Instruction No. 2017-I-23 of December 21, 2017, on the notification of transactions concluded in connection with a securitization or a securitization position

PRUDENTIAL CONTROL AND RESOLUTION AUTHORITY

Instruction No. 2017-I-23 dated December 21, 2017, regarding the notification of transactions concluded in connection with a securitization or a securitization position, as amended by Instruction No. 2024-I-13 of October 24, 2024

The Prudential Control and Resolution Authority, Having regard to the Monetary and Financial Code, particularly Article L. 612-24; Having regard to Regulation (EU) No 575/2013 of the European Parliament and of the Council of June 26, 2013, on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012, particularly Article 248, Having regard to the Decree of December 23, 2013, relating to the prudential regime of financing companies; Having regard to the guidelines of the European Banking Authority (EBA/GL/2016/08) of November 24, 2016, on implicit support for securitization transactions; Having regard to the public guidelines of the European Central Bank of July 28, 2017, concerning information on transactions going beyond the contractual obligations of a sponsor or originator institution pursuant to Article 248(1) of Regulation (EU) No 575/2013; Having regard to the opinion of the Prudential Affairs Consultative Committee dated December 11, 2017, DECIDES

Chapter I General Provisions

Article 1: For the application of this instruction:

1° The subject institutions are credit institutions that do not fall under the direct supervision of the European Central Bank, financing companies, and investment firms;

2° An "originator" is understood in the sense of point 13) of paragraph 1 of Article 4 of the aforementioned Regulation (EU) No 575/2013;

3° A "sponsor" is understood in the sense of point 14) of paragraph 1 of Article 4 of the same regulation;

4° A "securitization" is understood in the sense of point 61) of paragraph 1 of Article 4 of the same regulation;

5° A "securitization position" is understood in the sense of point 62) of paragraph 1 of Article 4 of the same regulation;

6° A transaction is considered to exceed the contractual obligations of a party when, in accordance with the terms of the securitization documentation in force prior to the conclusion of this transaction, that party is not contractually obliged to conclude the transaction or is not contractually obliged to conclude the transaction under the conditions provided for this transaction;

7° A transaction is carried out under normal competitive conditions when it is concluded on the same terms as a normal commercial transaction. This is the case if, given the information available to each party at the time of concluding the transaction: a) The parties have no links between them, in particular no special duties or obligations nor any possibility of controlling or influencing each other; b) And each party acts independently; concludes the transaction according to its own will; acts in its own interests and does not conclude the transaction based on considerations unrelated to the transaction, such as the reputational risk to which the originator institution or the sponsor institution would be exposed if the transaction were not carried out;

8° A transaction is not structured with the aim of providing support if: a) It is carried out under normal competitive conditions or under conditions more favorable than normal competitive conditions for the sponsor institution or, as the case may be, the originator institution, and b) When it has been concluded by an originator institution that has transferred a significant part of the credit risk associated with the securitized exposures, in accordance with Articles 243 or 244 of the aforementioned Regulation (EU) No 575/2013, if the securitization still satisfies the conditions for significant risk transfer provided for in Articles 243 or 244 of the same regulation or, if these conditions are no longer satisfied, the transaction was not concluded with the aim of reducing potential or actual losses for investors.

Article 2: I. - Subject institutions, when they are originators or sponsors and have used Article 245(1) and (2) of Regulation (EU) No 575/2013 in the calculation of risk-weighted exposure amounts or have sold instruments from their trading portfolio with the consequence that they are no longer required to hold capital to cover risks related to these instruments, notify the Prudential Control and Resolution Authority of any transaction they have concluded in connection with a securitization or a securitization position after the closing of this securitization. In particular, any modification of the securitization documentation and any modification relating to coupons, yields, or other characteristics of securitization positions are to be notified.

II. - Originator subject institutions also notify the Authority of any transaction that meets the following conditions: 1° It is concluded by an entity, other than the originator institution, which is: a) A parent company of the originator institution, a subsidiary of the originator institution, or a subsidiary of a parent company of the originator institution; b) Or an entity to which the originator institution or one of the entities mentioned in a) has provided, directly or indirectly, financing, support, or instructions, or with which the originator institution or one of the entities mentioned in a) has concluded an agreement regarding the conclusion of this transaction; 2° It would fall under the provisions of I if it had been concluded by the subject originator institution.

