Capital Markets Blog

Valuation in Resolution

The global financial crisis 2007-09 revealed the need for developing adequate, effective tools and methods to deal with severe crises in the banking sector and for increasing financial and operational resilience of financial institutions to avoid future reliance on bank bail-outs by taxpayers’ money and to prevent contagion in the case of bank failure.

Answering this need, recovery and resolution planning (RRP) has been introduced into regulation, starting in 2011 with the Financial Stability Board’s (FSB) Key Attributes which set out essential features of RRP and which have been endorsed as international standards by the G-20. Since then, RRP has been incorporated into legislation in various countries globally. In Europe, after multiple cycles of drafting recovery and resolution plans, RRP is reaching a steady state with the focus shifting towards operationalization and finetuning of requirements.

One recent policy initiative focuses on operationalizing valuation in resolution: to inform resolution decisions and ensure the effectiveness of resolution actions, different valuations are to be performed within a short timeframe during a crisis and prepared in resolution planning.

Why is valuation in resolution important?

Valuation is the basis for determining whether an institution is failing or likely to fail. If this is the case[1], a more comprehensive valuation informs the choice of resolution tools and the amount of losses to be absorbed. After resolution, another valuation is required to ensure that shareholders and creditors did not receive worse treatment under resolution than under normal insolvency proceedings.

Regulators expect well-documented valuations by independent valuers to ensure informed decision making, accountability, and transparency.

What are the requirements and implications for banks?

To be robust, a valuation must rely on the timely provision of high-quality data. Banks are expected to have adequate management information systems (MIS), valuation, and data provision capabilities in place to support valuation in resolution and test abovementioned capabilities by means of self-assessments.

What are the key challenges banks need to overcome?

In the following, the above-mentioned requirements and implications of valuation in resolution are examined in more detail.


Valuation is an essential aspect in resolution (planning); operationalizing valuation in resolution has become a recent focus of authorities

The general criteria and requirements that valuations for purposes of resolution must comply with are set forth in the Single Resolution Mechanism Regulation (SRMR)[2] Article 20 as well as in the Banking Recovery and Resolution Directive (BRRD)[3] and its national transpositions:

  • Article 36 BRRD – Valuation for the purposes of resolution,
  • Article 74 BRRD – Valuation of difference in treatment, and
  • Article 49 BRRD – Derivative close-out and valuation.


The BRRD delegates responsibility to supplement and specify the general law to the European Banking Authority (EBA) to ensure effective and consistent implementation of BRRD across the EU.

With respect to valuation in resolution, EBA has developed several technical standards enacted in the form of Commission delegated regulations (CDR)[4]:

  • CDR 2018/345 – Regulatory technical standards (RTS) specifying the criteria relating to the methodology for assessing the value of assets and liabilities
  • CDR 2018/344 – RTS specifying the criteria relating to the methodologies for valuation of difference in treatment in resolution
  • CDR 2016/1401 – RTS for methodologies and principles on the valuation of liabilities arising from derivatives
  • CDR 2016/1075, Articles 37-41 – RTS specifying the requirements for independent valuers.


Furthermore, in order to operationalize the valuation process, both the EBA and the Single Resolution Board (SRB) have published guidance on valuation in resolution:

  • EBA Handbook on valuation for purposes of resolution (incl. data dictionary), and
  • SRB Framework for valuation.


This guidance represents the best practice approach and industry standards which should be adhered to.[5]

In 2019, SRB and EBA have further specified their expectations regarding valuation in resolution

The EBA Handbook on valuation is intended to support (national) resolution authorities (NRAs) in the context of valuation and facilitate the valuation process in times of crisis. It provides details on considerations and methodological issues, such as:

  • Measurement bases: hold value vs. disposal value,
  • Best point estimate vs. value ranges,
  • Preliminary vs. final valuation, and
  • Resolution tool-specific considerations.


The SRB Framework for valuation is addressed to the general public and future potential valuers. It specifies the expectations of the SRB regarding the principles and methodologies for valuations in resolution and details the main elements to be included in a valuation report. Though still being relatively principle-based in nature, it provides some specific expectations and guidance, e.g. regarding:

  • The length of projection periods to be used in DCF valuations depending on the resolution tool(s), and
  • The appropriate valuation range around the best estimate (± 5-10 %).


Banks are expected to have adequate MIS, valuation, and data provision capabilities in place to support valuation in resolution; resolution authorities will monitor progress and may impose measures if progress is deemed insufficient

In its “Expectations for banks 2019” document[6], the SRB emphasizes the need for banks’ MIS to provide accurate and timely information in the context of resolution preparedness for the reliability and robustness of valuations.

The availability of reliable data in an accessible format is a fundamental prerequisite for the performance of valuation work. Banks are expected to demonstrate their capabilities in resolution planning and increase their preparedness with respect to the SRB framework for valuation. As a first step, banks are expected to perform self-assessments regarding their in-house valuation and data provision capabilities, identifying any gaps and including those in their comprehensive resolvability work program.

In this resolvability work program, banks shall propose how to address potential impediments to resolution, outlining concrete deliverables, timelines, and milestones, which they will be held accountable against by SRB and NRAs. Progress will be monitored via a resolvability progress report which banks will have to submit at least semi-annually.

If banks’ valuation and data provision capabilities do not meet the resolution authorities’ expectations, do not represent best practice and progress is insufficient, this may be deemed as a ‘substantive impediment to resolution’.

SRB and NRAs have formal legal power to impose measures to reduce or remove impediments to resolution onto institutions (Art. 17 BRRD). Additionally, identification of shortcomings may be reflected in higher MREL requirements.

Generally, three distinct valuations are required in the resolution process

Valuation 1 is an accounting valuation aimed at determining whether an institution is failing or likely to fail. It informs the determination of whether the conditions for resolution and for write-down or for conversion of capital instruments are met. Valuation 1 is performed irrespective of the resolution strategy.

Valuation 2 is a much more detailed valuation to determine the economic value of the institution in resolution’s assets, liabilities and equity, ensuring that all losses are fully recognized and aimed at informing the choice and design of resolution tool(s). Hence, valuation methodology depends on the respective resolution tool(s) chosen as part of the (preferred) resolution strategy.

