As outlined in previous Editions of this SCM Briefing, the European Central Bank (ECB) has over the last few years made a substantial series of amendments to the collateral eligibility rules for asset-backed securities (ABS) as set out in its "General Documentation", such that the applicable rules are set out in several different sources. Given that the key Guideline amending the General Documentation (Guideline ECB/2013/4) has now been amended several times (and is subject to further minor amendment), the ECB has recognised that it has become necessary to re-cast it in the form of Guideline ECB/2014/31 which aims to incorporate all of the previous Decisions and Guidelines amending the earlier Guideline ECB/2013/4, and also amends Guideline ECB/2007/9. All of the earlier amendments to Guideline ECB/2013/4 are incorporated (the new, temporary requirements for ABS not meeting the new 'two Single A' credit assessment requirement - these can be rated 'BBB' provided they meet certain other criteria - the revised valuation haircuts for ABS, the (temporary) eligibility of ABS denominated in Pounds Sterling, Japanese Yen or US Dollars, the acceptance of certain government-guaranteed bank bonds until 28 February 2015, the application of specific haircuts to ABS issued or guaranteed by the Greek or Cypriot Governments and the suspension of the rating requirement for certain marketable debt instruments), and a new provision has been added that certain short-term debt instruments issued by non-financial corporations may be eligible in certain cases. A helpful correlation table (showing the location of the original articles in Guideline ECB/2013/4 and where they appear in the new Guideline ECB/2014/31) is also set out in Annex IV to the Guideline. The ECB's collateral eligibility rules are now much more helpfully consolidated than previously, and are contained in significantly fewer sources. The current sources are now Annex 1 to Guideline ECB/2011/14 (known as the "General Documentation"), supplemented by this new, re-cast Guideline ECB/2014/31. Please note that Guideline ECB/2013/4 is repealed as from 20 August 2014, and the new Guideline ECB/2014/31 is said to apply (from 9 July 2014) temporarily until such time as the ECB's Governing Council considers the measures are no longer necessary (as you may recall, most of these adjustments to the General Documentation have been made to respond to the effects of the global financial crisis and the need to establish tight(er) rules for Central Bank repo eligibility during what was a period of market illiquidity and the distinct lack of an investor base for ABS, and they are expected to become redundant once the ABS market returns to a more "normal" state with an active investor base).

The ECB also recently announced that as of 1 October 2014, ABS backed by auto loans, leases, consumer finance loans and credit card receivables that do not meet the loan-level reporting requirements will become ineligible as collateral (mandatory compliance with loan-level reporting requirements for RMBS, CMBS and SME ABS has already been required since various dates in 2013 and 2014). However, the ECB has also stated that, if "adequate explanations" can be provided for the failure to achieve the mandatory level of compliance with the loan-level reporting rules (the issuer would presumably provide this), then non-compliant ABS may still be accepted, on a case-by-case basis. As you may be aware, the current requirement in the ECB's collateral eligibility rules for asset-backed securities (ABS) to have two AAA ratings at issuance (albeit temporarily relaxed for some ABS) has been replaced with a requirement for two 'Single A' ratings at issuance, but only for ABS currently subject to the ECB's loan-level reporting requirements.

Useful links:

ECB Guideline ECB/2014/31

Annex 1 to Guideline ECB/2011/14 (the "General Documentation")

ECB Press Release (4 September 2014)