Consultation on disclosure and operational standards
ALFI
ALFI agrees with ESMA’s view that the disclosure requirements must be set in a way that ensures sufficient and appropriate information to the (potential) investors. However, its observations in the market shows that throughout Europe securitisations may be structured in very different ways and securitise diverse sorts of underlying exposures. Those may even go beyond the classic credit risk securitisation in some jurisdictions.
Therefore, ALFI would rather refrain from using standardised templates but seek harmonisation (instead of standardisation) of the information to be provided. This is similar to what you outlined in point 30 for cases where a standardised underlying exposure template does not fit. Yet, ALFI would suggest not relying on templates at all, i.e. focusing on the substance of the information instead of the form.
In its opinion, standardisation is mainly beneficial in case of high volumes of very similar information and for statistical purposes. An investor would not be interested too much whether a similar product (in which does not or does not intend to invest) discloses the same relevant information in the same form. It may even be counterproductive because the information that really matters for such product or an investor is hidden somewhere in amongst other standardised information.
Full ALFI response
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ESBG
From an originator’s perspective the extensive, burdensome and costly disclosure requirements, in addition to all other compulsory regulatory reports on securitisation, applied to new and legacy STS public transactions, would greatly benefit from a more detailed specification and clarification of which securitisation transactions fall under private securitisation. For instance, if the transaction has a 100,000 denomination or is offered to below 10 qualified investors and is listed on an unregulated market, is the assumption correct that it falls under a private securitisation as under the Directive 2003/71/EC no prospectus has to be drawn up in this case? Does it still fall under private transaction if it still fulfills the prospectus exemption above but for the purpose of additional information for investors a prospectus was drawn?
Full ESBG response
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Moody’s
Its comments focus on the:
Non-ABCP securitisation underlying exposure requirements outlined in Annexes 2 to 8 in the ITS (Q5); and
Proposed fields for investor reports (Q9);
For the non-ABCP securitisation underlying exposure requirements, Moody’s has indicated that it has noticed a number of fields currently present in the European Data Warehouse (“EDW”) are not included in the proposed templates. It hase also suggested fields, necessary for our credit analysis, which are not in either the EDW or the proposed templates.
With regard to the investor reports, Moody’s has identified a number of fields where clarity or guidance would assist in ensuring consistency of the information reported.
Full Moody’s response
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Fitch
Overall, Fitch considers the fields contained in Annexes 2 to 8 provide sufficient loan-level information and that such fields will be useful for the purpose of assessing credit risk.
Subject to the specific observations listed below, Fitch considers that the proposal to remove “optional fields” will be very useful. This proposal will provide data users with a consistent level of information to compare portfolios while also reducing the total number of data fields (e.g. by removing duplication).
Full Fitch response
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AFME
AFME members would like to express their support and appreciation for ESMA's general approach of starting from existing templates (the ECB and Article 8b templates) in developing templates to be appended to the Draft TS. A great deal of effort on the part of regulators, the ECB and market participants went into the development of those templates and into adjusting to the disclosure obligations embodied therein. Although the proposed changes to disclosure requirements would require significant systems adjustment on the part of originators, it is helpful to limit this disruption to the extent possible by leveraging off of the work already done.
It is important that ESMA and the other European Supervisory Authorities appreciate the extent of the time, effort and cost associated with changes to reporting requirements, especially where loan-level or exposure-level reporting is concerned. Not only do underwriting processes often need to be changed to request the newly-required information from underlying obligors (itself often not practicable with respect to legacy assets), but legacy reporting systems need to be adapted to collect that information, validate it and feed it into existing reporting processes in the required format. This is especially challenging in respect of highly granular consumer asset pools (because of the number of data points involved) and in respect of long-dated assets (because of the difficulties with acquiring additional information in respect of assets that were originated many years prior to securitisation).
Thirdly, and connected to our second point, AFME members would urge ESMA to proceed in the development and adoption of the Draft TS with all deliberate speed. Beyond simply providing certainty as to the future requirements as early as possible (as to which see our comments on adaptation time at point 2 above), it is essential to avoid the interim application of the RTS made under Article 8b of the Credit Rating Agencies Regulation pursuant to Article 43(8) of the Securitisation Regulation. If the RTS made under Article 8b apply even for a short time, then all of the work required described at point 2 above will need to be done twice, an outcome that would involve a great deal of effort and cost and which would be of no practical benefit to anyone.
