ESMA Publishes Consultation Paper on Reporting Templates for Securitisations

ESMA has published a Consultation Paper in relation to the securitisation disclosure templates under Article 7 of the EU Securitisation Regulation. This follows the report of the European Commission in October 2022 setting out certain conclusions and recommendations in relation to the EU Securitisation Regulation, including suggested revisions to the disclosure framework. In the Consultation Paper, ESMA proposes four different options in relation to revising the disclosure requirements.

BACKGROUND

Under Article 7 of the EU Securitisation Regulation, the originator, sponsor and securitisation special purpose vehicle (SSPE) of a securitisation are required to make certain prescribed information available to investors. This information includes certain reporting templates, which require the provision of detailed information in relation to the underlying exposures and investor reports in a specified format. The reporting templates are required to be provided at least quarterly for non-ABCP transactions or monthly for ABCP (asset-backed commercial paper) transactions.

More detailed requirements are set out in regulatory technical standards, which specify the information and the details of the securitisation which are required, and implementing technical standards, which set out the standardised templates for providing such information and details. Under Article 5 of the EU Securitisation Regulation, investors are required, as part of their due diligence and monitoring obligations, to verify that the relevant information is provided.

In October 2022, the European Commission (the Commission) published a report on the functioning of the EU Securitisation Regulation (the Commission Report). For more details, please see our LawFlash: European Commission Publishes Report on the Functioning of the EU Securitisation Regulation. The Commission Report considered a number of aspects of the EU securitisation framework, following a consultation launched by the Commission in July 2021 (the Consultation). These included various issues relating to the investor due diligence and disclosure requirements.

In the Commission Report, the Commission asked the European Securities and Markets Authority (ESMA) to review the disclosure templates for underlying exposures, to address possible technical difficulties in completing certain fields, remove unnecessary fields and align them more closely with investors’ needs, and to consider whether loan-by-loan information was necessary.

The Commission also noted that some respondents to the Consultation had questioned the usefulness of the templates for private transactions (i.e., those securitisations that do not require a prospectus in accordance with the Prospectus Regulation). The Commission asked ESMA to draw up a dedicated reporting template for private securitisations, tailored to the information that supervisors need in order to obtain an overview of the market and the main features of private securitisations, and at the same time simplifying considerably the reporting requirements for private transactions.

In addition, the Commission noted the difficulties which had been widely commented upon in relation to the jurisdictional scope of the EU Securitisation Regulation, in particular the investor due diligence requirement under Article 5(1)(e) of the EU Securitisation Regulation, pursuant to which the investor is required to verify that the relevant information has been disclosed by the originator, sponsor or SSPE, where applicable, in accordance with the requirements of Article 7 of the EU Securitisation Regulation.

EU investors in transactions with non-EU originators and SSPEs have frequently found it challenging to obtain the required reporting, given that such non-EU entities are generally not considered to be directly subject to the EU Securitisation Regulation. Some market participants had argued that, because of the words “where applicable” in Article 5(1)(e), and given that Article 7 was not directly applicable to non-EU entities, Article 5(1)(e) should be interpreted to mean that EU investors did not have to obtain the Article 7 information from such non-EU entities.

On this last point, the Commission expressed the view that differentiating between the information to be provided by EU and non-EU entities would not be in line with the legislative intent of the EU Securitisation Regulation. The Commission acknowledged that this would de facto exclude EU investors from investing in certain third-country securitisations if the sell-side parties did not provide the relevant information. However, the Commission considered that its recommended review of the reporting requirements could help mitigate against any competitive disadvantage for EU investors.

Following the Commission Report, market participants have been anticipating a review of the reporting requirements, and a move towards a dedicated template for private securitisations which would be more proportionate and in particular, could alleviate the issue of obtaining reporting in non-EU transactions.

ESMA published a Consultation Paper in relation to the securitisation disclosure templates under Article 7 of the EU Securitisation Regulation (the Consultation Paper) on 21 December 2023.

The Consultation Paper

ESMA carried out some preparatory work ahead of the Consultation Paper by means of an informal consultation with various entities in the securitisation industry. These included market associations, originators, issuers, rating agencies, repositories, supervisors, the European Central Bank (ECB), and investors. ESMA noted that it received conflicting responses, and consequently, the Consultation Paper identifies four policy options, which can be summarised as follows.

Option A

In the case of Option A, any changes to the disclosure templates, the use of loan-level data and the use of ND options, and consideration of a private template, would be delayed until the next review of the EU Securitisation Regulation. This could avoid some operational costs which would result from any changes and allow for further experience to be gained in relation to the reporting regime. However, this would not address the current concerns of many market participants and as yet there is no timeline in place for such a review.

It is also worth noting that ESMA discuss the question of whether private securitisations should be reported via a repository, as for public securitisations, since this has been requested by supervisors. However, we would expect that many market participants will regard this as overly burdensome, unnecessary, and with possible adverse implications for confidentiality.

Option B

Option B would allow for some specific changes to be made, both to enhance disclosure and address certain issues. This could include limiting the use of ND options. We would expect that market participants will not want to lose the flexibility to use certain ND options when needed.

In addition, Option B could include incorporating some additional risk-based indicators which ESMA has identified, together with climate change metrics and other sustainability indicators in line with other ESG developments in the European Union.

Option B allows for a certain amount of continuity but would not simplify the templates and could result in additional compliance and cost burdens. It would also not resolve the current concerns of market participants.

Option C

Option C is aligned with the proposals in the Commission Report, involving a review of the disclosure templates and the development of a dedicated template for private securitisations. ESMA are looking at the current template for notification to the ECB as a potential reference point for such dedicated private template. In addition, new templates could be developed, for example, for trade receivables (although given that the vast majority of trade receivables securitisations are private deals, such private transactions would in any event be covered in the new private template) or for synthetic securitisations.

Option C would also allow aggregate data, instead of loan-level data, to be disclosed for certain revolving, highly granular, or short-term assets, such as trade receivables, credit cards, and auto loans. It is likely that this would generally be welcomed by the market.

Market participants may well support Option C as it would lead to some simplification of the templates and also a better designed and simpler template for private transactions. The latter could also be very helpful for EU investors in non-EU securitisations, helping them to comply with their due diligence requirements and reducing the competitive disadvantage they are currently facing.

Option D

Option D would result in more detailed reforms, with simplified templates which would be specific to the relevant asset class. The current ND options would be removed and instead replaced with mandatory, conditionally mandatory, and optional fields. However, there would be no difference in approach between public and private transactions.

While market participants may welcome simplification of the templates under Option D, there would be no dedicated template for private transactions, there may be increased implementation costs, and the reforms are likely to take longer to be introduced.

NEXT STEPS

We would expect that market participants will want to consider carefully the four options and the questions raised by ESMA in the Consultation Paper. It is also worth noting that ESMA states that it will also consider feedback on other combinations of the proposals. The deadline for responses is 15 March 2024.

CONCLUSION

The Consultation Paper represents a key step in the development of the EU Securitisation Regulation regime. Since the Commission Report, market participants have been in limbo as they have been expecting a review of the reporting templates and a dedicated private template, while still being subject to the current more onerous regime. This issue has been particularly acute for EU investors in non-EU securitisations.

While the process of considering potential changes to the reporting requirements is taking some time, market participants are likely to welcome this opportunity to make their views known in anticipation of moving towards a more proportionate regime.