Question
For synthetic securitisations where the originator: retains certain securitisation tranches (e.g. senior or mezzanine tranche), obtains funded credit protection for part of the junior risk, and obtains unfunded credit protection for another part of the junior risk, how should the geographical location of the originator’s remaining exposures be determined for purposes of CCB calculation? Specifically: Should all exposures arising from the securitisation—whether securitisation exposures or CRM‑transformed exposures—be allocated according to Article 4 of Delegated Regulation (EU) 1152/2014, based solely on the obligors of the underlying exposures? Or should the following differentiated approach apply: retained securitisation exposures: allocation under Article 4 DelVO 1152/2014. funded protection: no remaining exposure → no CCB geographical allocation; unfunded protection: exposure is no longer a securitisation exposure but a CRM‑transformed credit exposure; Should the geographical allocation follow the logic of Q&A 2016_3050 (pre‑CRM exposure = underlying obligors = allocation according to Article 4 DelVO 1152/2014 the same as for the retained securitisation exposure), or the standard CRM logic for credit exposures (location of the protection provider instead of location of the underlyings)?
Background on the question
Article 4 of Commission Delegated Regulation (EU) 1152/2014 determines the geographical location of securitisation exposures by reference to the obligors of the underlying exposures. In synthetic securitisations, an originator may: retain securitisation tranches, transfer credit risk via funded credit protection, and transfer credit risk via unfunded credit protection. Depending on the form of credit protection, the originator may either: continue to hold a securitisation exposure, or instead hold a credit‑risk exposure arising from CRM, or have no remaining exposure. EBA Q&A 2016_3050 clarifies two key principles for CCB purposes: The geographical location must always be determined on the basis of the unsecured (pre‑CRM) exposure. The risk‑weighted exposure amount (RWA) used for the CCB calculation must reflect CRM (post‑CRM). Thus: Location = before CRM; RWA = after CRM. Uncertainty arises where a synthetic securitisation produces both securitisation exposures and CRM‑transformed credit exposures, especially when part of the junior tranche is covered via funded protection (which removes the exposure) and another part via unfunded protection (which creates a credit exposure to the protection provider).