A Bank of America Global Research report commentary, published on 3 May 2022, has explored the complexities and costs associated with the current European securitisation reporting requirements under the Securitisation Regulation (Regulation) and their effects on market recovery, funding, as well as risk transfer.

The commentary, titled ‘Reporting for reporting’s sake,’ highlights the use case for European DataWarehouse’s proprietary ‘Extended Templates’ and ‘CSV2XML Converter’ solutions in reducing the reporting burden for securitisations in the United Kingdom (UK) and across the other European jurisdictions.

It also delves into the current disclosure requirements for public vs private securitisations, the new ECB securitisation notification obligation, as well as the EU vs UK reporting regimes. The report calls for a simplification of the requirements as part of the ongoing revision of the Securitisation Regulation expected later in 2022.

European DataWarehouse has been granted permission to publish the following excerpt:

Standardised templates for securitisation reporting were introduced by ECB as part of the inclusion of the European securitisation notes in the ECB collateral framework. The market still refers to them as ‘the ECB templates’. Subsequently, as part of the EU Securitisation Regulation (EUSR), another reporting template was introduced (in 2019), referred to by the market as ‘the ESMA template’.

The ESMA template was developed using the ECB template as a base, but the two templates are not fully identical. The table below summarises the degree to which they differ (a gap analysis provided by EDW) in content, with the reference to materiality in difference defined from an IT perspective. There is also a difference in format: XML (Extensible Markup Language) schema of the ESMA template and CSV (Comma-separated Values) for the ECB template, commonly referred to as ‘the Excel template’.

The two templates have been in use in parallel in the last two years: one to report deal pool data to ECB, the other – to ESMA, and both were and continue to be submitted to European DataWarehouse (EDW), now established also as a data repository under the EUSR. EDW introduced a special convertor to allow users to navigate between CSV and XML formats.

Historically, securitisation pool data has been presented on an Excel spreadsheet, which is what most investors and analysts still use, thus creating a natural preference for the ECB template or for receiving reports directly from the originator/ issuer of a securitisation transactions and avoiding the issues arising from using a data converter.

That may explain at least partially the low (as referred to at different conferences) usage of the ESMA templates by investors. The low usage of the templates for some asset classes (e.g. CMBS, credit card ABS) can also be confirmed by the low number of such deals in the EDW transaction coverage list. The other reason may be detailed information contained in the loan-by-loan data files, while investors – at least the ones focusing on senior and senior most tranches – need mostly stratified pool data rather than an exhaustive review of individual idiosyncratic risks in the asset pool.

From a practical point of view, the ESMA template replaced the ECB template as of 1 Oct 2021 for deals in scope of EUSR, i.e. deals issued on or after 1/1/19 and including STS deals. For deals not in scope of EUSR (i.e. deals issued prior to 31/12/2019) that replacement should happen by 30 Sep 2024, i.e. ‘the legacy deals’ are grandfathered to use ECB template until then. So for the time being, the two templates will continue to run in parallel, creating an extra burden for (ironically) the regular issuers.

We note that originators/ issuers have to submit reports to the rating agencies, both prior to issuance and regularly during the life of the securitisation deal. The format of that submission may be different from the templates above, which adds to the cost of issuing a securitisation deal and running a securitisation programme. We understand that EDW has proposed an extended template to satisfy the needs of rating agencies, investors and regulators, or to put it differently: a template that reconciles into one the three templates currently in use for the purposes of ECB, ESMA and the rating agencies.

A new ECB securitisation notification template entered into force on 1 April 2022 with a six month phase-in period until 1 Oct 2022. The notification must be submitted by the originator or sponsor of the securitisation transaction to ECB ‘no later than one month from the date of origination’ of the respective securitisation transaction.

The notification must include information in the following four sections: A/ key transaction information, B/ information on securitised exposures, C/ information on securitisation positions, D/ compliance with articles 6, 7 and 8 of EUSR. The information is provided at origination; however, the originator or sponsor are expected to notify ECB without undue delay of any significant event affecting or likely to affect the features of transactions during its life, particularly in relation to compliance with EUSR Article 6-8.

