Risk retention in EU securitisations
Produced in partnership with Nick Shiren of Cadwalader
Risk retention in EU securitisations

The following Banking & Finance guidance note Produced in partnership with Nick Shiren of Cadwalader provides comprehensive and up to date legal information covering:

  • Risk retention in EU securitisations
  • What is risk retention?
  • The position under the CRR
  • How has risk retention worked?
  • The Position under the Securitisation Regulation
  • Draft regulatory technical standards on the risk retention requirements

BREXIT: The UK is leaving the EU on Exit Day (as defined in the European Union (Withdrawal) Act 2018). This has an impact on this Practice Note. For guidance, see Practice Note: Brexit—impact on finance transactions—Brexit planning and impact—financial services, Brexit—impact on finance transactions—Key issues for securitisation transactions and Brexit—impact on finance transactions—Derivatives and debt capital markets transactions—key SIs.

This Practice Note describes the position as at August 2018. Delegated legislation is being prepared under the new Securitisation Regulation—at the time of writing this was in draft form.

What is risk retention?

Risk retention in the EU

The risk retention requirement currently applicable in the EU consists of an obligation on an EU institutional investor to ensure that the originator, sponsor or original lender of a securitisation retains at least 5% of the net economic interest of any securitisation in which it invests. In respect of securitisations, the securities of which are issued from 1 January 2019, this indirect requirement will be supplemented by a direct obligation on one of the originator, sponsor or original lender to retain a net economic interest of at least 5%. This is explained in more detail below.

The purpose of the risk retention requirement

The objective of the risk retention requirement is to create an alignment of interests between those of the suppliers of a