When the condition provided for in b) of 1° is met, the subject originator institution communicates to the Prudential Control and Resolution Authority any useful information on the type of link existing between the entity that concluded the transaction and itself or, where applicable, on the financing, support, or instructions provided to this entity or on the agreements concluded with this entity for the purpose of carrying out the transaction.

III. - The transactions mentioned in I and II are notified at the latest fifteen working days after their realization.

Chapter II Provisions applicable to subject originator institutions

Article 3: When carried out by subject originator institutions, the notifications provided for in Article 2 are accompanied by the information required by this chapter.

Article 4: The subject originator institution provides any information on the economic justification of the transaction. In particular, it indicates whether the transaction was carried out as part of a market-making activity.

It also provides any information on the possible effects of the transaction on the credit risk initially transferred to third parties compared to the reduction in risk-weighted exposure amounts on securitized exposures.

Article 5: When it claims that the transaction does not constitute implicit support for the securitization within the meaning of Article 248 of the aforementioned Regulation (EU) No 575/2013, the subject originator institution provides any information capable of justifying that it respects the conditions set by this article, in particular that the transaction does not exceed its contractual obligations or that it is not structured with the aim of providing support, duly taking into account the criteria set out in points a to e of paragraph 1 of Article 248 of the same regulation.

In particular, the information provided includes: 1° Elements attesting that the assessment carried out by the institution is consistent with its credit control and approval procedure; 2° Regarding a transaction carried out under normal competitive conditions or under conditions more favorable for the originator institution than normal competitive conditions, the following data: a) Market values, including quoted prices on active markets, for similar transactions to which the institution may have access on the valuation date; b) In the absence of the values mentioned in a), data, other than quoted prices, directly or indirectly observable for the asset item; c) In the absence of the data mentioned in b), non-observable data for the asset item. These are accompanied by detailed explanations on the method implemented and the data used for the evaluation of sums due or receivable. Analyses by independent experts, such as accounting firms or audit firms, may be produced to support this assessment. 3° Information demonstrating that the transaction does not undermine the significant risk transfer carried out for the purpose of securitization, or that the transaction was not concluded with the aim of reducing potential or actual losses for investors. In this regard, the information specifies: a) The accounting entries used by the participants for the transaction in question; b) How their liquidity situation has evolved; c) Whether the anticipated losses of a securitization position and the securitized exposures have increased or decreased considerably, taking into account, among other things, changes in the market price of the position, risk-weighted exposure amounts, and ratings of securitization positions.

Chapter III Provisions applicable to subject sponsor institutions

Article 6: When carried out by subject sponsor institutions, the notifications provided for in Article 2 are accompanied by the information required by this chapter.

Article 7: The subject sponsor institution provides any information on the economic justification of the transaction. In particular, it indicates whether the transaction was carried out as part of a market-making activity.

Article 8: When it claims that the transaction does not constitute implicit support for the securitization within the meaning of Article 248 of the aforementioned Regulation (EU) No 575/2013, the subject sponsor institution provides any information capable of justifying that it respects the conditions set by this article, in particular that the transaction does not exceed its contractual obligations or that it is not structured with the aim of providing support, duly taking into account, at a minimum, all the criteria set out in points a to e of paragraph 1 of Article 248 of the same regulation.

In particular, the information provided includes: 1° Elements attesting that the assessment carried out by the institution is consistent with its credit control and approval procedure; 2° Regarding a transaction carried out under normal competitive conditions or under conditions more favorable for the originator institution than normal competitive conditions, the following data: a) Market values, including quoted prices on active markets, for similar transactions to which the institution may have access on the valuation date; b) In the absence of the values mentioned in a), data, other than quoted prices, directly or indirectly observable for the asset item; c) In the absence of the data mentioned in b), non-observable data for the asset item. These are accompanied by detailed explanations on the method implemented and the data used for the evaluation of sums due or receivable. Analyses by independent experts, such as accounting firms or audit firms, may be produced to support this assessment.

Chapter IV Final Provisions

Article 9: The information required under this instruction is transmitted to the Prudential Control and Resolution Authority in electronic format by uploading it to the portal accessible at the following address: https://acpr-portail.banque-france.fr

Article 10: This instruction is published in the official register of the Prudential Control and Resolution Authority.

Paris, December 21, 2017 The President of the Prudential Control and Resolution Authority, Denis BEAU