STS Criterion 20. Transaction documentation

Description

Transaction documentation

Content

The transaction documentation should clearly specify:

• the contractual obligations, duties and responsibilities of, as applicable, the verification agent, the servicer, the trustee i.e. an ‘identified person’ with fiduciary responsibilities who acts in the best interest of investors in the securitisation transaction, and other ancillary service providers;
• upon default, insolvency and other specified events, where applicable, provisions to ensure the replacement of relevant counterparties (other than the protection buyer and the investors) for in cases where the respective services for the benefit of the securitisation are not provided by the originator itself;
• the processes and responsibilities necessary to ensure that, where servicing is not provided by the originator itself, the default or insolvency of the current servicer does not result in a termination of servicing, such as contractual provisions which enable the replacement of the servicer in such cases;
• the servicing procedures that apply to the underlying exposures at the closing date and thereafter and the circumstances under which these procedures may be modified;
• the servicing standards the servicer will have to adhere to in servicing the underlying exposures within the entire maturity of the synthetic securitisation.

Rationale

See overarching rationale for consistency with traditional qualifying framework.

Particularly where the credit risk of the securitised portfolio is transferred to more than one investor (e.g. where CLNs of different seniority are issued by an SSPE), the appointment of an identified person with fiduciary responsibilities acting in the best interest of investors is necessary in order to minimise the impact of potential conflicts in terms of the interpretation of certain provisions of the securitisation documentation and their applicability at payment dates.

From a perspective of an investor in synthetic securitisation it is also important that, irrespective of whether the underlying exposures are serviced by the originator or by another party, at closing data and thereafter the servicer adheres to high servicing standards in order to ensure that credit events covered by the credit protection agreement and corresponding losses are determined correctly at the respective payment dates.