Category: Securitization & Structured Finance

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ESMA Templates and Securitization Repository RTS Enter into Force

On September 3, 2020, the remaining regulatory technical standards (RTS) of the Securitization Regulation completed their scrutiny period and were confirmed and published by the European Parliament in the Official Journal[1]. This legislative act comes one year and nine months after the Securitization Regulation formally entered into force and thus formalistically completes the transition from the current regulatory regime into the new one. The approved RTS will enter into force on September 23, 2020 and will bring substantial changes to the market mechanics. The following text was compiled in order to help the reader to better understand the market impact.

The Securitization Market: 2019 recap and 2020 expectations

Dear readers,

The first year of our blogging activities concerning Securitization and Structured Finance Issues is over. We have received quite some feedback from you and would like to thank you accordingly. Knowing that our topics are of interest to the Securitization community is key for us and guides us to compile not only informative but also relevant posts.

Therefore, our first post of 2020 will provide you with a short recap of what happened in 2019 and our expectations of the key market developments for 2020. We welcome your input on this and will provide you with an update on our expectations at the end of this year. As always, we take a regulation-driven look and analyze its effects on market developments.

 

Stephan, Philipp & Petr

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.

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.

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:

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