Finally, AFME members would urge ESMA to clarify the jurisdictional scope of the disclosure obligations in the final technical standards relating to disclosure obligations. A number of references (in particular, the inclusion of the words "where applicable" in Article 5(1)(e) relating to due diligence requirements and the absence of a competent authority to supervise compliance with Article 7 for third country originators, sponsors or original lenders) indirectly indicate that the intended policy position for Article 7 obligations is that they should apply only in respect of EU-established entities. AFME believes it is reasonable that market participants be provided with clarity on an issue as fundamental as the jurisdictional scope of the basic disclosure obligations provided for in the Securitisation Regulation. It would therefore urge ESMA to make explicit in the technical standards the policy choice that is implicit in the level 1 text.
Full AFME response
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Consultation Paper on Disclosure and Operational Standards
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Consultation on STS notification
ESBG
ESBG could not find a timeline for which an STS notification to ESMA is required to be delivered in order for transactions to be issued.
The proposed STS notification format would result in considerable time, effort and significant costs on the originator side. If not changed, there is a high risk that STS because of the content and format proposed in this paper, combined with the far too narrowed homogeneity proposal in the EBA consultation paper, will not establish itself on the market and will not stimulate the European securitisation market.
Issuers already have to provide details of a securitisation transaction prior to issuance as well as multiple reports on a monthly, quarterly and yearly basis to the competent authorities (CA), investors and rating agencies. If the transaction fulfils the significant risk transfer, intensive exchange with and information is provided to the CA prior to issuance. The content of the STS notification as proposed in the paper would result in an additional significant requirement which turns in our view the cost-benefit comparison of a transaction negative and is out of scale given the very strong historical performance of European ABS.
Full ESBG response
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PCS
First, “the type of underlying exposures as defined in the Securitisation Regulation” may be too limiting. The list of underlying exposures set out in the Regulation is very limited. PCS believes that for assets that do not fall within that list, a catch-all provision of “other” may be unnecessarily uninformative. It might be preferable to have a provision stating that (i) where the assets securitised fall into one of the listed categories, the relevant category should be specified and (ii) when the assets do not fall into a listed category, the originator/sponsor should provide a descriptive name for those assets.
Secondly, PCS’ understanding of the certification process is that it is done once when the originator/sponsor elects to have a securitisation be treated as STS. Admittedly, there are provisions in the legislation for informing ESMA of any changes or new facts which would make the securitisation no longer STS. However, such notifications are not, to our understanding, a new certification. Therefore, we are not sure we understand what is referred to as “the date of the latest update of the STS notification”.
The purposes of the STS certification are multiple. Three of the key purposes are (i) to allow an investor to place “appropriate reliance” on the certification without doing so “mechanistically”, (ii) to allow authorised third parties to verify the certification efficiently and (iii) to allow the originator/sponsor an opportunity to demonstrate it has not approached such certification in a negligent manner and thus is not exposed to potential sanctions.
Although the tripartite division of criteria proposed by ESMA is sensible for the majority of cases, securitisations display a very wide range of structures, legal frameworks and asset classes. Therefore, it is entirely possible that an STS criterion that is, in the great majority of cases, very straightforward and only warranting a “confirmation” could, in some cases, be quite complex and deserving of a longer explanation. To prevent the originator from providing such longer explanation when needed would deprive all three groups referred to in the preceding paragraph of the benefit of the certification document.
PCS accepts that this problem is attenuated if the confirmation consists of a cross-reference to a longer explanation in the prospectus. However, this approach would also make the tripartite division almost entirely illusory.
Full PCS response
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AFME
AFME members agree that it would be useful to provide a certain amount of general information in the STS notification to facilitate the identification of an STS notification. In general, this should be limited to information designed to identify the securitisation, information that is directly relevant to the STS criteria being met or references to other sources of information on the securitisation. The data suggested in the general information section of Annex I (for non-ABCP securitisations) seems a reasonable for these purposes
The general information of Annex II (for ABCP securitisations) is also reasonable in general, but we would note that disclosing information relating to the originators of ABCP transactions in the STS notification is not appropriate and is inconsistent with the disclosure regime as it applies to ABCP securitisations. Accordingly, fields STSA2, STSA8 and STSA19 should be amended to exclude reference to the originator and fields STSA20, STSA21 and STSA22 should be deleted.
In addition, the reference to the date on which the securities are "deemed" to be issued (in both STSS12 and STSA12) is confusing. There is a date on which securities are actually issued but there would not generally be a "deemed" issuance date. We would suggest date the prospectus is approved (for standalone public securitisations), the date of the final terms (for programmatic public securitisations) or the transaction signing date (for ABCP transactions and non-ABCP private securitisations) instead. For ABCP programmes, we would suggest the date of first issuance as this will normally be known with some certainty by the time transaction parties would be in a position to file an STS notification.
