One can be forgiven for missing it in the post-holiday lethargy but, on 28th December 2017, the new securitisation rules were published in the Official Journal. This saw the final stage of the entire legislative process. The STS text and the CRR text are now European law.
The law will come into effect on 1st January 2019. The clock though has started to run on the many regulatory technical standards that will be required before it can be put into practice.
These essential regulatory rules must be drafted by either ESMA or EBA before 18th July 2018 or 18th January 2019 depending on the rule.
Yes, that does mean that some rules need not be in place before the law comes into force. ESMA does not need to provide the Commission with the rules pertaining to securitisation repositories until January 2019. Since the Commission and the European Parliament will then need time to approve this regulatory technical standard, it is likely that we will not have any securitisation repositories until well into 2019. Thankfully, the European Parliament did provide (in Article 7.2) a fall back for originators in the absence of such repositories. So the delay should not – unless the lawyers tell us otherwise – prevent securitisation transactions in the interregnum. ESMA also does not need to provide clarification on the information that originators are required to provide to investors (under article 7.1) until January 2019. Potentially, this could be a very serious problem since these rules are mandatory for all securitisations and not just STS securitisations. The deadline though being a “deadline”, it is hoped that all public bodies and market participants will work together to ensure that a solution is found and that the European securitisation market does not entirely close down in the first half of 2019.
It would also appear that the EBA received a sympathetic hearing to its pleas that it would not have enough time to issue guidelines and recommendations clarifying the often very vague STS criteria. The original six month window in which they were required to publish these has now been extended to 18th October 2018. On the downside, this means that the market is not likely to know what an STS securitisation looks like until late in 2018. On the upside, this will give more time for a thorough consultation and discussion over the often thorny issues of interpretation that surround the STS criteria. Also, it is worth noting that since these interpretations are technically by way of “guidelines and recommendations” – rather than “regulatory technical standards” – they do not have to go through any additional process involving the Commission and the Parliament. In other words, 18th October 2018 is the latest date before they become final.
(And for the completists and true securitisation geeks amongst our readers, there is one interpretation that will be done by way of a regulatory technical standard, which is the interpretation of the “homogeneity” criterion. This retains a deadline of 18 July 2018.)