Valuation 3 is an ex-post counter-factual valuation, comparing actual resolution actions taken to a liquidation scenario. It aims at ensuring that shareholders and creditors do not receive worse treatment under resolution than what would have been expected in regular national insolvency proceedings (“No creditor worse off” principle) and hence safeguards the rights of shareholders and creditors against decisions adopted on the basis of valuation 2.

Figure 1 provides additional details regarding the three types of valuation required in resolution:


While valuation 1 largely follows the institution’s existing valuation methodologies for accounting purposes amended by applying assumptions made by the independent valuer, valuation approaches applied for valuations 2 and 3 may differ depending on the specific circumstances and due to different emphasis of the inherent time-accuracy trade-off. Broadly speaking, valuation 2 focuses more on informing timely decision-making while valuation 3, conducted post-resolution, requires best possible accuracy.


EBA and SRB emphasize their preference for the discounted cash-flow (DCF) valuation approach, which relies most heavily on the timely provision of a large set of accurate data.

From both a theoretical perspective and a practical standpoint, the method that best incorporates all factors affecting the value of an institution is the DCF valuation method.

A DCF valuation in the context of resolution requires the determination of three main parameters:

  • Projection period (depending on the resolution strategy / resolution tools applied, contractual / behavioral lifetimes of assets, time to normalization, cyclicality),
  • Cash flows over the projection period plus any terminal value (considering the restructuring / reorganization plan, macroeconomic / financial scenarios), and
  • Discount rate(s).

In practice, however, the adjusted book value method is a pragmatic alternative in case of significant time pressure. Adjustments and haircuts are applied to the balance sheet in order to consider the effects of resolution (e.g. fire sales leading to depressed prices).

A third valuation approach is the comparative market valuation, i.e. the use of multiples derived from market capitalization of similar entities or from comparable transactions. Typically, a DCF should be validated by a second valuation as a sanity check, giving a valuation range of ± 5-10 % around the best point estimate.


In valuation 2, one main determinant of the valuation parameters is the resolution strategy, impacting for example the following:

  • Use of hold vs. disposal values,
  • entity level vs. portfolio / asset view (The entity level view is suitable in case of a share deal or if all or the majority of assets are to be transferred. The portfolio / asset view is suitable in case of an asset deal or when assets can be grouped into relatively homogeneous portfolios in terms of risk profile, business line, or similar characteristics (stratification)), and
  • whether to include franchise value or resolution costs (e.g. set-up and running costs of a bridge bank, workout costs and benefits of an asset management vehicle (AMV)).

Furthermore, institutions are expected to leverage their internal capabilities such as systems in place to meet IFRS 9 requirements, stress tests, AQR exercises or portfolio reviews and consider data from historical bank failures.

Figure 2 details the impact of resolution strategies on valuation 2:


Institutions are expected to perform self-assessments as to their preparedness for supporting valuation in resolution and propose how to close any identified gaps

One of the main challenges for institutions is the need for providing a large set of accurate data within a very short timeframe (e.g. 12-24 hours)[7] during or leading up to resolution.

A robust valuation is essential to the effectiveness of resolution actions, including the legitimacy and soundness of the decision, and the achievement of the resolution objectives. To be robust, a valuation must rely on the timely provision of high-quality data and information to the independent valuer:

  • Data must be provided within a very short period of time (target: 12-24h),
  • Data provided need to be complete, correct, and consistent, and
  • Data must be up-to-date as per the chosen reference date.

To ensure smooth resolution in actual crises, there is the need to enhance institutions’ preparedness in the course of the resolution planning phase.

As a starting point, EBA has developed its so-called data dictionary as best practice to structure, store and link data for purposes of valuation in resolution, detailing a large number of required data points with a “one-fits-all” approach. As indicated in its “Expectations for banks 2019” paper, SRB is currently working on its own best practice dataset for valuation in close collaboration with EBA.

Institutions are asked to do a self-assessment of how they would approach the valuations and to map their current data infrastructure to the data dictionary, thereby identifying any gaps and providing insights for future resolvability work programs (mentioned above). With regard to their existing internal valuation models which may be used as a starting point for valuation in resolution, banks are asked to document underlying assumptions, methodologies, and parameters.

Figure 3 summarizes information required for valuation in resolution according to the EBA data dictionary:

PwC suggested approach

PwC is at your disposal to further discuss implications of mentioned requirements and possible ways to approach the self-assessments.

Based on our extensive experience in bank valuation, resolution planning, and actual bank resolution we have developed an approach for completing the self-assessments in a strategic and goal-oriented manner.

If you are interested in discussing any implications of the abovementioned requirements and expectations, our project approach and how it may be adjusted to your institution’s individual needs, or would like to address any questions, please do not hesitate to contact us using contact details as provided below.



Marc-Alexander Schwamborn

Telephone    +49 69 9585 5824

Mobile       +49 175 432 3885


Stephan Lutz

Telephone   +49 69 9585 2697

Mobile       +49 151 146 23538


Stefan Linder

Telephone   +49 69 9585 2915

Mobile       +49 160 539 5454


Dr. Philipp Völk

Telephone   +49 69 9585 3991

Mobile       +49 160 743 5320


Sarah Kirmse

Telephone    +49 40 6378 2762

Mobile       +49 170 569 1678




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[1] And if there is no private sector alternative and a resolution is in public interest (see conditions to resolution, Art. 32 BRRD).

[2] Regulation (EU) No. 806/2014, article 20

[3] The BRRD has incorporated RRP into EU law, transposed into national law by each country (in Germany via the Sanierungs- und Abwicklungsgesetz, SAG) – so-called “level 1 regulation”. Additionally, various specifications of the general law, so-called “level 2 regulation”, as developed by the EBA, apply.

[4] Regulatory and implementing technical standards drafted by EBA become directly applicable law in all EU member states by publication as CDR in the official journal of the EU Commission.

[5] Though legally subordinate to the Level 1 and Level 2 regulation

[6] Consultation paper specifying the capabilities the SRB expects banks to demonstrate, reflecting best practice and setting benchmarks for assessing resolvability.

[7] See e.g. Ma Bail-in (BaFin Circular 05/2019).

