Edition 11 of this SCM Briefing noted that the European Securities and Markets Authority (ESMA) had sent its Final Report containing a set of draft Regulatory Technical Standards (RTS) to the European Commission on three specific areas of the EU Regulation on Credit Rating Agencies (CRAs), as amended (CRA III), which require the provision of additional information on "structured finance instruments" by transaction parties, and the disclosure and reporting of certain information to ESMA. The European Commission has announced that it has adopted those three RTS (with what appear to be no amendments from ESMA's drafts), which comprise:

  • RTS on disclosure standards for structured finance instruments: which require the issuer, originator and the sponsor of a structured finance instrument to jointly publish information (quarterly) on the credit quality and performance of the underlying assets of the structured finance instrument, its structure, the cash flows and any collateral supporting a securitisation exposure as well as any information that is necessary to conduct comprehensive and well-informed stress tests on the cash flows and collateral values supporting the underlying exposures (as well as any significant change or event likely to affect the creditworthiness of the underlying exposures), on a new website, the European Rating Platform (ERP), which is to be set up and run by ESMA. The RTS also contain Annexes setting out the standardised data disclosure forms that the issuer, originator or sponsor must complete and send to ESMA, with one form provided for each of the asset classes listed below. Please note that these disclosure templates and reporting obligations will only initially apply to ABS backed by certain asset classes - residential mortgages, commercial mortgages, loans to SMEs, auto loans, consumer loans, credit card loans, and leases to individuals/businesses - further provisions will be rolled-out in future to apply them to re-securitisations, ABCP programmes and synthetic securitisations, and to private and bi-lateral deals. These RTS will not take effect until 1 January 2017.

  • RTS on the presentation of information by CRAs to ESMA: which specify the content and presentation of the data to be reported by CRAs to ESMA, including the structure, format, method and timing of reporting for the purposes of publishing the information on the ERP. This requires reporting when any rating or outlook is given (save for private ratings), the provision of historical information on ratings performance, and then periodic (monthly or every two months) reporting about other actions (such as defaults or rating withdrawals), in the form of press releases, reports, rating actions, and other reports. Reports on structured finance ratings must be classified as one of ABS (including auto loans, boat loans, airplane loans, credit card receivables, leases and trade receivables amongst others), RMBS, CMBS, CDOs, ABCP and other structured finance instruments. CRAs should submit their first reports to ESMA/the ERP by 1 January 2016, covering data on all outstanding ratings issued by 21 June 2015. The Annexes to these RTS set out the various reporting tables to be completed by CRAs, which capture information on the CRA and its methodology, the issuer types, debt categories, issue/programme types, the list of lead analysts, the rating scale, the rated entity/instrument and individual rating actions. These RTS take effect on the day on which the RTS are published in the Official Journal of the EU.

  • RTS on reporting of the fees charged by CRAs: which require CRAs to report (annually by 31 March) the individual credit rating fees they charge to each client, as well as their overall pricing policies and procedures, by rating type. The fee information is specifically said to be to allow ESMA to identify credit ratings that require more in-depth scrutiny and possible follow-up supervisory actions, suggesting that ESMA will take a more active approach to reviewing assigned ratings going forward. ESMA will report the fee information to the market within nine months of the RTS taking effect. The Annexes to these RTS set out reporting templates that capture the pricing policy information, fee schedules, fee programmes, pricing procedures, data relating to individual credit ratings, fees received on a pre-client basis, and data on fees received for subscription-based or investor-pays rating services. These RTS take effect on 21 June 2015.

The RTS will only be in "final" form once they have been published in the Official Journal of the EU, which will take place once a one-to-three month non-objection period (during which the European Council or Parliament may exercise their right of objection) has passed. Further information on the ERP, which is expected to be a useful repository for detailed information on structured finance instruments and their ratings, will be communicated as it becomes available.

Useful links:

European Commission RTS on Disclosure Standards for Structured Finance Instruments plusAnnexes

European Commission RTS on the presentation of information by CRAs to ESMA plus Annexes

European Commission RTS on reporting of the fees charged by CRAs plus Annexes