The objective of this article is to explain how private 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 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, 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 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. 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 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 that provides additional guidance and explanation to RTS. Under Q5.13.5 ESMA states that disclosure templates for significant events and inside information (Annex 15 to the RTS) are not required for the private transactions. 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).
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 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, 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. 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. Analogously, similar situation can be observed on private ACC transactions where National Central Banks did replicate data quality techniques from ABS repositories to enforce minimum data quality standards.
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.
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 defined as those where no prospectus has been drawn up in compliance with Directive 2003/71/EC
 short-term securitizations refer to ABCP securitizations (Asset-Backed Commercial Paper)
 Final Report, published by ESMA on December 12, 2018. Endorsement from European Commission is still pending
 see third subparagraph of paragraph (2)
 Questions and Answers on Securitization Regulation, version 3 from July 17, 2019
 See Q184.108.40.206 in Questions and Answers on Securitization Regulation
 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.