Asset-Backed Commercial Paper
Starting from the end of the first quarter of 2020, European money market funds will have to disclose certain information under the Money Market Fund Regulation (MMFR) to their national competent authorities (NCAs).To facilitate funds’ regulatory disclosure, on 13 November 2018, ESMA opened a public consultation, for comment by 14 February 2019, on draft guidelines providing further specifications on how to fill in the MMFR reporting template. ESMA’s consultation paper represents the first step in the development of such specifications by setting out detailed proposals on which ESMA is seeking the views of its stakeholders. Several of the proposals relate to the reporting of Asset-Backed Commercial Paper (ABCP) and a number of the consultation questions are also therefore ABCP-related.
Also on 13 November, ESMA issued a set of items which aim to implement the new European regulatory framework for securitisations and help promote simple, transparent and standardised (STS) securitisations. These items include draft regulatory and implementing standards (RTS/ITS) on the information and templates to be provided as part of an application by a firm to register as a securitisation repository with ESMA, as well as the operational standards and access conditions for information collected and maintained by securitisation repositories.
ESMA also published further guidance to market participants on ESMA’s arrangements for being notified of a securitisation’s STS status. Lastly, ESMA has published a statement addressing various topics related to its near- term implementation activities under the Securitisation Regulation. This statement aims to provide additional information to facilitate market participants’ understanding around ESMA’s deliverables, given that the Securitisation Regulation began to apply on 1 January 2019.
On 30 November, the ESAs issued a statement in response to industry concerns relating to severe operational challenges both in meeting the transitional provisions of the Securitisation Regulation disclosure requirements, as well as in complying with the EU requirements on risk retention, transparency, re-securitisation and criteria for credit-granting obligations on a consolidated basis by EU credit institutions engaged in local securitisation activities in third countries.
From a legal perspective, neither the ESAs nor NCAs possess any formal power to allow the disapplication of directly applicable EU legal text – for instance by issuing non-action letters, which exist in some non-EU jurisdiction – and any delays in the application of EU rules would formally need to be endorsed and implemented through EU legislation, which is outside the powers of the ESAs. Nevertheless, in light of the identified difficulties and market concerns, the ESAs expect NCAs to generally apply their supervisory powers in their day-to-day supervision and enforcement of applicable legislation in a proportionate and risk-based manner.
On 12 December, the EBA published its final Guidelines, which will provide a harmonised interpretation of the criteria for the securitisation to be eligible as STS on a cross-sectoral basis throughout the EU. These Guidelines will play a crucial role in the new EU securitisation framework that became applicable on 1 January 2019, by providing a single point of consistent interpretation of the STS criteria for all entities involved in the STS securitisation including originators, sponsors, investors, competent authorities and third party STS verifiers.
The Guidelines, developed for both non-ABCP and ABCP securitisation, clarify and ensure a common understanding of all the STS criteria, including those related to the expertise of the originator and servicer, the underwriting of standards, exposures in default and credit impaired debtors, and predominant reliance on the sale of assets.
On 14 December, ESMA received a letter from the European Commission regarding the draft regulatory and implementing technical standards on securitisation disclosures submitted by ESMA on 22 August 2018. The letter states that “the Commission intends to endorse those draft regulatory and implementing technical standards only once certain amendments are introduced.” Pertinently, “the Commission requests ESMA to examine whether, at the present juncture, the “No Data” option could be available for additional fields of the draft templates. This would be particularly important for the templates for asset- backed commercial paper securitisations (for which there are no similar harmonised disclosure templates currently in use).”
Circulated on 12 December, AFME’s Third Quarter 2018 Securitisation Data Report shows that European ABCP issuance was €129.1 billion in the third quarter of 2018. This is an increase of 18.1% versus the prior quarter and an increase of 92.0% versus the same quarter in the prior year. Multi-seller conduits (99.0% of total), particularly from France (65.5% of total) and Ireland (29.2% of total), continue to dominate as the largest issuance category in the ABCP market.
Contact: David Hiscock