18. Securitization: General Provisions

The assessment of these conditions should be carried out by the original seller or sponsor no earlier than 45 days prior to acquisition of the transaction by the conduit or, in the case of replenishing transactions, no earlier than 45 days prior to new exposures being added to the transaction. In addition, at the time of the assessment, there should to the best knowledge of the original seller or sponsor be no evidence indicating likely deterioration in the performance status of the credit claim or receivable. Further, at the time of their inclusion in the pool, at least one payment should have been made on the underlying exposures, except in the case of replenishing asset trust structures such as those for credit card receivables, trade receivables, and other exposures payable in a single instalment, at maturity. 98 This condition would not apply to borrowers that previously had credit incidents but were subsequently removed from credit registries as a result of the borrowers cleaning their records. This is the case in jurisdictions in which borrowers have the “right to be forgotten”. Criterion A4: Consistency of Underwriting (Conduit Level) 18.112 The sponsor should make representations and warranties to investors that: (1) It has taken steps to verify that for the transactions in the conduit, any underlying credit claims and receivables have been subject to consistent underwriting standards, and explain how. (2) When there are material changes to underwriting standards, it will receive from sellers disclosure about the timing and purpose of such changes. 18.113 The sponsor should also inform investors of the material selection criteria applied when selecting sellers (including where they are not financial institutions). Criterion A4: Consistency of Underwriting (Transaction Level) 18.114 The sponsor should ensure that sellers (in their capacity of original lenders) intransactions with the conduit demonstrate to it that: (1) Any credit claims or receivables being transferred to or through a transaction held by the conduit have been originated in the ordinary course of the seller’s business subject to materially non-deteriorating underwriting standards. Those underwriting standards should also not be less stringent than those applied to credit claims and receivables retained on the balance sheet of theseller and not financed by the conduit; and (2) The obligors have been assessed as having the ability and volition to make timely payments on obligations. 18.115 The sponsor should also ensure that sellers disclose to it the timing and purpose of material changes to underwriting standards. Additional Requirement for Criterion A4 18.116 In all circumstances, all credit claims or receivables must be originated in accordance with sound and prudent underwriting criteria based on an assessment that the obligor has the “ability and volition to make timely payments” on its obligations. The sponsor of the securitization is expected, where underlying credit claims or receivables have been acquired from third parties, to review the underwriting standards (i.e. to check their existence and assess their quality) of these third parties and to ascertain that they have assessed the obligors’ “ability and volition to make timely payments” on their obligations. Criterion A5: Asset Selection and Transfer (Conduit Level) 18.117 The sponsor should: (1) Provide representations and warranties to investors about the checks, in nature and frequency, it has conducted regarding enforceability of underlying assets. (2) Disclose to investors the receipt of appropriate representations and warranties from sellers that the credit claims or receivables being transferred to the transactions in the conduit are not subject to any condition or encumbrance that can be foreseen to adversely affect enforce ability in respect of collections due. Criterion A5: Asset Selection and Transfer (Transaction Level)