Significant risk transfer transactions - key considerations

Significant risk transfer (SRT) transactions enable credit institutions to achieve a reduction in the amount of regulatory capital they are required to hold by transferring the credit risk in respect of certain assets to other parties as part of either a traditional cash securitisation or a synthetic securitisation. Credit institutions hoping to engage in SRT transactions need to consider the relevant regulatory framework governing SRT transactions, which seeks to prevent regulatory arbitrage where there is a technical asset transfer but not a substantive transfer of risk commensurate with the regulatory capital saving proposed to be achieved by the securitisation.