The revised Eligibility Criteria for Self-Securitisations: your action plan for compliance

Authorised deposit-taking institutions (ADIs) who are using self-securitisations to access liquidity from the Reserve Bank of Australia (RBA) have been complying with eligibility criteria which pre-date the GFC. Concerned that they might not be consistent with current market practice, given its large exposure to these structures, the RBA has been undertaking industry consultation to update the eligibility criteria. On 28 March 2024, its updated eligibility criteria for self-securitisations were released.

Although this is not an exhaustive list of all the eligibility criteria required for self-securitisations, this article sets out an action plan for compliance with the revised criteria.

Similarity of "Key Terms" against comparable public term transaction

The ADI is required to certify that the key clauses in the self-securitisation are substantially similar to the key terms of that ADI's most recent and comparable public term securitisation programme over the preceding 10 years.

Action plan

1. Has the ADI completed one or more public term securitisation in the last 10 years?
   1. If yes, go to item 2.
   2. If no, then no changes are required.
2. Is the ADI's most recent public term deal comparable to the self-securitisation? Are the underlying assets of both the public term deal and the self-securitisation the same (eg. residential mortgage-backed securities)?
   1. If yes, go to item 3
   2. If no, is there another comparable public term deal completed by the ADI within the last 10 years with comparable assets?
      1. If yes, then the most recent one should be used - go to item 4.
      2. If no, no changes are required.
3. The ADI should compare the key terms of the public term transaction and the self-securitisation to ensure that they are substantially similar. The RBA has provided a list of key terms which are as follows: any applicable threshold rate, the obligation to remit collections, events of default, servicer termination events, trust manager termination events, title perfection events, liquidity support clauses and provision of a first ranking security interest over the assets of the securitisation trust. Are the terms substantially similar?
   1. if yes, go to item 4.
   2. If no, are the differences in key terms due to requirements of the ADI to comply with Australian Prudential Standard 120 (APS120) in the self-securitisation or due to other reasons set out in the template annual certificate provided by the RBA?
      1. If so, go to item 4.
      2. If not, the ADI must update their transaction documents to align the key clauses with the public term transaction. Once completed, go to item 4.
4. The ADI is required to certify compliance that the key terms of the self-securitisation are substantially similar to that of the public term deal and disclose any differences in key terms via the RBA's template certificate. This needs to be completed by a senior officer of the ADI and provided to the RBA by:
   1. New self-securitisations: from 1 April 2025 onwards, prior to being grated repo eligibility; and
   2. Existing eligible self securitisations: between 31 January and 31 March each year, starting in 2025 for each eligible self-securitisation.

Disapplication of Voting Power

Does the ADI as holder of securities in the self securitisation have voting rights in certain circumstances which may need to be disapplied?

Action plan

1. The ADI must review their self-securitisation documents to determine if the ADI (or a member of the ADI group) has any voting power with respect to waivers sought in connection an event of default, servicer termination or a title perfection event.
2. We would expect that in most cases the ADI (or member of the ADI group) is a "voting secured creditor" under the terms of the documents where it holds senior securities issued by the SPV. In connection with servicer termination or title perfection events the ADI may have no express rights in connection with any waiver, the documents may provide that waiver is at the discretion of the trustee. Any relevant rights which are not consistent with this requirement will need to be amended.

Information Provisions

Notices, documents or other information provided to the rating agency or noteholders of the securitisation to be copied to the RBA

Action plan

Part 1

1. As a matter of operational process, ADIs will be required to ensure that when providing notices, documents or other information to the rating agency or noteholders in connection with a self securitisation that these are also copied to the RBA.
2. This does not include loan level data already provided to the RBA via the RBA's securitisation system or monthly trust manager reports (where RBA hasn't explicitly required these).

Part 2

1. If the ADI becomes aware that either (1) a default event has occurred (eg. event of default, title perfection event, servicer termination or a trust manager termination event); or (2) information previously provided to RBA as contemplated by Part 1 above is misleading, incorrect or deceptive it is required to inform the RBA as soon as reasonably practically and in the case of misleading, incorrect or deceptive information, provide the RBA with corrected information.

Weekly remittance to Collections Account

This was a new requirement included in the update and not previously the subject of the consultation papers.

Action plan

1. In the transaction documents, are the collections of principal and interest remitted to the SPV's bank account at least weekly?
   1. If yes, nothing is required. In the case of smaller, lower rated ADIs their documentation likely requires sweeps at least every 2 business days to satisfy rating agency requirements. This is only likely not the case for higher rated banks.
   2. If no, go to item 2.

The ADI will need to amend its practices to ensure principal and interest collections are remitted at least weekly to the SPV. Existing self-securitisations (approved by RBA as repo eligible prior to 31 March 2025) that do not meet this criterion by 31 March 2025 will incur a higher margin ratio.

BBSW Fallback Language

1. Does the securitisation have at least one robust and reasonable and fair fallback provision in respect of BBSW?
1. If yes, nothing is required.
2. If no, go to item 2.
2. The transaction documents will need to be updated to include RBA fallback provisions (consistent with the ASF's Market Guideline on BBSW Fallback provisions which is what public term transactions have been adopting).

Legal Opinions and Annual Certification

1. Were legal opinions (transaction, tax and trustee opinions) issued for the existing self-securitisation; and can the ADI confirm they comply with all the eligibility criteria?
   1. If yes, the ADI is able to certify that such opinions have been issued and that the transaction is otherwise compliant via the RBA template certification. This needs to be completed by a senior officer of the ADI and provided to the RBA by:
      1. New self-securitisations: from 1 April 2025 onwards, prior to being grated repo eligibility
      2. Existing eligible self securitisations: between 31 January and 31 March each year, starting in 2025 for each eligible self-securitisation
   2. If no, go to item 2.
   3. The ADI will need to obtain any required legal opinions to provide the required certification by the timeframes indicated in 1 above.

The RBA also has discretion to request refreshed legal opinions to provided following material amendments to the transaction documents of self-securitisations. It will be interesting to see if the RBA requests this given the age of the opinions issued in connection with some of these transactions.