PwC’s Guidance for Disclosure Requirements of Private STS Securitizations

The objective of this article is to explain how private[1] securitization can obtain the STS label by complying with the legal disclosure requirements. Following paragraphs aim to outline areas of concern to any reporting or in other way designated entity that wishes to issue and maintain STS label for its securitization. According to Article 7 (2), it is the originator, sponsor or special purpose entity that shall make the data available to third parties. As the interpretation logic between ABCPs and non-ABCPs does not differ significantly, for the purposes of this paper, we further continue with analysis of STS criteria for short-term[2] securitizations only.

In order to fully understand these requirements, this document refers to Regulation (EU) 2017/2402 (Securitization Regulation) and Regulatory Technical Standards (RTS), published by ESMA. The RTS concerning the use of Securitization Repositories (SR) is not legally binding yet[3], therefore some changes altering its interpretation may take place upon finalization.

Any ABCP securitization, irrelevant of its private of public nature, can obtain STS label if Articles 23-26 are met. Further, compliance with Article 7 (Disclosure) is required as this Article is being referred to within the STS criteria. Nevertheless, compliance with Article 7 and Articles 23-26 only will not automatically grant the STS label to a given securitization unless the full regulatory text is considered. An analysis of full Securitization Regulation is beyond the scope of this paper, therefore only dependencies between Article 7 and the STS Criteria will be further discussed.


STS Criteria

STS can be considered an additional layer on top of regulatory requirements for non-STS securitizations. It shall signal fulfillment of more strict rules, demonstrating higher quality of the underlying collateral and sponsor’s commitment to given issuance. STS criteria outline requirements for any European securitization that seeks the STS label. These requirements are defined directly in the Securitization Regulation in chapter 4, section 1 for non-ABCP securitizations and section 2 for ABCP securitizations. Each of these sections breaks down into four articles listing conditions for simple, transparent and standardized issuances.

A short-term transaction that complies with Article 24 and a short-term programme that complies with Articles 25-26 shall be considered STS[4]. None of the aforementioned requirements forbid private securitization to obtain the STS label. It is therefore correct to state that compliance of securitization in question with Articles 24 – 26 shall grant the STS label to both public and private ABCP securitization.

It worth noticing that the STS criteria (Articles 24 – 26) contain a set of specific requirements (e.g. weighted average life) but also cross references to other Articles. Specifically, Article 25 (5), (6) require compliance with provisions stated in Article 6 and Article 7, respectively. Non-compliance with interlinked provisions elsewhere in the Regulation would mean automatic non-compliance with the STS criteria.


Disclosure Requirements – Article 7

Since STS criteria did not state any limitation for securitization being either private or public, we further examine disclosure requirements. Compliance with Article 7 is a prerequisite for the STS label but also a base requirement for any transaction falling under the Securitization Regulation. Unlike the STS criteria, the disclosure requirements do differentiate between private and public securitizations. All securitizations are required to disclose:

  • regularly information about underlying exposures [see (1)(a) of Article 7]
  • information through supportive documentation (e.g. OC) [see (1)(b) of Article 7]
  • STS notification referred to in Article 27 in case of STS securitization [see (1)(d) of Article 7]
  • regularly investor reports [see (1)(e) of Article 7]
  • significant events and inside information [see (1)(f-g) of Article 7]


It shall be noted, that 1) and 4) are an ongoing disclosure activity, performed on monthly basis for ABCPs. Points 3) and 4) are one-time notifications and 5) only when applicable. Listed reporting requirements shall be done through a Securitization Repository (SR) as stated in the second subparagraph of paragraph (2) under Article 7. Private securitizations, however, need to additionally provide a transaction summary as per (1)(c) and are exempt from data disclosure through a SR[5]  This is stated in recital 13 of the Securitization Regulation where the bespoke nature of private transactions and its value for the transaction parties is explained.

Article 7 further delegates the development of relevant RTS to ESMA, EBA and EIOPA in paragraphs (3) and (4). Since the disclosure requirements do not further discuss how the data disclosure will physically be carried out, we need to refer to the relevant RTS in order to understand how the disclosure must be technically conducted.


Reporting of Private ABCPs

Given the fact that STS criteria do not distinguish between private and public securitizations, the reporting rule will be driven solely by the RTS related to Article 7. We therefore refer to ESMA’s Q&A document[6] that provides additional guidance and explanation to RTS. Under Q5.13.5 ESMA states that disclosure templates[7] for significant events and inside information (Annex 15 to the RTS) are not required for the private transactions[8]. ESMA further lists templates to be used for reporting of both private and public ABCPs where it states that both public and private ABCPs shall disclose data as per Annexes 11 and 13 (underlying exposures and investor report)[9].

This essentially means, that private ABCPs, compliant with RTS under Article 7, are required to disclose underlying exposures via the data templates in Annex 11 and 13 on monthly basis. The disclosure does not have to happen through a SR, yet the data templates shall be made available directly to holders of securitization positions, to competent authorities[10] referred to in Article 29 of the Securitization Regulation and, upon request, to potential investors.


Guidance for Reporting

Our analysis confirms that private securitizations are required to disclose information about underlying exposures. This shall be done on timely basis for both STS and non-STS issuances. Since private transactions were not provided with any type of disclosure template prior to the Securitization Regulation[11], the new  standards will require a similar data-handling infrastructure as for public securitizations – IT setup for data aggregation, validation and dissemination.

In case instructions or guidance provided by national competent authorities on reporting of private securitization are not available, reporting entities are free to make use of any arrangements that meet the conditions of the Securitization. Therefore, we recommend using a private area of SR, if available, that offers appropriate infrastructure that satisfies ongoing requirements for data disclosure. We further propose to setup, maintain and regularly update data quality management system to reflect ESMA’s up-to-date minimum quality standards (discussed below). Also, such a system can later be easily used for a verification of underlying exposures as per Article 26(1) of the STS criteria.

Further, we notice that Article 7 (2)(a) requires specifically a disclosure of relevant data through a platform offering a data quality control system until the first SR is registered by ESMA. Specific requirements for functionalities of SR can be also found in relevant SR RTS[12]. Here we can see that ESMA plans to impose data quality rules comprising No Data values, interfiled inconsistencies but also STS-compliance checks for securitizations reported to SR. Even though this seemingly does not concern private transactions; as they do not have to channel their data through SR, it is likely to see similar efforts from Competent Authorities to ensure comparable quality between public and private STS transactions in the future.