If we understand it correctly the above notification (with its A, B, C and D components) applies only to securitisations executed by SIBs (systemically important banks, supervised directly by ECB/SSM) in the Euroarea and is in addition to the ESMA notifications A, B and C above which apply to all EU originators/ sponsors of securitisation. In other words, the SIBs in the EZ will be subject to two sets of (perhaps broadly overlapping) reporting templates.

As an aside, we understand that similar information must be submitted (possibly in a somewhat different format) also under COREP (Common Reporting Framework) to EBA as part of the CRR reporting requirements.

A similar contradiction/nuisance/challenge exists in the UK, where securitisation reporting must be submitted to BoE (following the ‘ECB format’) and to FCA (following ‘ESMA format’). While the reporting standards/ templates under ECB and ESMA are on track to converge fully by October 2024 as mentioned above, we are not aware of a similar effort in the UK: for the time being, BoE and FCA templates are expected to remain as they are, i.e. different.

As of 1 April 2022 UK originators/sponsors/SSPE and UK investors of UK securitisations must use UK securitisation reporting templates (the EU reporting templates are no longer applicable to UK transactions and UK investors for purposes of compliance with the UK securitisation regulation – UKSR).

According to a note by the law firm Morgan Lewis: while the UK Securitisation Regime has been in place from the end of the Brexit transition period, the ‘Temporary Transition Power’ (TTP) allowed the UK regulators to put in place certain transitional provisions enabling UK regulated entities to choose whether to comply with certain rules under the UK Securitisation Regulation regime or to continue complying with the equivalent rules under the EU Securitisation Regulation regime for a temporary period (the TTP period).

As the TTP Period came to an end on 31 March 2022 so as of 1 April 2022 UK originators/sponsors/SSPEs/investors must use the FCA published UK schemas for securitisation reporting.

According to EDW (which is registered as a securitisation repository both in the EU – ESMA Securitisation Repository as of 25 June 2021, and in the UK – FCA Securitisation Repository as of 17 January 2022) the key changes in the updated UK schemas are related to the removal of EU names and references. We understand that at present material differences exist only in the Corporate Securitisation reporting template (i.e. SME securitisations).

As an aside, we note that the FCA schema retain the XML format with all the issues that entails as highlighted above.

When the originator/sponsor/SSPE is established in the UK or EU, it is clear that they must use the respective – FCA or ESMA, reporting template. What is unclear is the acceptable reporting when the above entities are established in a third country (outside the EU or outside the UK). As per above-referenced note by Morgan Lewis: under article 5(1)(f) of UK Securitisation Regulation where the originator, sponsor or SSPE is established in a third country (i.e. not in the United Kingdom) a UK institutional investor will need to verify that such entity has made available information that is substantially the same (italics ours) as that which it would have made available in accordance with Article 5(1)(e) if it had been established in the United Kingdom with the same frequency and modalities. The meaning of ‘substantially the same’ is subject to interpretation and ongoing debate and is not new at all: the issue of acceptable reporting for third country securitisation has been debated since before the introduction of EUSR on 1/1/2019.

To make matters even more complicated, in some securitisation transactions some parties may be bound by the EUSR and others – by the UKSR; this requires dual compliance and related dual reporting.

Questions arise as to for how long the dominant similarities (if not sameness) of the EU and UK reporting regulations/ templates will remain in place. The potential for divergence exists and may start transpiring as early as next year.

Another complication that may emerge in the future is that of interpretation of the existing regulations. At present, the markets rely on ESMA Q&As for clarifications about the use of the templates, and such clarifications by ESMA are usually applied to the FCA templates, too. If and when FCA starts publishing its own Q&As, it is not inconceivable that the same/ similar texts in the UK and EU regulations can trigger different interpretation and guidance by the FCA and by ESMA.

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