STS Criterion 21. Servicers expertise

From Open Risk Manual

Description

Servicer’s expertise [1]

Content

The servicer should have expertise in servicing exposures of a similar nature to those securitised, supported by a management team with extensive industry experience.

The servicer should have well-documented and adequate policies, procedures and risk- management controls relating to the servicing of exposures.

The servicer should apply servicing procedures to the underlying exposures that are at least as stringent as the servicing procedures applied by the originator for similar exposures, which are not securitised.

Rationale

See also overarching rationale for consistency with traditional qualifying framework.

Effective servicing standards are crucial in any synthetic securitisation, as the validity of the credit protection obtained heavily depends on the timely identification of relevant credit events protected under the credit protection agreement. Losses that are not identified at the time of their occurrence, due to servicing disruptions, may not be eligible for credit protection. Such risk increases the overall riskiness of the originator’s retained senior position. This appears to be particularly relevant in those cases where servicing is not carried out by the originator of the transaction.

Consistency and clarity of servicing standards, and sufficient experience with applying such standards, significantly reduce the extent of risks arising in relation to the servicing. In addition, STS synthetic securitisations should not be used to put in place any ‘originate to distribute’ behaviour through moral hazard practices arising in the servicing of exposures subject to protection.

Issues and Challenges

References

  1. EBA STS Framework for Synthetic Securitisation, EBA/DP/2019/01