Private ABCP securitization may obtain the STS label upon fulfillment of all relevant disclosure requirements. In order to do so, private STS ABCP securitization must follow a data disclosure schedule for investor reports and underlying exposures by using specified templates. The use of a SR for this ongoing disclosures is not mandatory and can be expected to rather depend on guidance provided by National Competent Authorities which may eventually create a heterogeneous disclosure universe across the member states.


Please contact PwC where our subject matter experts are available in case of any questions.


Dr. Philipp Völk – Mail:

Petr Surala, CFA – Mail:


[1] defined as those where no prospectus has been drawn up in compliance with Directive 2003/71/EC

[2] short-term securitizations refer to ABCP securitizations (Asset-Backed Commercial Paper)

[3] Final Report, published by ESMA on December 12, 2018. Endorsement from European Commission is still pending

[4] see Article 23 of the Securitization Regulation

[5] see third subparagraph of paragraph (2)

[6] Questions and Answers on Securitization Regulation, version 3 from July 17, 2019

[7] Disclosure Templates developed by ESMA for data reporting

[8] Q&A document states under Q5.13.5 that Annex 15 shall not be used, however, the information itself must be disclosed in some way

[9] See Q5.1.2.1 in Questions and Answers on Securitization Regulation

[10] National Competent Authority in Germany is BaFin. Please refer to ESMA’s full list.

[11] Disclosure of data through ABS Repository was a condition for eligibility assessment determining whether collateral can serve in Eurosystem’s credit operations. For non-eligible transactions, there was no disclosure of loan-level data required.

[12] Final Draft on SR RTS

[13] Additional Credit Claims are non-marketable asset type, comprising exposure to residential real estates or small-medium enterprises. See ECB’s Occasional Paper

Capital Markets Blog Series – Part II: The mechanisms and key objectives of the Capital Markets Union key building blocks


Banking Union and Capital Markets Union: Objectives and state of play

One of the conclusions of the financial crisis from a political and supervisory perspective was that the European banking system requires a uniform supervision across the EU. As part of the Banking Union roadmap, EU institutions agreed to establish a single supervisory mechanism (SSM), a single rulebook for banking regulation (CRD/CRR) and a single resolution mechanism (SRM) for banks. While the SSM and SRM have become an integral part of the prudential banking supervision and are fully operational, the implementation of a single European deposit insurance (EDIS) is still missing in order to complete the Banking Union roadmap. However, the implemented regulatory actions and the enforcement of supervisory expectations have subsequently led to a substantially more resilient banking system evidenced by an improvement of all material regulatory ratios for capital and liquidity as well as for resolvability.[1]

While the Banking Union mainly focuses on regulating banks’ activities (including those on capital markets by the FRTB-framework[2]) and strengthening the resilience of the financial sector by strengthening banks, the Capital Markets Union’s (CMU) overall aim is to complement bank financing by facilitating EU businesses’ direct access to harmonized EU Capital Markets, attracting more investors and fostering capital market growth and enhance its ability to provide capital and liquidity to the real economy. The biggest difference between these two initiatives is that – with regard to the Banking Union – a large part of the implementing regulation is directly applicable by banks based on European law – a prerequisite for the uniform supervision by the European Central Bank (ECB). By contrast, most of the implementing regulation of the CMU legislative framework will remain dependent on national transposition of European regulation, thus creating room for national discretion. The uniform implementation of the CMU will thus depend upon the participating European countries agreeing to implement it in a coordinated and rather similar way by the word. While uniform implementation is valuable in terms of creating a level playing field between the countries, the CMU is less regulatory and supervisory in nature and foresees no uniform supervision like the banking union.

Recognizing the growth potential of EU Capital Markets and the associated positive impact on the real economy, the European Commission adopted the Capital Markets Union action plan in 2015. As part of its mid-term review in 2017, further measures were identified and added to the CMU action plan. The legislative framework implementing the CMU currently comprises 13 key CMU building blocks and 3 sustainable finance initiatives. Furthermore, the Commission is planning to issue another action plan (‘CMU 2.0’), once political uncertainty on Brexit will be reduced. While the Banking Union was mainly geared towards increasing the regulation of bank´s activities and strengthening the resilience of the financial sector by strengthening banks, the Capital Markets Union’s overall aim is to foster growth of EU Capital Markets and provide a broader range of funding and investment alternatives to the real economy and consumers.

The following diagram shows a holistic overview of the key objectives of the key CMU building blocks mapped to the Capital Market participants (as defined in part I of this blog series):



The Capital Markets Union key building blocks: Overview and intended effects

Overall, the CMU was designed to mobilize and channel capital to EU companies and infrastructure projects, offer additional investment opportunities for savers and investors and make the financial system more resilient.[3] At present, the most important capital market in Europe is the UK capital market which currently offers financial intermediation to all European capital market players. After Brexit, the terms of access to this market will be uncertain. The remaining capital market landscape can be characterized as being fragmented nationally or regionally. Although cross-border investment and financing is legally possible and promoted as part of the Single European Market for goods and services, cross-border financial activity for many market players constitutes more an option than a widely used instrument. There are numerous reasons for this fragmentation, the most important ones being the remaining differences regarding legal frameworks governing national markets, national market supervision (as opposed to the SSM´s European supervisory scope), resulting in a wide range of regulatory/supervisory practices, product types and market specificities.

Under such market conditions transaction costs are high as is information asymmetry between market players. These market inefficiencies make markets thin (characterized by a small number of participants and transactions), slow and therefore inefficient. The individual CMU building blocks address these inefficiencies by (1) standardizing existing or creating new standardized products (such as STS securitizations) and thus reducing information asymmetries, (2) creating harmonized legal frameworks in fields that are not product-specific (such as insolvency procedures) and (3) stabilizing the financial system by ensuring consistent implementation of regulatory measures and achieving a level playing field. The last point also includes the regulation of banks as the predominant players on the European capital markets where this regulation is not yet integrated.

The following table provides an overview over the 13 key CMU measures structured by the underlying mechanism.

