On 12 October 2021, the European Securities and Markets Authority (ESMA) published a final report on technical standards specifying the content and format of the simple, transparent and standardised (STS) securitisation notification for on-balance sheet securitisations.
Regulation (EU) 2021/557 amended the framework under the Securitisation Regulation (SECR) to on-balance sheet securitisations (also called synthetic securitisations). This final report sets out the draft regulatory technical standards (RTS) that ESMA is required to draft under Article 27(6) and (7) of the SECR specifying the information that the originator, sponsor and securitisation special purpose entity are required to provide in order to comply with the STS notification requirements for synthetic securitisations as set out in Articles 26b to 26e of the SECR. ESMA has also set out draft implementing technical standards (ITS) specifying the templates for notifying the European Supervisory Authority. ESMA has also made targeted amendments to the templates in the RTS for STS notifications for traditional securitisations.
In preparing the draft technical standards ESMA has striven to ensure there is consistency across the STS frameworks for traditional and synthetic securitisations while accounting for the technical differences between traditional and on-balance sheet securitisations.
Synthetic securitisations are almost exclusively executed in private markets between the credit protection buyer and the protection seller. The ESMA has taken on-board the comments in relation to the proportionality of certain requested information, including those related to the identification of the protection sellers and the classification of the protection seller as a “Non-Financial Counterparty”.
The final report on draft RTS and ITS largely reflects the original proposals made in a consultation paper that ESMA published in May. ESMA also discusses in the final report the feedback it received on the consultation.
Within the report ESMA concluded the following:
- Synthetic securitisations fall within the scope of “private transactions” for the purposes of the SECR disclosure and notification rules.
- That listed credit linked notes (CLNs) do not qualify the synthetic securitisation – to which they are related – as a public securitisation. Therefore, ESMA has clarified that the proposed RTS/ITS does not intend to create a “third category” of private synthetic securitisations for such listed CLNs.
- The link between SECR and EMIR is relevant to any synthetic securitisation using a credit derivative as a form of credit protection agreement.
- Linking the STS notification template and the transaction documentation should also apply to synthetic. In their replies, the respondents also supported the overarching principle of linking the STS notification and the underlying transaction documentation (including the prospectus where appropriate), as already implemented for the STS notification of traditional securitisations. . In light of the responses received, ESMA concluded that the general approach linking the STS notification template and the transaction documentation should also apply to synthetic securitisations and decided to retain the approach outlined in the consultation paper.
- There are three types of stakeholders that could potentially be affected by the RTS/ITS:
- the originator and sponsor;
- the protection buyer and protection sellers; and
- the STS notification’ users.
ESMA has submitted the draft technical standards to the European Commission for endorsement. In the meantime, originators can use the interim synthetic notification templates which have been amended to reflect changes that have been made following the public consultation on interim notification templates in April 2021. These may be subject to change following the endorsement by the Commission and the entry into force of the technical standards.
