In 2014, the European Commission announced its intention to restart high-quality securitisation markets, without repeating the mistakes made before the 2008 financial crisis. The development of a simple, transparent and standardised securitisation market constitutes a building block of the Capital Markets Union and contributes to the Commission’s priority objective of supporting job creation and a return to sustainable growth. On the other hand, the funding and the provision of eligible assets as collaterals, always go hand-in-hand. The term “eligible asset” is used for assets that are accepted as collateral by the Eurosystem(1). The eligibility of assets is assessed by the national central banks in accordance with the criteria specified in the Eurosystem’s legal framework for monetary policy instruments. Typically, collateral refers to marketable financial securities, such as bonds, or other types of assets, such as non-marketable assets or cash.
In March 2019, with a view to encouraging efficiency in the securitisation market the European Central Bank (“ECB”) decided that the loan-level data reporting requirements of the Eurosystem collateral framework and the disclosure requirements and registration process for securitisation repositories under Regulation (EU) No 2017/2402 (“Securitisation Regulation”) must achieve greater proximity.
In brief, the Securitisation Regulation establishes the terms for all securitisation transactions, enhances the degree of transparency in the asset-backed securities market and provides for new eligibility requirements for the assessment and acceptance of the asset-backed securities as collateral in the Eurosystem’s liquidity-providing operations. Most importantly, the ECB has taken a decision to bring forward the registration of securitisation repositories by the European Securities and Markets Authority (“ESMA”) under the Securitisation Regulation and slowly phase out the designation process for loan-level data repositories.
The Securitisation Regulation is effective as of 1 January 2019 and all asset-backed securities issued after that date must meet its requirements in order to obtain the simple, transparent and standardised label, as defined in Chapter 4 thereto. However, two milestones should be reached for the complete applicability of the Securitisation Regulation and effectiveness of the Eurosystem’s loan-level data reporting requirements. Firstly, the underlying exposure templates under Article 7(4) of the Securitisation Regulation must have entered into force. Secondly, at least one securitisation repository must have been registered by ESMA. The change in the Eurosystem’s transparency requirements will come into effect after a transitional period of three months as of the date on which these two conditions are fulfilled.
On 28 June 2021, the ECB announced that the ESMA reporting activation date occurred on 25 June 2021 in relation to loan-level data reporting requirements of the Eurosystem collateral framework. As a result of the above, as of 1 October 2021, the asset-backed securities transactions that are subject to the Securitisation Regulation will be assessed for compliance against Eurosystem collateral eligibility criteria if loan-level data is submitted to an ESMA-registered securitisation repository and according to the templates developed by ESMA.
All asset-backed securities transactions seeking eligibility as Eurosystem collateral are subject to the same loan-level data requirements, regardless of any exemption from the disclosure requirements under the Securitisation Regulation. Consequently, the asset-backed securities issuers must provide information to the Eurosystem in accordance with the procedures established in Sections 1 and 2 of the Commission Delegated Regulation (EU) 2020/1224 of 16 October 2019 supplementing the Securitisation Regulation. This will require preparation and submission of investor reports and the mandatory templates on inside information, underlying exposures etc.
It should be noted, that there is a transitional three year period for the asset-backed securities issued before 1 January 2019, where the Eurosystem’s current loan-level data reporting requirements will be maintained until 31 September 2024.
(1) The Eurosystem is the monetary authority of the euro area that comprises the European Central Bank and the national central banks of the Member States whose currency is the euro.