Mechanism Policy Description Objective (Factsheet)
(1) Reduce information asymmetry / standardise Covered bonds To provide a source of long-term financing for banks in support to the real economy
Pan-European personal pension product (PEPP) To give citizens more and better options for retirement savings.
Prospectus Regulation To facilitate access to financial markets for companies, particularly small and medium-sized enterprises.
Simple, transparent and standardized securitization To broaden investment opportunities and boost lending to Europe’s households and businesses.
Sustainable finance: Taxonomy To help to reorient private capital flows towards more sustainable investments, such as clean transport, and help finance the transition to a low-carbon, more resource-efficient and circular economy
Sustainable finance: Disclosure
Sustainable finance: Low carbon Benchmarks
(2) Reduce transaction cost / integrate Cross-border distribution of collective investment funds To remove burdensome requirements and harmonize diverging national rules
Crowdfunding To improve access to this innovative form of finance for start-ups, while maintaining investor protection.
European Venture Capital Fund Regulation (EuVECA) and European Social Entrepreneurship Funds Regulation (EuSEF) To stimulate venture capital and social investments in the EU.
Preventive restructuring, second chance and efficiency of procedures To provide honest entrepreneurs with a second chance and facilitate the efficient restructuring of viable companies in financial difficulties.
Promotion of SME Growth Markets To cut red-tape for small and medium-sized enterprises trying to access capital markets.
Third-party effects on assignment of claims To enhance legal certainty about the applicable national law to the effects on third parties where a claim is assigned cross-border.
(3) Stabilize financial system European Supervisory Authorities review including anti-money laundering rules To enhance supervisory convergence and strengthen enforcement, including against money laundering and terrorist financing.
Investment firms review To ensure a level playing field between the large and systemic financial institutions while introducing simpler rules for smaller firms.
European market infrastructure regulation (Supervision) To ensure that the EU supervisory framework effectively anticipates and mitigates risk from EU and non-EU central counterparties servicing EU clients.


(1) The following four building blocks are and will be implemented based on measures aiming at reducing information asymmetry and increasing standardization with regard to investments and funding opportunities:

  • Covered bonds: Acknowledging that covered bond markets are very fragmented across the EU, the new rules aim at enhancing market volumes in those Member States with less developed covered bond markets in order to raise overall market efficiency. By providing a common definition of covered bonds, defining the structural features of the instrument and identifying those high-quality assets that can be considered eligible in the pool backing the debt obligations, the EU Commissions aims at introducing standardization to the market and increasing the transparency for investors. The rules also establish a supervision mechanism for covered bonds and sets out rules allowing the use of the ‘European Covered Bonds’ label.
  • Pan-European personal pension product (PEPP)[4]: Based on the low interest rate environment, investment in shares and bonds increases slowly. However, EU households still hold their savings mainly in cash, bank deposits and insurance and pension products although higher returns could be generated by alternative investments. By introducing an EU wide cross-border standardized voluntary scheme for saving for retirements, PEPP aims at complementing existing public and national private pension schemes and therefore offer consumers more investment choices.
  • Prospectus Regulation: The CMU measures aim at increasing the transparency regarding the risks of the investments by introducing new rules that require firms to include multiple thresholds of risks in the prospectus and allowing cross-references to certain existing documents. Lighter disclosure rules which will be applicable by certain SMEs and mid-sized companies, aim at facilitating their access to Capital Markets to companies which currently mainly rely on bank financing.
  • Simple, transparent and standardized securitization (STS)[5]: Assuming the EU securitization market was built up again to the pre-crisis average, it would generate up to EUR 150bn in additional funding for the economy.[6] In order to achieve the aim of fostering the EU securitization market and restoring an important funding channel for the EU economy, the EU Commission has implemented new rules which differentiate between high-quality securitization products and other products which do not satisfy such criteria.
  • Sustainable finance initiatives: By introducing new sustainable finance initiatives the Commission aims at increasing transparency e.g. by creating a common classification system and taxonomy, establishing labels for green financial products and strengthening the transparency of companies on their environmental, social and governance policies (ESG) with the objective of supporting economic growth while reducing pressures on the environment and taking into account social and governance aspects.

(2) Furthermore, six of the CMU key building blocks are based on the idea to foster growth of EU Capital Markets by reducing transaction costs and with that allowing new participants into the market, which so far mainly rely on bank financing and fostering new cross-border investment opportunities:

  • Rules introduced in relation to Cross-border distribution of collective investment funds aim at aligning national marketing requirements and regulatory fees, harmonizing the process and requirements for the verification of marketing material by national competent authorities (NCAs) as well as enabling the European Securities and Markets Authority (ESMA) to better monitor investment funds.
  • Crowdfunding: Acknowledging that the EU market for crowdfunding is underdeveloped as compared to other major world economies[7], the new rules aim at improving access to crowdfunding for small investors and businesses in need of funding, particularly start-ups. Investors will potentially benefit from the new rules relating to a protection regime, information disclosures for project owners and crowdfunding platforms, governance and risk management and supervision.
  • European Venture Capital Fund Regulation (EuVECA) and European Social Entrepreneurship Funds Regulation (EuSEF): By introducing these two types of collective investment funds, the Commission is aiming at making it easier and more attractive for investors (e.g. insurance companies) to invest in unlisted SMEs.
  • Preventive restructuring, second chance and efficiency of procedures: By providing a second chance through debt discharge to businesses and entrepreneurs the Commission’s proposal aims to facilitate the restructuring of companies in financial difficulties with the aim to avoid insolvency and the destruction of going concern value.
  • Promotion of SME Growth Markets: By introducing a new category of trading venue dedicated to small issuers the Commission aims, among other things, at reducing the administrative burden and costs faced by SME growth market issuers while increasing market integrity and investor protection.
  • Third-party effects on assignment of claims: In order to foster cross-border growth of EU Capital Markets, the Commission acknowledges that a common legal framework across the EU is a key success factor. By determining which national law is applicable to the effects on third parties where a claim is assigned cross-border, transaction costs will potentially be reduced.

