A new ESAs statement and Brexit – Chronicles of a Death Foretold

The Joint Committee of the European Supervisory Authorities (ESAs) has issued a statement clarifying the impact of Brexit on STS.

It just confirms what we knew: existing STS transactions with a UK originator or sponsor or special purpose vehicle will cease to be STS in the hands of European Union investors.

The only small additional point is timing.

The rules grant CRR and LCR benefits to STS transactions.  An STS transaction is a transaction that meets the requirements and appears on the ESMA list. Therefore, there was the possibility of a short grace period between 1st January 2021 and the time it took for originators to notify ESMA and ESMA to remove a transaction from  the list.

This announcement indicates that ESMA will seek to remove all those deals by 1st January irrespective of whether originators notify them.  So there will be no technical grace period unless a bank can negotiate one with its national prudential regulator.