terms of costs, volumes, and market continuity; and
• due to the size of the Italian synthetic securitisation market, it is therefore evident the impact of the impediments linked to the CQS requirements. Consob stressed that should the waiver be exercised, it would contribute to the development of the synthetic STS market, which has proven to be a strong vehicle for the financing of the real economy. While the outstanding transactions would not benefit (given that they would need to be restructured to be STS and this would entail a higher cost that the benefit that could be achieved), the new transactions could benefit and the Italian originators would be incentivised to structure on-balance-sheet securitisations that would be STS compliant.

Therefore, in the EBA Opinion it has been stated that “Consob has provided sufficient evidence to the objective impediments in Italy stemming from the application of the minimum CQS 2 requirement specified in Article 26e(10), second subparagraph of the Securitisation Regulation. This has the potential to result in prudential concerns and may generally impact the well-functioning of the securitisation market. The EBA is therefore of the opinion that the exercise of the discretion is adequately justified”.

3. The Regulation 23208

Following the publication of the EBA Opinion, Consob published the Regulation 23208 which provides that, with respect to on balance sheet securitisations, where other credit protection is provided pursuant to article 26e (8), (c) of the Securitisation Regulation, in accordance with article 26e (10), subparagraph 3, collateral in the form of a cash deposit with the originator or one of its affiliates is permitted, if the originator or one of its affiliates meets the requirement of CQS 3, in consistency with the rating assignment under article 136 of Regulation (EU) no. 575/2013.

The Regulation 23208 will entry into force the day after its publication on the Official Gazette (at the date hereof, it has not yet been published on the Official Gazette).

The Regulation 23208 will provide an important support to further development of the already flourishing Italian significant risk transfer transaction (SRT) market.