Following the global financial crisis, various initiatives have been undertaken to ensure a safer and more transparent securitisation market in the EU. The EU has built an extensive regulatory framework aimed at establishing transparency rules for structured finance instruments (SFIs).
The framework has been established through a number of EU requirements, Regulations and Directives such as the Prospectus Directive, the Capital Requirements Regulation, the Capital Requirements Directive IV, the Alternative Investment Fund Managers Directive, the Regulation on credit rating agencies and the Solvency II Directive. These pieces of EU legislation collectively set out the information that needs to be assessed as part of the due diligence process for investors and the disclosure requirements for SFIs.
The Joint Committee of the three European Supervisory Authorities (the JC) has now published a report which assesses whether the existing EU framework has been set up in a consistent manner and, where inconsistencies are identified, to put forward recommendations that could be undertaken at the EU level. The recommendations are the JC’s response to the European Commission’s consultation document on securitisation with regard to standardisation, transparency and information disclosure that was published on 18 February 2015.
The JC’s report focuses on the linkages between the due diligence requirements that apply to investors and the disclosure requirements that apply to the issuer, originator and sponsor. The report covers the following issues:
- the nature and content of the due diligence and disclosure requirements;
- the parties to which the disclosure and due diligence requirements apply; and
- the methods used for the adequate disclosure, reporting and enforcement in cases of non-compliance.
The report also covers certain other transversal issues, such as the differences in the definitions of securitisation across EU legislative texts.
The JC’s main recommendations include:
- that due diligence requirements should be harmonised across EU sectoral legislation with the common view that, irrespective of the type of investors, due diligence should be seen as a dynamic process which starts with the investment decision and ends when the SFI matures or is divested. In particular, the JC recommends that investors’ due diligence requirements are reflected in the SFI disclosure requirements; and
- investor reports should be standardised and stored in a centralised public space. Measures should be implemented to help investors in conducting effective stress tests on all types of SFIs.
View Joint Committee report on securitisation, 12 May 2015