The global securitisation regulatory framework - Part II

by Abishek Nagesh

This paper is part two of a three-paper series and provides a comprehensive comparison of the Basel Committee on Banking Supervision (BCBS)'s Basel III securitisation capital framework and its implementation in three major developed jurisdictions: the US, the UK and the European Union (EU). The series reviews the core Basel III securitisation rules - including the hierarchy of approaches (Internal Ratings-Based (IRB), External Ratings-Based (ERB) and Standardised), risk-weight calibrations and special treatment for simple, transparent, comparable/straightforward (STC/STS) securitisations - and examines how these have been adopted or modified in each region. It is noted that the US has diverged significantly by prohibiting the use of external credit ratings and employing a proprietary Simplified Supervisory Formula Approach (SSFA) that has resulted in a distinct calibration of capital requirements. The EU has largely aligned with Basel III in its Capital Requirements Regulation (CRR) and was the first jurisdiction to adopt the BCBS concept of the "Simple, Transparent and Standardised" (STS) framework to incentivise higher-quality securitisations with preferential capital treatment. The UK initially mirrored the EU rules through onshored regulations and continues to recognise STS, while signaling openness to tailored adjustments post-Brexit. The analysis concludes by summarising the principal differentiators between the Basel framework and its regional implementations, the anticipated convergence or divergence.