The European Securities and Markets Authority (ESMA) has opened a long-awaited consultation on potential revisions to the European Commission’s securitisation disclosure templates.
The European Commission invited ESMA to review the EU Securitisation Regulation disclosure templates for EU securitisation transactions (27 pages/ 630 KB) and draw up a specific template for private securitisations.
In a briefing note on 15 January, structured finance expert Katie McCaw of Pinsent Masons said: “Work to review the ESMA disclosure templates in relation to the EU Securitisation transparency requirements is widely welcomed by the securitisation industry”.
The consultation paper is a “long awaited consultation on the potential revisions of the EU securitisation transparency regime”, McCaw added, with ESMA setting out options for future disclosure having considered a wide range of stakeholder input into previous proposals.
The securitisation industry has been lobbying for some time for the simplification of the disclosure templates, both in the EU and the UK.
Previously, the industry has raised multiple concerns with the current regime including the prescriptive and detailed nature of the reporting templates, the usefulness of loan-level reporting for certain asset classes, the regime’s extension to private as well as public securitisations and the inconsistent application of voluntary reporting requirements. According to ESMA, views differ on relative benefits and drawbacks of the current regime. As a result, the ESMA sets out four very different possible options for reviewing disclosure requirements.
The first option includes putting any changes to the reporting templates on hold until the EU Securitisation Regulation is next reviewed.
The second option would maintain the current requirements with some amendments – for example, including further restrictions on the use of the “no data” option and introducing additional “risk-based metrics”.
Under the third option, ESMA considers a targeted review aimed at streamlining the disclosure templates, including addressing the granularity required in the loan-level data reporting annexes, and introducing new templates for asset classes not currently covered, such as trade receivables and synthetic securitisations.
The fourth and final option would see a more thorough review carried out, aimed at a fundamental simplification of the disclosure framework. This would include proposing a single template per asset class irrespective of whether the deal is public or private or is traditional or synthetic.
Within the paper, ESMA sets out both positives and negatives for each option, and suggests that elements of options B, C and D may be used in combination depending on feedback received. Market participants, in particular the investor base that compromises the end-users of data reported, are encouraged to respond to ensure their views are considered in what is being called an “important review of the transparency regime” by experts.
The ESMA consultation paper acknowledges an issue as to the timing of any potential changes to the disclosure templates, accepting the possibility of time and cost burdens for transaction parties in completing the existing templates for each transaction. Additionally, ESMA notes that any changes may have a knock-on impact on internal systems and processes, and that such changes would themselves result in cost implications, with the need for a relevant implementation period for users to adapt.
UK regulators the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA), previously consulted on new UK rules for securitisation transactions that will accompany a new UK Securitisation Regulation, expected to be finalised in the first six months of 2024.
However, the UK regulators did not address the issue of transparency rules and disclosure templates in those consultations and plan to issue a further consultation paper.
Currently, the UK’s approach is to require UK institutional investors in non-UK established securitisations to ensure that the information they have received is “substantially the same” as that required under Article 7 of the UK securitisation regulation.
This is a lower bar to meet than the EU’s stricter requirements for full compliance, in form of substance, with the requirement to receive ESMA templates in accordance with Article 7 of the EU securitisation regulation. McCaw added: “It remains to be seen whether this threshold will change following the UK regulator’s impending consultation in relation to transparency and disclosure”.
Harjeet Lall, a structured finance partner at Pinsent Masons, said: “Transaction parties structuring deals intended to comply with both the EU and UK transparency and disclosure regimes will benefit if the two regimes under the EU and UK Securitisation Regulations are closely aligned in scope and substance. Furthermore, market participants would welcome a more proportional approach in the application of the EU transparency requirements to third-country securitisations.”
Comments on the ESMA consultation paper are requested by 15 March 2024.
