APRA’s letter to ADI’s dated 26 August 2010 states that regulatory capital relief for credit risk has been claimed inappropriately if the originating ADI retained all, or nearly all, of the securitisation’s most subordinated tranche.

In particular APRA states it is not appropriate for ADIs to base their assessment of significant credit risk transfer through securitisation on the existence of lenders mortgage insurance, excess spread and/or holdings of subordinated tranche(s) being less than the 20 per cent threshold referred to in APS 120 Attachment F paragraph 8(c).

Langes can assist you with the self-assessment process required in APS120.