Under the leadership of AFME and Clifford Chance, several European associations, including TSI, have submitted a request for guidance to the European Commission regarding the interpretation of Article 5(1)(e) of the Securitisation Regulation (SECR). The background to the request is the interpretation of the above-mentioned article expressed in the EU Commission’s report under Article 46 of the SECR (see also news article from 10 October 2022).
No more ABS investments in third countries for EU investors?
Article 5(1)(e) of the SECR regulates the investor’s obligation to check the documentation provided by the originator or sponsor according to Article 7 of the Regulation (transparency requirements). The interpretation expressed in section 11.2 of the EU Commission’s report now states that an investor is not free to decide whether he has received all the required documents. Thus, an EU investor currently always has to apply the full transparency requirements, regardless of whether he invests in an EU or non-EU securitisation. This rule is intended to apply until ESMA revises its transparency requirements (see sections 5 and 6 of the report). The consequences of this transitional interpretation may nevertheless be substantial: EU investors will no longer be able to invest in non-EU securitisations, as they now have to request the full Article 7 documentation. This leads to a decisive competitive disadvantage vis-à-vis non-EU investors, which may also have a negative impact on the securitisation business of European banks in third countries in the long term.
Transitional solution proposed by the associations
The associations’ proposal is as follows: The EU Commission should mandate the national supervisory authorities (NCAs) to decide on a case-by-case basis whether the transparency rules have been sufficiently complied with or whether increased risks regarding non-compliance with Article 7 Regulation have been identified – without insisting on the complete and formal submission of all Article 7 documentation and templates. This would offer a pragmatic approach as a transitional solution until ESMA revises the disclosure templates and reduce the risk of lasting damage to EU investors.