(3) One of the key CMU objectives is furthermore to stabilize the EU financial system, e.g. by enhancing the supervisory convergence, ensuring a level playing field and strengthening enforcement measures:

  • European Supervisory Authorities review including anti-money laundering rules: While the EU has strong AML rules in place, recent cases involving money laundering in some EU banks have raised concerns that those rules are not always supervised and enforced effectively across the EU. Planned changes regarding the AML directive therefore aims at further improving the level playing field among all firms operating across the Single Market (domestic, EU27-based or operating from third countries). A new specific provision requiring the European Supervisory Authorities (ESAs) to have in place dedicated reporting channels for receiving and handling information provided by a natural or legal person reporting on actual or potential breaches, abuses of or non-application of Union law are expected to increase transparency and contribute to improved rules and their consistent enforcement across the EU27.
  • Investment firms review: The investment firms review divides investment firms into three categories, with the aim to ensure a level playing field between the large and systemic financial institutions while introducing simpler prudential rules for non-systemic investment firms.
  • European market infrastructure regulation (Supervision): A proposal to strengthen the supervision of central counterparties: to ensure that the supervisory framework of the Union is sufficiently robust to anticipate and mitigate risk from Union central counterparties and from systemic third-country central counterparties servicing Union clients.


The CMU: First conclusion

In order to achieve the overall objective of fostering growth of EU capital markets, the Commission formulated the key objectives of the CMU action plan. In order to reach these CMU objectives in due course, it is essential that necessary measures are implemented homogeneously across the EU, considering that – in contrast to the Banking Union´s measures – most of the CMU building blocks will require national implementation of European directives. The uniform implementation of the CMU will thus depend on the agreement of participating Member States to implement it in a coordinated way in order to balance the administrative cost originating from it and the benefits of larger, efficient and resilient capital markets for the real economy. Furthermore, taking into account the latest political developments regarding Brexit, it is necessary that additional measures identified as part of the ‘CMU 2.0’ initiative focus more on the development of the EU27 capital markets and how to best minimize disruption regarding financial intermediation currently offered by the UK capital market participants post-Brexit.




Please contact our PwC experts in case of any questions.

Stephan Lutz – Mail:

Ina Alexandra Steiner – Mail:

Dr. Philipp Völk – Mail:










[4] For more information regarding the PEPP rules, please read our already published blog:

[5] For more information regarding the new STS rules, please read our already published blogs:



European Commission Endorses ESMA Templates for Loan-Level Data Reporting for Securitizations

Why new templates?

The European Securitization Regulation that came into force in January 2019 requires data disclosures for most securitizations originated in Europe. Compliance with the disclosure requirements will mean submission of an official set of templates of loan-level data to a securitization repository, a process that has some similarities with the disclosure of derivatives transactions under EMIR. The Regulation bestows ESMA with the power to develop the templates which then have to be endorsed by the EU Commission (EC), adopted by European Parliament and finally be published in the Official Journal as a European regulation. Only after this, the templates will become mandatory for all securitizations issued after January 1, 2019.

Just a few days ago, on October 16, 2019, EC released the official disclosure templates that were so impatiently awaited by the securitization market. It took the Commission exactly 288 days to endorse the templates since the time ESMA published their final draft on its web site. Besides the field-by-field addendum, EC further provides details by releasing an endorsed RTS where it states among others:

Private transactions are fully exempt from data disclosure though a securitization repository. Despite interim proposal from ESMA to include private transactions into disclosure requirements through repository, this effort finally did not find its way into the endorsed RTS.

Standardized identifiers will be used across all asset classes, including fields for “back-up” IDs in case the original ones can no longer be maintained. From a data user perspective, this is a very welcome feature as it allows easy data reconciliation and time series analysis.

No Data options are allowed for most of the fields in either option of ND1-4 or ND5. The meaning of individual inputs remains the same when compared to ECB’s taxonomy:


Very limited use of ND values was the main reason of rejection of the final RTS draft published by ESMA in August 2018 (“the Commission requests ESMA to examine whether, at the present juncture, the ‘No Data’ option could be available for additional fields of the draft templates”). EC seems to have viewed the templates as being too strict and inflexible to accommodate a unified standard across multiple jurisdictions in Europe. As a result, the number of fields allowing ND5 or ND1-4 increased. From our perspective, ND5 does not influence data analysis, performed by investors or regulators as it only signals non-relevance. ND1-4, however, give a room to data providers to omit some data that is currently not available for disclosure.

Template Comparison

Having the templates’ history in mind, we looked closer at the final layouts released by EC in Annexes 1-15 and compared them to the final draft ESMA submitted for endorsement in [January 2019]. Apparently, EC took the proposed templates over as drafted by ESMA with very few changes:

ND1-4 became newly available for:

  • Interest Revision Date 1 (field RREL51)
  • Interest Revision Date 2 (field RREL53)
  • Interest Revision Date 3 (field RREL 55)

ND5 became newly available for Primary Income Currency (AUTL18).

Other fields from all remaining 9 ESMA templates remained unchanged. In our opinion, allowing RREL51, 53, 55 to potentially report no data does not hamper data analysis and risk assessment significantly. Allowance for ND5 for AUTL18 has no impact on data reported at all since primary income (AUTL16) has to be disclosed in a format of {CURRENCYCODE_3} which already includes currency denomination.

What is coming next?

We expect the European Parliament to adopt the templates in the following months. Formally, the maximum time allotted to this process is 6 months. After that, the legislation foresees additional 20 days after release in the Official Journal for the RTS to apply. Market participants that are affected by this regulation need to switch to the new templates without any delay as soon as this RTS becomes a European regulation.

At PwC, we have analyzed the templates over the past 10 months. As they differ significantly from the ECB templates for collateral purposes (being used by the market from 2013 onwards*) we do expect data inconsistencies caused by lack of clarity on field-by-field interpretation, but also technical challenges for IT departments. Additionally, ongoing monitoring and data quality issues, especially for STS-seeking deals, may become burdensome. This and other data issues may also be caused by a split legislative governance – templates and their field-by-field setup were developed by ESMA which is also mandated with data quality enforcement, whereas national competent authorities (full list here) are appointed with supervisory power concerning the compliance of data owners with the template provisions.

ESMA is entitled to impose and enforce data quality rules on the level of the securitization repository. Those rules will be primarily linked to ND1-4 values which to certain extend resemble ECB’s efforts in data completeness, indicated by ECB score. ESMA will further develop and propose rules for other fields, including ND5, interfiled inconsistencies and STS non-compliant values. This means that even though more flexibility is given by the final template layout, ESMA still retains tools to enforce more strict disclosures in the future if deemed necessary. One of them is development of a data quality threshold that will indicate a “minimum passing score” which will be calculated by the securitization repository for each incoming data tape. Falling below the threshold would mean automatic rejection of the data and thus non-compliance with the regulation. ESMA further indicates that those thresholds will evolve over time; converging to as little ND values as possible.

