Readers may remember (see FinBrief: “LCR vs CMU: EC scores an own goal?“) that the LCR Delegated Act was amended in 2018 to align with the Securitization Regulation. This applies from 30th April 2020 and, once it does, only STS assets will qualify as “high quality liquid assets” for the purposes of the LCR. Because there is no grandfathering of assets which at the moment qualify as HQLAs (which they do if they are rated AA- or better) but which are not STS, those assets will have to be sold off unless the issue can be amended to qualify as STS. However, this is not easy, and may be impossible, since Article 43(3) of the Securitization Regulation requires many of the STS requirements to be met at the time of issuance: to be precise, Article 20(1) to (5), (7) to (9) and (11) to (13), and Article 21(1) and (3). So in these respects, a legacy securitization issue simply cannot be retrofitted to make it into an STS issue. So far, there is apparently still no pricing differential between STS and non-STS, but one is expected to develop because as the temporary grandfathering regime ends in 2020, some banks will be forced to buy STS assets to hold for LCR purposes, and because of the apparent impact of STS on the insurance sector: under Solvency II, holding an STS issue will only require about 1/5 to 1/6 of the capital required for a non-STS issue (for banks, the differential under the CRR rules is only about 1/2-1/3).