Changes in EU Risk Retention Rules: Impact on Cross-Border Transactions

The new EU capital rules for banks and investment firms set out in the fourth Capital Requirements Directive 2013/36/ EU (CRD IV) and the Capital Requirements Regulation (Regulation (EU) No 575/2013) (the CRR), collectively known as the CRD IV package, come into effect on 31 December 2013 and 1 January 2014, respectively. The recast securitisation risk retention and due diligence requirements are incorporated in the CRR and it was generally anticipated that migrating the current risk retention regime under Article 122a of the existing Capital Requirements Directive 2006/48/EC (Article 122a) to the requirements set out in the CRR would be relatively straightforward, given that the two are principally the same. However, a consultation paper issued by the European Banking Authority (the EBA) on the CRR risk retention rules has highlighted some material changes in the way the risk retention rules should be applied going forward. This article examines some of the changes being proposed, and focuses in particular on issues which may arise within the context of cross-border transactions.