2020 will likely bring new ECB eligibility criteria

In March of 2019, ECB announced that eligibility requirements for loan-level data reporting in the ECB collateral framework for the ABSPP is going to be adjusted to reflect EU Securitization Regulation’s disclosure requirements. The convergence depends upon two conditions – (1) ESMA templates entering into force and (2) the first securitization repository getting registered with ESMA. The first condition will most likely be met in the following months, whereas registration of the first repository with ESMA will happen only after finalization of legal framework governing Securitization Repository. Timing for the latter is uncertain yet since this is the last open issue concerning Securitization data reporting, we believe this could happen soon.

It is likely that reporting through ESMA templates will have to take place before the first securitization repository gets registered with ESMA. During this time, the data tapes need to be published and made available to the data users through a website that meets certain criteria (secure hosting, data quality management etc.). Currently, this is being fulfilled by the largest ABS data platform and ECB’s designated repository, the European DataWarehouse.

PwC’s focus

Adoption of the new reporting standards may be challenging for some originators, namely those issuing ABCPs, CLOs or NPL as there has never before been a mandatory disclosure of these data sets. Besides this, data management, monitoring and remediation system will have to become an essential part of overall IT infrastructure on data provider’s side, irrelevant of the specific asset class. Non-compliance with templates or falling below data quality threshold could lead to a loss of ECB’s collateral eligibility, STS label and/or reputation damage.


Please contact our PwC experts in case of any questions.


Dr. Philipp Völk – Mail:

Petr Surala, CFA – Mail:


* The ECB loan-level reporting templates apply from January 3, 2013 for RMBS and SME ABS,  March 1, 2013 for CMBS, January 1, 2014 for Consumer Finance ABS, Leasing ABS and Auto ABS, and from April 1, 2014 for Credit Card ABS.

Capital Markets Blog Series – Part I: Capital Market Structure and Market Participants


Capital Markets Blog Series – Part I: Capital Market Structure and Market Participants

Brexit will almost inevitably initiate a transition towards a new EU27 Capital Market, needed to finance European economic growth and development in times of political uncertainty and technological disruption. Based on the publication of our Thought Paper “The Development of European Capital Markets Post-Brexit”, this blog will focus on EU27 Capital Markets structures and participants.  Further posts will focus on the main areas and the progress of the Capital Markets Union (CMU), which we consider the most important regulatory condition for the future development of EU27 Capital Markets.[1]

Capital Markets – Overview

Capital markets fulfill an intermediation function by transforming size, maturity and risk. The intermediation function of Capital Markets leads to risks being transferred directly between market participants while intermediation by banks involves the temporary use of bank’s balance sheet, resulting in a high reliance on banks’ continued capabilities to carry, manage and hedge these risks while owned by them. In times of increasing regulatory capital requirements and low interest rates, both resulting in a reduced risk appetite of banks, this intermediation function is constrained.

On Capital Markets, securities such as shares and bonds are issued to raise medium to long-term financing on what is called the primary market, and securities, commodities, currencies as well corresponding derivatives are traded on what is called the secondary market – disregarding newly developing asset classes and tokenization of real assets. Short-term transactions within a currency take place on the money market.

On primary markets, an issuer usually engages investment banks to place its securities (e.g. bonds and shares) with investors. In secondary markets, an issuer’s bonds and shares as well as other asset classes such as e.g. derivatives and commodities are traded between market participants.

The following diagram shows a holistic overview over the Capital Market structure as well as market participants which will be referred back to throughout the following blogs:


Capital Market Participants – Roles and Responsibilities    

In primary markets, issuers (e.g. public sector entities, corporates and banks) use investment banks (so called sell-side banks) in order to support them in structuring IPOs or debt issuances. Investment banks may thus act as intermediaries in the primary market either by connecting the issuer with potential investors (matching function) or by acquiring the issuance and re-selling it to other participants (underwriting function). Furthermore, banks depend on Capital Markets to issue their own debt and equity instruments, needed to fulfill their intermediation function, especially if they cannot attract (sufficient) deposits. The ability of Capital Markets to provide financing is a critical prerequisite of financial intermediation needed to finance economic growth and innovation. Capital issuances in the primary market are usually acquired by large institutional investors including but not limited to asset managers, hedge funds, pension funds and insurance companies. These market participants hold either issued capital instruments directly or structure investment vehicles to pool capital instruments from different investors.

Generally, shares and bonds issued in primary markets are subsequently traded in secondary markets as well as other asset classes such as e.g. derivatives and commodities. In secondary markets, additional investors such as e.g., commodity houses, commodity producers and consumers come into play. As a result of this larger group of investors as well as the increase with regard to the number and complexity of products (e.g. based on restructuring and derivative products), the legal and regulatory requirements for intermediaries are higher in the secondary market than in the primary market. Intermediaries in the secondary market include investment banks’ Sales & Trading divisions, which focus on creating investment and hedging opportunities for investors who are looking at transferring risks. In order to increase market demand for primary market products, these specialized traders use techniques such as financial engineering or structuring, creating new products that allow investors to buy portions of risks and cashflows of the original assets. In addition to investment banks, the group of intermediaries generally includes e.g. trading venues, such as e.g. stock exchanges, Multilateral Trading Facility (MTF) focusing on equity transactions (no operator discretion) as well as Organised Trading Facilities (OTF) focusing on non-equity transactions. Furthermore, FMIs such as e.g. clearing houses (CCPs such as LCH, Eurex Clearing, CME or Iceclear) and Central Securities Depositories (CSDs such as Clearstream, Euroclear or DTCC in the US) play a key role on the secondary market. Besides the intermediaries mentioned above, which usually share part of the risk of the underlying transactions or support the execution of the transaction process, other relevant market players such as rating agencies have emerged in order to enhance transparency and therefore reduce the information asymmetry between issuers and investors. Statutory auditors foster reliance in financial statements and thus reduce disincentives. Law firms and advisors help transfer best market practices between market participants.  Furthermore, regulators issue legal requirements and supervisors enforce them contributing to a functioning, stable and integrated, fair and transparent financial system and prevent its misuse for fraud, money laundering and terrorist financing purposes. Shortcomings with regard to the above-mentioned functions may result in severe market disruption with respective effects on the real economy.


