Basel criteria places STC burden on investors

Author: Amélie Labbé | Published: 14 Jul 2016

By Amélie Labbé

The Basel Committee’s updated criteria to identify simple, transparent and comparable (STC) securitisations has brought welcome elements in line with European Commission (EC) standards. But the global body has placed the burden of certifying STC compliance with investors, which could lead to confusion.

The updated rules, released by the Basel Committee on Banking Supervision (BCBS) on July 11 have reduced the risk weight floor for senior exposures from 15% to 10% - the same as the EC’s standard for simple, transparent and standardised (STS) securitisation.

They also place the assessment of STC compliance on investors – making sure the information provided by the issuer on the underlying asset is transparent, detailed enough, and that risks and returns have been correctly identified.

Some believe that this could create some initial confusion in the application of the more formalised framework, especially as STC compliance has to be...