The Joint Committee of the ESAs has issued a statement clarifying the impact of Brexit on STS. It just confirms what we knew: existing STS transactions with a UK originator or sponsor or special purpose vehicle will cease to be STS in the hands of European Union investors.
The only small additional point is timing.
The rules grant CRR and LCR benefits to STS transactions. An STS
transaction is a transaction that meets the requirements and appears on
the ESMA list. Therefore, there was the possibility of a short grace
period between 1st January 2021 and the time it took for originators to
notify ESMA and ESMA to remove a transaction from the list.
This announcement indicates that ESMA will seek to remove all those
deals by 1st January irrespective of whether originators notify them.
So there will be no technical grace period unless a bank can negotiate
one with its national prudential regulator.
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