The European Commission published its long-awaited Report on the functioning of the Securitisation Regulation yesterday, 10 October 2022.

The Report covers the mandate to the Commission under Article 46 of the Regulation to deliver a general report by 1 January 2022, and the mandate to the Commission under Article 45a(3) to report on the creation of a specific sustainable securitisation framework. 

We will publish more detailed analysis of the Report later this week.  In the meantime, key points to note are:

No changes will be made to the Regulation at the moment

The Commission’s position is that “…the… Regulation seems overall to be fit for purpose and [the Commission] does not see the need for major legislative change at this juncture. Having said that, the Commission takes note of the concerns expressed by stakeholders and acknowledges that there is room for fine-tuning on certain aspects.”

Responses to ESA concerns regarding jurisdictional scope 

The jurisdictional scope of the Regulation was a key focus for the Joint Committee of the European Supervisory Authorities, in particular in their March 2021 opinion.

On the sell-side, the Joint Committee suggested that the Regulation be interpreted so that (a) only an EU-based entity could act as retention holder, (b) the parties would have to choose an EU-based entity as the reporting entity, and (c) an EU-based entity should be responsible for ensuring compliance with Article 9.  The Commission disagreed, commenting that while it is desirable to have the Regulation enforced directly by EU supervisors, that objective is achieved via the due diligence obligations imposed on institutional investors whereby they must verify that the sell-side parties comply with the Regulation, irrespective of their location.  Regarding disclosure requirements, the Commission noted that those requirements are joint obligations for which each entity is liable and if only one sell-side entity is located in the EU, it is under a legal obligation to make the disclosure (even if the parties designate a non-EU entity as the reporting party).  

Regarding the buy-side-related concerns raised by the Joint Committee:

• on availability of disclosure, it sought more flexibility where the sell-side parties are all located outside the EU – however, the Commission’s view is that it would be out-of-step with the intention behind the Regulation to differentiate the scope of information to be provided depending on whether the securitisation is issued by EU or by third country entities;
• on the Joint Committee’s concern that EU institutional investors are effectively excluded from investing in certain third-country securitisations, the Commission may look at legislative amendments at a later date, but its view is that changes to the disclosure RTS (see below) might reduce the competitive disadvantage for EU institutional investors by making it easier for sell-side parties from third-countries to provide the required information;
• on AIFMs acting as institutional investors, the Commission confirmed that sub-threshold AIFMs have to be considered as institutional investors, and that third country AIFMs that market and manage funds in the EU have to comply with the due diligence obligations under the Regulation.

Sustainable securitisation 

The Commission agreed with the EBA’s conclusion in its March 2022 report on the potential creation of a specific sustainable securitisation framework that, for the time being, there is not a case for creating a dedicated sustainability label for securitisations.  It also agreed with the EBA’s recommendation that the requirements of the impending EU Green Bond Standard apply to the originator rather than to the securitisation special purpose entity. For our briefing on the EBA’s conclusions, see here: Securitisations and the EU Green Bond Standard: new EBA proposals shift focus from issuer to originator.

Due diligence and transparency 

The Commission has asked ESMA to review the templates in the disclosure RTS with a view to addressing possible technical difficulties, removing unnecessary fields and aligning them more closely with investors’ needs.  It has also asked ESMA to look at whether information on a loan-by-loan basis is useful and proportionate to investors’ needs for all types of securitisations.

Private securitisations 

The Commission has asked ESMA to draft a dedicated disclosure template for private securitisations that is tailored to supervisors’ need for an overview of the market and of the main features of those transactions. 

Supervision 

The Commission noted that no significant supervisory shortcomings were reported to it, but has suggested that the Joint Committee develop guidance to promote convergences in interpretation as between competent authorities, and to improve harmonised monitoring of compliance with STS requirements.  It also agrees with the Joint Committee that a common EU guide on best practices for national supervisors should be developed.

If you would like to discuss any of these developments in more detail, please get in touch with your usual contact in our Debt Capital Markets Group.

“The Commission is of the opinion that the Securitisation Regulation seems overall to be fit for purpose and does not see the need for major legislative change at this juncture.”