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The key proposal of EIOPA is to introduce a more granular treatment of securitisations. Instead of the currently proposed uniform 7 per cent spread risk charge for AAA-rated securitisations, EIOPA recommends to decrease the charges for less risky issues to 4.30 per cent while increasing them for riskier ones to 12.50 per cent.
For identifying less risky securitisations EIOPA has developed a set of criteria related to the structure of securitisation, the quality of the underlying assets, the underwriting processes and the transparency for investors.
The Report also confirms the currently proposed risk charges for a number of investments including private equity, loans to small and medium sized enterprises and socially responsible investments.
The study was conducted with the input from a range of experts from industry, regulatory bodies and the academic world. In the course of the research EIOPA was confronted with a challenge that is typical for the assets analysed - the lack of comprehensive, reliable and publicly available performance data (especially for infrastructure investments). The Authority intends to work on closing these data gaps in cooperation with the relevant parties.
Gabriel Bernardino, Chairman of EIOPA, said: “Our analysis has shown that those securitisation issues meeting a set of quality criteria have a good track record of performance and from a supervisory perspective should meet lower capital requirements. We are confident that the new classification of debt securitisation allows for a better alignment between risk and capital management and, therefore, can support the long term growth objectives in a prudent way”.
Technical Report on Standard Formula Design and Calibration for Certain Long-Term Investments
EIOPA's Letter to the European Commission on the Report on Long-Term Investments