Full AFME response
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Consultation Paper on STS notification
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Consultation on Third Party Firms providing STS verification services
ISDA
In developing this proposed regulatory technical standard, ESMA has taken into account the existing requirements for authorisation of Credit Rating Agencies and statutory auditors. ESMA states that it has applied a proportional approach and considered the specific circumstances and role of the third party applying for authorisation to be able to verify the compliance of the securitisation with the STS criteria as specified in the Article 28 of the STS Regulation.
Recital 34 of STS Regulation states that the involvement of third parties in helping to check compliance of a securitisation with the STS requirements could be useful for investors, originators, sponsors and SSPEs and contribute to increasing confidence in the market for STS securitisations. Originators, sponsors and SSPEs could also use the services of a third party authorised in accordance with this Regulation to assess whether their securitisation complies with the STS criteria. Those third parties should be subject to authorisation by competent authorities. The notification to ESMA and the subsequent publication on ESMA’s website should mention whether STS compliance was confirmed by an authorised third party. However, it is essential that investors make their own assessment, take responsibility for their investment decisions and do not mechanistically rely on such third parties. The involvement of a third party should not in any way shift away from originators, sponsors and institutional investors the ultimate legal responsibility for notifying and treating a securitisation transaction as STS.
It is clear from the RTS that the third-party verification of the STS status for a securitisation is a useful task, though it does not affect the liability of the originator, sponsor or SSPE in respect of their legal obligations under the STS Regulation or for investors who may not rely solely and mechanistically on this notification.
Credit Ratings Agencies and auditors have a much more onerous role in producing credit ratings which can have a big impact on capital a risk-weightings for regulated institutions and statutory accounts. Yet the information requirements for third-party firms providing STS verification look to be similar to those required for Credit Rating Agencies and auditors.
The information requirements are onerous in terms of the level of detail that needs to be supplied to the competent authority, and cover a wide range of areas including the management, ownership and organisational structures, internal controls, corporate governance, policies and procedures to ensure independence and avoidance of conflicts of interest and as well as fee structures. Finally, there is the necessity to have operational safeguards and internal processes to assess STS compliance.
As this is a new market, there is a danger that the lack of clarity on how pricing is to be calculated and the onerous registration process could result in a few firms applying for approval to verify STS transactions which could result in a lack of competition and a concentration in the firms providing verification services.
The IDSA is concerned that the onerous information requirements may result in few participants applying for verification status which could lead to an uncompetitive market dominated by one or a small number of firms, at worst a monopoly and at best an oligopoly.
Full ISDA response
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PCS
PCS believes that ESMA’s proposals and approach, as set out in the consultative paper, are sound and broadly reflect the requirements of the new regime. In particular, it notes in paragraph 7 of the Consultation, that ESMA has sought inspiration in the regulatory regimes framing the activities of credit rating agencies and auditing firms. It also notes that the reason for this seems to be the identification of the conflict of interest inherent in an institution being paid by the entity whose work it verifies but whose work product (rating, audit or STS certification) is to be used by others as most acute regulatory issue. We agree with this analysis. As a result, it also agrees with ESMA’s focus on issues flowing from this analytical premise.
As a minor - but important - matter, PCS notes that this activity is an entirely new one. In fact, it is an activity that cannot ever have been performed previously and will not be able to be performed until January 1st 2019. As such, we are not dealing, as with credit rating agencies, with the regulation of existing actors whose heretofore unregulated activity will now fall under a regulatory regime. As a result, it is quite likely that a number and maybe even a majority of entities that will seek authorisation will be new entities set up for this purpose. The clear rules against entities providing any ancillary services to the originator, sponsor or SSPE in a securitisation strengthen the likelihood that this will be a field for new players. It is therefore important that the proposed informational requirement do not require items to be produced that simply cannot be provided by new companies. It notes, for example, in the proposed article 8(3) that there is an absolute requirement for providing information covering a three year period.
Full PCS response
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Arfima
Arfima agrees with the proposed general information required from applicants to provide third-party STS verification services. It is comprehensive enough. However, regarding the complete set of the most recent annual financial statements of the applicant stated in Annex IV.2(1)(g), it would recommend to consider a fixed amount of past years financial statements, e.g. five years. This would give a better overview of the company, it could show, for instance, how and why certain criteria have been changed through time and it could also help to confirm any other required information.
Full Arfima response
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Consultation Paper on Third-Party Firm STS VerificationApplication
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