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AFME
AFME focused in particular in providing feedback with respect to the section of the Discussion Paper which focuses on article 8b (information on structured finance instruments) of the CRA Regulation. This response seeks to summarise the key concerns and comments raised by members with respect to article 8b in general and to specifically address in turn each of the questions on this topic raised in the Discussion Paper, including the questions related to the information which should be required to be disclosed.
AFME wishes to highlight at the outset that its members consider that the information which should be required to be disclosed under article 8b should be determined through the use of a principle-based test on a case-by-case basis (as such information will vary depending on the transaction and the underlying assets), and it notes that this is consistent with the interpretation of article 122a(7) of the CRD (defined below), thereby avoiding compliance uncertainty and confusion between the two (very similar) requirements. To the extent that ESMA considers it appropriate to pursue more detailed or specific content requirements, then it is essential that such requirements take into account other ABS disclosure initiatives.
Deutsche Bank
Article 8b, as currently drafted, would subject all SFIs, whether or not they are rated, listed or offered to the public, to the disclosure requirement. Deutsche Bank sees no reason why the public should have ongoing access to information about a private transaction to which they could never become exposed. For example, a private repackaging structure put in place by a bank that involves no rating, no public offer and no listing could be subject to this disclosure obligation. Deutsche Bank respectfully suggests that the scope of this Article should apply to those SFIs which a) have a credit rating and b) are available to public investors. Furthermore, it is important that a clarification is made that non-EU subsidiaries and non-EU branches should not be considered as “established in the Union” and accordingly are outside the scope of Article 8b. Similarly, Deutsche Bank thinks that subjecting all SFIs “traded” in the EU to the disclosure requirement would go beyond the Level 1 text and would have significant extraterritorial impacts.
In addition to the question of scope, Deutsche Bank sees an essential need for greater coordination of various international disclosure requirements and initiatives, the ECB loan level disclosure being a prime example.
EFAMA
The disclosed information on SFIs should become a tool to help investors with their due diligence duties as is currently the case of ECB specific loan-level information for ABS accepted as collateral in the Eurosystem. In that context when drawing up the criteria for the information about the specific assets or loans in the pool that are to go into standardised templates, particular attention should be given to include the information that are related with the fulfilment of the securitisation requirements under art 122 CRD and art. 52-54 AIFMD Level-2. Such information could be the data related to the fulfilment of the 5% retention requirement for the originator which is key to an AIF investment into the securitisation (art. 51 AIFMD Level-2). Moreover the disclosure on information that is both quantitative and qualitative should be ensured via the required legal documentation and general descriptions, such as updated transaction documentation, transaction summaries, monthly investor report etc.
The loan-level data of the ECB templates are a good starting point to allow investors perform their stress tests for their own specific requirements. Further on an alignment with the information covered by securitization requirements under CRD and AIFMD as mentioned in previous questions will significantly improve investors with their due diligence performance. In that context, as mentioned in EFAMA’s response to question 16, the data of the ECB templates should be supplemented by information related to legal documentation, transaction summaries and monthly investor reports so as to allow for the standardisation of both qualitative and quantitative information necessary to investors.
EFAMA agrees with the approach of assessing whether fees are dependent on the outcome of the rating work performed as this is not an appropriate pricing policy. At the same time it is true that different asset classes and issuers may require different amount of work of the CRAs and therefore would indeed justify different pricing policies. Therefore the criteria of the amount of work required and of the characteristics of each asset classes or category of issuer should be appropriate to be applied while assessing the pricing policy of CRAs.
Moody's
Moody's listed two primary concern with the Discussion Paper, which in certain instances it said may be considering initiatives that: run contrary to the broader public policy agenda of reducing over-reliance on credit ratings; and extend beyond the scope of the Regulation. In particular, Moody's drew ESMA's attention to:
The periodic reporting of fees: Moody’s supports ESMA’s view that there “is not a single business model or cost structure in the CRA market”, and is encouraged that ESMA “does not intend to fix or set up minimum prices”. The proposals contained in the Discussion Paper, however, seek to identify “average costs” for ratings across the CRA industry. To do this, the Discussion Paper analogises fees charged for credit ratings to the fees charged for “essential commodities” such as electricity. Such an approach creates the impression that ratings are indeed essential and that issuers of, and investors in, debt securities should have no alternatives. Moody's suggests instead that the RTS only focus on the reporting format used by CRAs when submitting fee information to ESMA.
The European Ratings Platform (ERP): The extent and type of information (some of which is non-ratings related) that the Discussion Paper is proposing to republish on an ESMA-hosted website is to a large extent duplicative of what is already published by CRAs. Moody's believes the ERP as proposed:
Instead, Moody's suggests the ERP displays credit ratings (as required under the Regulation) accompanied by hyperlinks directing interested parties to the relevant CRA’s website for additional information.
Finally, Moody's notes that many of the proposals contained in the Discussion Paper, if adopted, could present significant technical and operational challenges from an implementation standpoint (discussed in more detail in Annex I). Following the publication of the RTS, therefore, Moody's requests sufficient time in order to carefully operationalise the changes.
S&P's
There is potential for overlap and inconsistency between the RTS and other regulatory disclosure obligations applicable to transaction participants. To avoid potential regulatory uncertainty S&P's suggests that ESMA consider alignment with the categorisations used under existing SFI disclosure regimes.
S&P's disagrees with the suggestion that it is ”necessary to include in the ERP also the press releases or the report containing the key elements underlying the credit rating”. Article 11a(1) of the CRA Regulation (“Article 11a(1)”) provides only for the submission of rating information (as opposed to underlying documentation) and sets out a short list of specific items of information that are included within the term “rating information”.
The time period within which CRAs can reasonably submit data will, to a significant degree, depend upon the scope of the data that is required to be submitted. If the data were to be limited to the specific items of information expressly referred to in Article 11a(1), this would promote more rapid submission and minimize the risk of data submission errors.
For the ERP to work most effectively, the priority should be to ensure the highest data quality and accuracy with robust quality controls whilst at the same time ensuring that the burden and the costs borne by CRAs in providing the data are kept within reasonable and proportionate bounds.
S&P's reiterates its concern regarding the cost and non-cost components of S&P’s fee structures: As noted in its previous responses, the CRA industry necessarily has a complex and diverse cost structure. Allocating certain costs — such as reputation risk and model and criteria development — to specific ratings is not practical, even if feasible. Consistent with the challenges presented by allocating these more complex costs, the disclosure requirements with respect to allocation should be replaced with a general attestation that costs were considered as a material factor in determining fees. For the reasons described above, costs need not be and should not be mathematically related to fees as such a requirement could lead to unintended consequences, including reduced competition, innovation and greater risks of conflicts of interest (for example, by creating an undue emphasis on the relationship between the time taken by an analyst on a particular rating and the fees charged).
Original consultation + all other responses