Need for action in order to realize the growth potential of EU27 Capital Markets

The different size and structure of Capital Markets often relates back to the underlying economy and market structure, including its market participants. As an example, the majority of EU27 entities are bank-financed in contrast to the US, where Capital Market funding plays a major role for market participants. On average, bank lending represents 78% of corporate debt for EU27 companies and bond markets account for 22% in 2016 (compared to 13% in 2006). This is the inverse of the US with its market-based financial system, where bank lending accounts for 26% of corporate debt in 2016 (compared to 27% in 2006). In the UK, bank lending represents just over half of corporate debt with 54% in 2016 (compared to 63% in 2006) which shows the path the UK has taken to convert from a bank-based to a market-based financial system.[2]

Currently, the EU is facing enormous challenges: Trying to tackle demographic and technological change, border protection and climate change will require significant investments which cannot be provided purely by banks as financial intermediaries. Furthermore, Brexit preparations revealed the extent to which the EU27 member states are dependent or (over-)reliant on the UK Capital Market, which effectively absorbs a large part of Capital Market transactions entered into by European market participants. In order to ensure growth and become more independent in an international context, the European Union needs a genuine, integrated and innovation-friendly Capital Market. Since Capital Markets are fragile constructs with legal, political and social determinants being the main drivers to ensure a stable development, the Capital Markets Union (CMU) introduced by the EU Commission is an important first step towards the creation of an integrated European Capital Market. The subsequent blogs will thus focus on the CMU action plan, analyzing the issues it tries to tackle as well as identifying potential gaps and remediating actions.



Please contact our PwC experts in case of any questions.

Stephan Lutz – Mail:

Ina Alexandra Steiner – Mail:

Dr. Philipp Völk – Mail:





[1] The authors thank Fabian Faas and Philipp Böhme, both PwC, for their valuable contribution to this blog series.

[2] Wright, W./Asimakopoulos, P. (2018): A decade of change in European Capital Markets, p. 10.

The tale of the Securitisation Regulation

The Regulation aims to strengthen the legislative framework for European securitization market. It is a building block of the Capital Markets Union (CMU) which contributes to the Commission’s priority objective of supporting job creation and sustainable growth.

The Securitisation Regulation (SR) formed a part of Investment Plan for Europe, also known as the Juncker Plan, named after Jean-Claude Juncker, the president of European Commission at that time. The plan was officially communicated by the Commission on November 26, 2014 and the SR intended to restart high-quality securitization markets without repeating mistakes made before the 2008 financial crisis.

Eight months under the Securitization Regulation

As of beginning of 2019, the new Securitization Regulation applies. It consists of 48 articles and brings forth several noteworthy rules, concerning mostly disclosure practices and Simple, Transparent and Standardized (STS) framework.


The STS Framework

The STS refers to a set of criteria that grant an STS label to a compliant ABS transaction. The requirements are described in articles 18 – 28 and can be broken down as follows:

BaFin and Bundesbank consult MaSanV

On 25 April 2019, BaFin, in agreement with the Deutsche Bundesbank, submitted the Mindestanforderungen an Sanierungspläne für Institute und Wertpapierfirmen (MaSanV)[1] for consultation.

The MaSanV-E will replace the MaSan after its entry into force. In addition, it will transpose into German law the EBA guidelines on the range of scenarios to be used in recovery plans (EBA/GL/2014/06) and the EBA Guidelines on the minimum list of qualitative and quantitative recovery plan indicators (EBA/GL/2015/02), and will concretise the provisions of the Delegate Regulation (EU) No. 2016/1075.

This creates the necessary requirements for the reorganisation planning of less significant institutions (LSI) as well as of institutions, which belong to an institution protection system (IPS).

As a result, the MaSanV will become the central legal norm, especially for smaller banks, alongside the German Sanierungs- und Abwicklungsgesetz (SAG).

BaFin und Bundesbank konsultieren MaSanV

Die BaFin hat am 25. April 2019 im Einvernehmen mit der Deutschen Bundesbank die Verordnung zu den Mindestanforderungen an Sanierungspläne für Institute und Wertpapierfirmen (MaSanV) zur Konsultation gestellt.

Der MaSanV-E wird nach Inkrafttreten zum einen die MaSan ersetzen. Darüber hinaus wird er die Leitlinien der EBA[1] über die bei Sanierungsplänen zugrunde zu legende Bandbreite an Szenarien (EBA/GL/2014/06) und die Leitlinien der EBA zur Mindestliste der qualitativen und quantitativen Indikatoren an Sanierungspläne (EBA/GL/2015/02) in deutsches Recht umsetzen und die Regelungen der Delegierten Verordnung (EU) Nr. 2016/1075 konkretisieren.

Dadurch werden die notwendigen Vorgaben zur Sanierungsplanung von weniger bedeutenden Instituten (LSI) sowie von Instituten, die einem institutsspezifischem Sicherungssystem (IPS) angehören, geschaffen.

Im Ergebnis wird die MaSanV vor allem für kleinere Häuser zur zentralen Rechtsnorm neben dem Sanierungs- und Abwicklungsgesetz (SAG) werden.

SRB Brexit-Positionspapier zur Abwicklungsvorbereitung

Das Single Resolution Board (SRB) hat in einem Positionspapier[1] darauf hingewiesen, dass wesentliche regulatorische Vorgaben (wie z.B. an die MREL Quote, Fortführungskonzepte, Personalausstattung) ungeachtet des Brexits von Bankinstituten in der EU27 eingehalten werden müssen. Mit dem Brexit wird die europäische Bank Recovery and Resolution Directive (BRRD)[2] ihre Bindungswirkung für in Großbritannien ansässige Institute verlieren. Daher formuliert das SRB seine regulatorischen Erwartungen an Banken, die a) ihre Geschäfte, in eines der EU27 Länder verlagern (incoming banks), oder b) ihren Hauptsitz in der EU27 haben und ihre Aktivitäten in Großbritannien oder einem Drittland auf- bzw. ausbauen (outgoing banks).

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