The European Commission (the "Commission") has published its long-awaited report on the functioning of the Securitisation Regulation (the "Report"). The Report is mandated pursuant to Article 46 of the Securitisation Regulation and was originally due to be published by 1 January 2022, but was delayed due to the Covid-19 pandemic among other things.
The aim of the Report is to review the functioning of the Securitisation Regulation and the European securitisation market since the entry into application of the Securitisation Regulation on 1 January 2019, and draws on a public consultation of market participants and other stakeholders, as well as an opinion and report published by the joint committee of the EU Supervisory Authorities (the "Joint Committee").
The Report concludes that the Securitisation Regulation seems overall fit for purpose, but does acknowledge that there is room for "fine-tuning" and makes certain clarifications and recommendations.
Below we discuss some key highlights of the Report relating to (i) the transparency requirements under Article 7, including the treatment of private securitisations (ie, those which are not subject to the Prospectus Regulation); (ii) the jurisdictional scope of the Securitisation Regulation; (iii) sustainable securitisations; and (iv) supervisory convergence.
A number of stakeholders responded to the public consultation to the effect that the disclosure templates published by ESMA (the "Disclosure Templates") are too prescriptive and strict, and sometimes fail to take account of the specificities of a particular transaction (such as whether it is public or private). As a result, the Commission has invited ESMA to review the Disclosure Templates and, in particular, seek to address possible technical difficulties in completing certain fields, remove possibly unnecessary fields and align them more closely with investors' needs. The Commission has also recommended that ESMA consider whether information on a loan-by-loan basis is useful and proportionate to investors' needs for all types of securitisations.
Currently, private securitisations are required to use the same Disclosure Templates as public securitisations. The Commission has invited ESMA to draw up a dedicated Disclosure Template for private securitisation transactions, that is tailored specifically to supervisors' need to gain an overview of the market and the main features of private transactions. The Commission expects that this will simplify the transparency requirements for private securitisations.
The Commission also noted that supervisory authorities should use the information on private securitisations made available to them in their supervisory work. This may mean that competent authorities are more pro-active in requesting and accessing information relating to private securitisations in the future. In the longer term, the Commission may consider amending the Securitisation Regulation to require information in respect of private securitisations to be reported to a securitisation repository (in the same way as public securitisations), though such an amendment is not currently contemplated.
Some market participants had called for the definition of a private securitisation to be revisited, and for certain private securitisations to be exempt from the transparency requirements. However, the Commission favours retaining the current definition and does not agree with exempting certain private securitisations from the transparency requirements, recommending instead that the Disclosure Templates for private securitisations be simplified, as discussed above.
There has been much discussion in the market of how the Securitisation Regulation should apply to securitisations where one or more of the sell-side entities (ie, issuer, originator and sponsor) are located outside the EU.
In order to ensure that such securitisations comply with the Securitisation Regulation, the Joint Committee had recommended that:
(a) only an EU-based entity should be able to retain risk pursuant to Article 5;
(b) parties must choose the EU-based entity as the designated reporting entity pursuant to the Transparency Requirements; and
(c) an EU-based entity should be responsible for ensuring the consistent application of sound and well-defined credit-granting criteria to securitised and non-securitised exposures pursuant to Article 9.
The Commission has disagreed with this approach, arguing that it is not necessary in order to ensure that the requirements of the Securitisation Regulation are complied with. The Commission notes that such compliance can be ensured through the application of due diligence requirements to institutional investors, as discussed below.
The Commission is of the view that the due diligence requirements of Article 5(1)(e) also apply to investments in non-EU securitisations, such that EU-based institutional investors must verify that non-EU securitisations comply with the transparency requirements before investing in them. Such an interpretation will cause significant difficulties for institutional investors looking to invest in non-EU securitisations, if such securitisations do not comply with such requirements. The Commission hopes that the proposals to simplify the Disclosure Templates (discussed above) will make it easier for non-EU securitisations to comply with the transparency requirements, with the result that such transactions become more investable for EU institutional investors.
The Commission clarified that non-EU AIFMs marketing and managing funds in the EU must also comply with the due diligence requirements pursuant to Article 5. In addition, the Commission clarified that sub-threshold AIFMs should also be considered institutional investors and are also required to comply with those requirements.
The Commission agrees with the view of the European Banking Authority in its report on developing a framework for sustainable securitisation (the "EBA Report") that, in the short and medium term, there is no case for creating a dedicated sustainability label for securitisations. The Commission invites the European Parliament and Council to take the EBA Report into account in their ongoing negotiations of the EU Green Bond Standard (the "EuGBS"), so that the EuGBS is suitable for use by securitisations.
The Commission notes that there are some areas where greater convergence and enhanced coordination between supervisory authorities would be beneficial. It recommends that guidance be provided to prevent differences in interpretation of the Securitisation Regulation and in the involvement of competent authorities in the supervisory process. The Commission notes in particular that a more harmonised approach to monitoring compliance with the simple, transparent and standardised ("STS") securitisation label should be ensured, and suggests that guidance is provided by the Joint Committee to ensure a common supervisory approach at EU level.
Conclusion and next steps
The Report confirms that the Commission remains fully committed to the aim of creating the framework for a thriving and stable EU securitisation market and acknowledges that such a market may become even more important for tackling the challenges of financing economic activity in the significantly more difficult market environment that seems to be evolving at the moment.
The Report has not been accompanied by a legislative proposal, and the Commission has not recommended that amendments be made to the Securitisation Regulation at this point. The Commission made a number of recommendations addressed to ESMA, the Joint Committee and the European Supervisory Authorities, who will now consider and may act on those recommendations. Some of the observations made by the Commission may also assist market participants in resolving questions of interpretation of certain aspects of the Securitisation Regulation.
The Commission noted in the Report that more time is needed to fully assess the performance of the EU securitisation market and the impact of the Securitisation Regulation. It can be expected that the Commission will continue to closely monitor this area, and it has left open the possibility of amendments to the Securitisation Regulation in the future.
 Regulation (EU) 2017/2402 of the European Parliament and of the Council of 12 December 2017 laying down a general framework for securitisation and creating a specific framework for simple, transparent and standardised securitisation.