On 30 September 2015, as part of the action plan to boost business funding and investment financing, the European Commission published a proposal for a regulation laying down common rules on securitisation and creating a European framework for simple, transparent ad standardised securitisation (the "Securitisation Regulation"). On 2 December 2015 the Council of the European Union agreed on the proposal, which, it feels, constitutes a good basis for further discussions with the European Parliament.
The proposal for the Securitisation Regulation provides due diligence, risk retention and transparency requirements for parties involved in securitisations. It also provides criteria for simple, transparent and standardised ("STS") securitisation. The regulation provides for two types of STS securitisations: one for long-term securitisations and one for short-term securitisations (ABCP). Each type should be subject - to a large extent - to similar requirements, provided that specific adjustments apply to reflect the difference between such types.
The criteria for STS securitisations are divided in requirements relating to simplicity, standardisation and transparency. The requirements relating to simplicity involve the underlying exposures included in the securitisation and the acquisition thereof by the securitisation special purpose entity (SSPE), the requirements relating to standardisation involve the transaction documentation and the transparency requirements relate to the disclosure of information on the underlying exposures.
Compliance with the STS requirements is solely the responsibility of the originators, sponsors and SSPEs. In the proposal the originator, sponsor and SSPE shall jointly notify ESMA by means of a template that the securitisations meets the STS requirements ("STS Notification"). The STS Notification should include an explanation on how each of the STS criteria have been complied with. Originators, sponsors and SSPEs may also use the services of a third party authorised in accordance with the Securitisation Regulation to assess whether the securitisation complies with the STS criteria. If so, the STS Notification should mention whether STS compliance was certified by such authorised third party.
A securitisation shall be considered STS if (i) it meets all applicable requirements and the originator, sponsor and SSPE have notified European Securities and Markets Authority (ESMA); and (ii) the securitisation is included in a list held by ESMA, containing all securitisations for which STS has received STS Notifications. The list will be updated for transactions which are no longer STS compliant.
Some of the STS requirements may be considered as open or ambiguous and consequently it may not be easy for originators, sponsors and SSPEs to state that whether these requirements have been complied with. We hope that in the further legislative process efforts will be made to ensure that these requirements will be worded in a clear and objective manner.
For the proposed Securitisation Regulation, as agreed by the Council of the European Union, click here.