Today, the EU Commission published its report on the functioning of the European Securitisation Regulation (SECR). This so-called review of the Securitisation Regulation is provided for under Article 46 of the Regulation and is intended to address the question of whether the Regulation has led to a revitalisation of the European securitisation market and is appropriate. At the same time, the Commission reports pursuant to Art. 45a on the question of whether a specific framework for sustainable securitisations should be created.
For its assessment, the Commission refers in particular to the report of the Joint Committee of Supervisors (ESAs) from May 2021 and the results of its consultation with market participants from September 2021. In addition, it has taken into account data from the Securitisation Register, data from the supervisory reporting CoRep as well as results from the European Benchmark Study (EBE) by AFME, EDW and TSI.
The Commission emphasises that the submitted report on the functioning of the European Securitisation Regulation explicitly deals only with the current SECR and does not provide any assessments on sector-specific rules, in particular the CRR and Solvency II. Reference is made here to the ongoing Call for Advice and the pending final report of the Joint Committee of the ESAs.
Key findings of the Commission
- Market development: The volume of European securitisations has been stable since the introduction of the SECR on 1 January 2019. However, similar to the UK market, there has been a 12% decline since 2015, while the US market has grown strongly.
- Objectives SECR: According to participants in the consultation, not all objectives of the SECR have been met. In particular, better access to credit for the real economy has not improved and the investor base has not broadened. On the positive side, however, there has been increased transparency and stronger investor protection. The Commission concludes that overall the SECR is fit for purpose, but that there is still room for improvement in certain aspects.
- Risk retention: The various methods of retention are used by the market and there is no need for improvement. Nevertheless, the effectiveness should continue to be monitored by the EBA.
- Due diligence and transparency: Investors must fulfil their due diligence obligations and for this, among other things, they must be able to access the information and documents according to Art. 7 SECR. The Commission sees a limited usefulness of the templates for fulfilling the transparency requirements in some aspects and calls on ESMA to revise them. Whether the reporting of individual loan data should be introduced for all securitisations should also be analysed.
- Private securitisations (a): The Commission continues to have doubts as to whether market participants are turning to private securitisations to avoid the stricter transparency requirements for public securitisations. This is regrettable, as the data of the European Benchmark Study provide strong indications against this assumption and a more detailed analysis of CoRep data could have dispelled any final doubts.
- Private securitisations (b): Another controversial question is whether investors and supervisory authorities have access to sufficient information on private securitisations and whether uniform templates could improve the information situation. Unfortunately, no differentiation is made here between the information needs of supervisors for the development of the private securitisation market as a whole and the information needs of investors at the level of individual transactions. The two-tier nature of ABCP programs is also not considered. The Commission sees evidence that the current ESMA templates are not fully appropriate and calls on ESMA to revise them. The obligation to report via the securitisation register also for private securitisations is to be equally discussed.
- Private securitisations (c): The Commission rejects a change or clarification of the definition of private securitisations, as the current definition is clear and works well. Existing problems of the definition in connection with the transparency requirements are recognised and should be solved by revising the templates.
- Equivalence regime for STS: The recognition of non-EU securitisations as STS is not supported due to the lack of a comparative analysis and is postponed until 2024.
- Sustainable securitisations: The Commission explicitly supports the EBA’s proposal on the EU Green Bond Standard for securitisations and the application of the use-of-proceeds approach to the originator. It is to be hoped that Parliament and Council will endorse this position.
- STS – third party verification: The role of the STS third party verifiers is seen as helpful for originators, sponsors and institutional investors. The regulatory framework functions as intended with regard to STS verifications and the Commission sees no need to revise it. Given the importance of STS third party verification, it suggests a stronger dialogue with the relevant supervisory authorities to further promote a consistent interpretation of the STS criteria.
- Special purpose vehicles: The Commission sees no need of changing the regime for special purpose vehicles by including banks with limited authorization.
- Legal scope: The Commission takes a position on some detailed questions regarding obligations on originators and investors and explicitly disagrees with the Joint Committee’s narrow interpretation on contentious issues.
- Supervision of securitisations: The Commission concludes that the supervision of securitisations is basically working. However, more time is needed for a coherent and optimally coordinated supervisory practice between the supervisory authorities. The SECR basically provides the authorities with all the tools they need for supervision. The monitoring of compliance with the STS requirements should be better harmonized and a uniform guideline for the supervisory authorities should be developed.
Conclusion
The report on the functioning of the Securitisation Regulation picks up on some areas for targeted improvements in the European Securitisation Regulation. It will be important to have a constructive solution and pragmatic implementation to address open issues. The increased transparency of securitisations will lead to higher confidence of market participants and supervisors, also with a view to sustainability. At the same time, we must urgently appeal to the legislator to also address the open issues around CRR and Solvency II. This will be key for securitisations to assume its role for financing the real economy in the context of the digital and sustainable transformation.