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ESMA within the EU Regulatory Framework
ESMA was established in 2011, two years after a call by the European Heads of state and government for more harmonised regulation and integrated European supervision. ESMA’s establishment formed part of the wider European System of Financial Supervision. Like its sister organisations the European Banking Authority (EBA)and the European Insurance and Occupational Pensions Authority (EIOPA), ESMA’s mission is to improve the protection of investors, and to promote stable and well-functioning financial markets in the EU. In addition, ESMA, the EBA, and EIOPA, work closely together with the European Systemic Risk Board (ESRB) to achieve these objectives. As an independent institution, ESMA achieves this mission by building a single rulebook for EU financial markets. This involves, for example, delivering technical standards and advice. To ensure consistent implementation and application of that single rulebook across the EU, ESMA actively coordinates national supervisory activities and drives for convergent supervision and enforcement –a role that I will discuss later in the context of securitisation. ESMA is also mandated to supervise some key types of financial services firms with a pan-EU reach. This includes credit rating agencies, trade repositories and, as I will discuss in a few minutes, securitisation repositories.
Securitisation disclosure requirements
The disclosure requirements, which ESMA finalised and submitted to the European Commission in January this year, represent the single largest area of work for ESMA in the context of rulemaking under the Securitisation Regulation. They aim to ensure that investors, potential investors, competent authorities, and other public authorities have sufficient information to meet their due diligence and supervisory obligations under the Regulation.
ESMA’s work in this context falls squarely within its investor protection mandate, which I mentioned a few moments ago.
European securitisations come in many shapes and sizes, from fast-moving asset-backed commercial paper transactions, to small true sale auto loan-backed securities, to nonperforming exposure securitisations supported by government guarantees, to diverse small and medium-sized enterprise deals, and also to transactions backed by gigantic rotating pools of residential mortgages. This impressive variety is created by large individual lenders or by multiple originators banding together either in the same country or across borders. And there are any number of counterparties that can get involved to provide services as well, such as swap providers, account banks, back-up servicers, and calculation agents.
Securitisation repositories
The Securitisation Regulation provides for a system of securitisation repositories to host all this data and make it available to investors in a centralised fashion. These repositories are the next topic that I would like to focus on this morning.
Securitisation repositories will play a crucial role in centralising all of the securitization information across the EU for investors and other data users. The repositories will also be responsible for conducting completeness and consistency checks of the disclosure templates and transaction documents sent to them by reporting entities. In November 2018, ESMA published a set of technical standards on these operational aspects, which are also with the Commission at the moment for review.
STS Notifications
I would now like to turn to notifications of securitisations that meet the ‘Simple, Transparent, and Standardised’ (STS) criteria set out in the Securitisation Regulation. ESMA has also been active on this subject: in July 2018 we published draft technical standards on the notification form to be used by originators and sponsors interested in obtaining the STS label. The European Commission is also reviewing those standards, which we understand are well advanced and should be published in the near future.
Working across national and EU public bodies in the context of the Securitisation Regulation
At this point, I would like to take a step back and look at some more cross-cutting topics in the context of the Securitisation Regulation, such as providing further clarity on issues such as the jurisdictional scope of application of the Securitisation Regulation. and the term “potential investor”.
To handle such complex and transversal questions, the Securitisation Regulation requires that ESMA, the EBA, and EIOPA establish a specific sub-committee on securitisation as part of the Joint Committee of European Supervisory Authorities. I’m pleased to report that this subcommittee held its first meeting at the end of May and has already begun to discuss these and other topics requiring further interpretation. ESMA and the rest of the sub-committee’s participants are well aware of the need to reduce uncertainty as much as possible for market participants such as yourselves. Using the Joint Committee, we will work together with our colleagues from the EBA and EIOPA to publish some further guidance on these topics in the coming months.
Let me conclude. ESMA has been given a number of important tasks and responsibilities under the Securitisation Regulation, which includes providing technical input on disclosure requirements, securitisation repositories, STS notifications, and coordination and cooperation with other public authorities. During 2018 and early 2019, ESMA delivered a total of 12 different pieces of draft legislation and advice to the Commission on these and other topics. We are now awaiting the outcome of the Commission’s review, including the views of the Parliament and the Council.
At the same time, we are fully aware that market participants are operating under substantial uncertainty and time pressure, also because the Securitisation Regulation does not include much in terms of transition periods.
For this reason, ESMA did not pause after the rule-making period, and has, since late 2018, immediately transitioned towards the implementation phase, even before the technical standards have been adopted as formal Regulations by the European Commission. This implementation phase includes the finalisation of several critical deliverables. We are aiming to provide further Q&As and, where necessary, additional interpretations of the Regulation in the coming weeks and months. We will do this as fast as we can, taking into account the time we need to consult with stakeholders such as yourselves, and to agree common approaches with all public entities involved. And in parallel I would like to emphasise that there is only so much that we can do—it is essential that participants such as yourselves be ready by the time the technical standards like the disclosure requirements become EU law.
We are thus at a critical juncture for EU securitisation markets: much has been delivered, but the next few months will be crucial for setting out a stable platform for the coming years. Taking a longer-term view, I’m optimistic that, if we can all get these implementation steps right, we should be able to benefit from a vibrant and safe securitisation market that supports the needs of issuers, investors, consumers, and firms across the Union. That is certainly ESMA’s hope, as well as our target.