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.
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.
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.
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.
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.
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.
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:
On 25 April 2019, BaFin, in agreement with the Deutsche Bundesbank, submitted the Mindestanforderungen an Sanierungspläne für Institute und Wertpapierfirmen (MaSanV) 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).
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 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.
Das Single Resolution Board (SRB) hat in einem Positionspapier 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) 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).