(11)Synthetic excess spread (SES) is a mechanism commonly used in the securitisation of certain asset classes for originators and investors to reduce the cost of protection and the exposure at risk, respectively. A dedicated prudential treatment of SES should be set out to prevent SES from being used for regulatory arbitrage purposes. In that context, regulatory arbitrage occurs when an originator institution provides credit enhancement to the securitisation positions held by protection providers by contractually designating certain amounts to cover losses of the securitised exposures during the life of the transaction, and such amounts, which encumber the originator institution’s income statement in a manner similar to an unfunded guarantee, are not risk-weighted.