On 8 July 2024, a Delegated Regulation from the European Commission to supplement the SECR came into force. This RTS relates to STS securitisations in the asset classes auto ABS and RMBS, i.e. securitisations backed by auto financing and residential property loans. The RTS specifies the content, methods, and presentation of information on the Principal Adverse Impacts (PAIs) that arise from the underlyings of traditional and synthetic STS securitisations on sustainability factors.
Classification in the context of sustainable finance
The present regulation on PAIs for selected STS securitisations can be traced back to the EU Action Plan on Sustainable Finance of May 2018. The common goal of the regulation is to systematically integrate sustainability aspects into the real and financial economy. PAIs for structured financial products such as Pfandbriefe and other covered bonds are already regulated in the context of MiFiD II with its focus on private investors. With regard to these specific STS securitisations, there has been a challenge for institutional investors to date. This is because securitisations are financial products that are not directly within the scope of the SFDR (Sustainable Finance Disclosure Regulation), which is relevant for investors. This means that securitisations are only indirectly within the scope of the SFDR, namely at investor level.
Background
The ESAs had already consulted on the first draft of the RTS back in May 2022. Following appropriate revisions, the ESAs submitted the final draft RTS to the European Commission in May 2023 (see TSI kompakt from 2 May 2022). This was published in the Official Journal of the European Union on 18 June without significant changes.
The RTS aims to standardise the type and presentation of information that an originator shall disclose about the PAIs of a securitisation. This is intended to provide investors with more comparable and comprehensive information, enabling them to make informed decisions regarding the sustainability factors of their investments.
Design
The Delegated Regulation does not aim to create a framework for “sustainable” or “green” securitisations but to enable originators to disclose PAIs of STS securitisations. To this end, they can now use a reporting system that is essentially the same as the SFDR.
The RTS enables originators to disclose information on PAIs on sustainability factors in a standardised format. This information includes environmental and social indicators. Disclosures must be made quarterly and be available in a searchable electronic format. For public transactions, disclosures must also be provided through a securitisation repository.
Application
The ‘must if you can’ principle applies to the disclosure of PAIs of STS securitisations. Originators can therefore only choose whether to comply with the original disclosure obligations under Articles 22(4) and 26d(4) of the SECR or the disclosure obligations under this RTS.
Evaluation
The wording of the RTS is limited to requirements for originators. Ultimately, however, they concern information on the pool that not every originator may have in practice (see also TSI kompakt dated 13 December 2023).
The RTS will take effect six months after it enters into force, i.e. at the beginning of January 2025. This roughly coincides with the activation of the European Green Bond (EuGB) Regulation (see also TSI kompakt from 30 March 2024). Market practice will show whether the tweaking of the SFDR’s exhaust will stand in the way of the EuGB’s potential success or complement it.