Welcome to this edition of the STS Newsletter by PCS, keeping stakeholders up to date about market and regulatory developments in the world of STS.
On May 17th, 2021, the Joint Committee of the European Supervisory Authorities (EBA, ESMA and EIOPA) issued its report on the regulation of European securitisation.
When we announced this publication in our News section we indicated that, subject to a more in-depth analysis, we felt the Report to be a substantial missed opportunity.
In this edition of our Newsletter, we provide the promised deeper analysis.
In our regular features, we share updated data on the STS securitisation market, discuss interpretation issues regarding Article 21.9 and present Rob Leach, Member of our Analytical Team.
As ever, we very much welcome any feedback on this Newsletter.
Remember, as always, that PCS’ data is by deal rather than, as many research houses do, by volume. This is not that this is a better way of presenting the data but it is a different way of presenting the data which, hopefully, reveals additional information.
On May 17th, 2021, the Joint Committee of the European Supervisory Authorities (EBA, ESMA and EIOPA) issued its report on the regulation of European securitisation.
When we announced the publication in our News section we indicated that, subject to a more in-depth analysis, we felt the Report to be a substantial missed opportunity. This is the promised deeper analysis.
The avowed purpose of the regulation was to revive the European securitisation market on a safe and sound basis. Yet, two years in, the European securitisation market continues to decline in volume.
Part of the decline of the market can be attributed to events outside the regulation, notably extremely accommodative monetary policy by the ECB and factors related to COVID-19.
But we also know from countless market participants’ interventions, but also from the work of not one but two independent experts groups set up by governments and the Commission that two key reasons for this failure to revive the European securitisation market are (a) the inadequacy of the capital calibrations for securitisation (in the CRR and Solvency II) and (b) the absence of a level playing field between the treatment of high quality securitisations and equivalent capital market instruments when it comes to regulatory benefits and burdens (including LCR treatment).
It was therefore hoped that this formal, public and very official review by the three regulatory authorities would prove to be the opportunity for them to inform the European Commission of why the regulation was failing its avowed purpose and how this could be reversed.
We now turn to the Report in more detail.
On a second reading of the Report, nothing has changed our initial sense that this is a lost opportunity for the ESAs to engage with the real issues that limit the success of an otherwise well drafted piece of legislation: the inappropriateness of the prudential benefits for such a high standard as STS and the desperately unbalanced playing field between securitisation and comparable capital market instruments. By not doing so, the Report did, unfortunately, not provide the rounded analysis of the functioning of the Securitisation Regulation within its ecological niche in the capital markets we think was called for.
Article 21(9) is one of the STS criteria that regularly has triggered debate about interpretation.
The Joint Committee of ESA’s has recently published Q&A’s that may be very useful to market participants.
One of the questions relates to Article 21(9) of the Securitisation Regulation and the answer implies that issuers may need to make adjustments to their disclosure.
The Committee answer vis-a-vis Article 21(9) indicated that “Information regarding servicing procedures should be found in a publicly available document especially where this documentation explains how the servicing of delinquent and defaulted exposures are taken care of, so as to further facilitate investors’ due diligence regarding compliance with Article 21(9) of the SECR”.
PCS views this response as clear indication that the required information referred to in 21(9) should be contained in the documents that are provided to investors. Where previously some transactions contained statements that the Article 21(9) information was contained in policies and procedures or servicing manuals to which the investors had no access, it appears clear now that the specific servicing/remediation/recovery details need to be included in the transactions documentation provided to investors. Such information could also be included in attachments to available documents (e.g., the servicing agreement) or contained in a summary within the Prospectus or other transaction documents
PCS is a compact organisation with a total staff of 12.
In each newsletter we will introduce one of them so that people get to know us. This time, Rob Leach, Member of the Analytical Team.
Rob Leach
I originally was trained as a credit analyst at a large commercial bank in the US and eventually became a real estate lender in the bank’s Philadelphia office. I later moved into securitization when I joined a rating agency in New York. Shortly thereafter, I moved to the London office, where I eventually came to manage the team of analysts in London responsible for CMBS ratings. In more recent years, I served in a control/risk management role responsible for quality review activities across several structured finance sectors. In 2019, I moved to PCS, coinciding with the implementation of the STS regulation and PCS’s STS activities as a Third Party Verification Agent.
When not working, I enjoy a variety of activities, since a while now including mask-wearing, social distancing and waiting for home delivery. In line with the current social trends, I’ve fully adopted the work-from-home lifestyle, enjoying the blurring of lines between work life and that other part of life formerly known as the not-at-work life. I live with two rabbits and am an adherent of “slow gardening.”
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