STS for synthetic securitisation?

An initial reaction to reading the 3 months overdue 24 September EBA discussion paper “Draft report on STS Framework for Synthetic Securitisation” is to ask: why? In the bad old days before 2009, the investor herd was buying sometimes horribly complex securitisation paper on the basis of a rating and no significant due diligence without understanding what they were doing, other than to know that their competitors were doing it and they couldn’t simply leave their investors’ funds on deposit. So the STS label for true sale securitisations at least has an obvious rationale – to protect them from their animal spirits. But synthetic securitisation is a different jungle, inhabited by different beasts: the protection sellers are no longer monoline insurers but, for the most part, central banks, supranational entities such as the EIB, pension and hedge funds.  Do these entities need an underwriting proposition to carry an “STS label? Or are they able to look after themselves?  Post-GFC synthetics are, according to the EBA, entirely private bilateral deals where protection sellers can bargain for whatever they want (an argument that failed to convince the EU to leave private deals outside the Securitisation Regulation disclosure rules of course). The EBA seems to be motivated by the fact that true sale issues are now regulated, and so to ensure a “level playing field”, so should synthetic deals; and perhaps a desire to make it easier for new entrants to join the market as protection sellers, who would at present be daunted by the need to do all the due diligence.  Hmm.  It notes that the market is reviving, with an increasing degree of standardisation, but does not seem to wonder why it has managed to do that without any “help” from regulators; and suggests that an STS label would be “of crucial importance for the destigmatisation” of the market – evidently however, not a stigma that is deterring existing participants.  Is this not increasing moral hazard, if it encourages inadequately-skilled new entrants to join the credit risk market?