The European Securities and Markets Authority (ESMA) has recently published a statement (linked here) clarifying its position with respect to the application of the securitisation disclosure obligations provided for under article 8b of the EU Credit Rating Agency Regulation and its related expectations with respect to compliance.
By way of background, article 8b provides for new disclosure requirements for structured finance instruments (SFIs) (previous eAlerts linked here and here). In particular, relevant entities are required to provide initial and ongoing disclosures related to the underlying assets and transaction structure via a new website to be established by ESMA and, for public transactions backed by certain types of assets, such disclosures are to start from the beginning of 2017. It should be noted that, notwithstanding this approaching initial application date, various aspects of article 8b remain unclear. From a market participant perspective, the outstanding questions include points relating to the new website portal to be used for disclosures and the corresponding system requirements. ESMA has also raised concerns about the website and has highlighted the absence of a legal basis for it to fund the establishment of such a site.
ESMA's statement does not address all of the remaining questions and points of confusion with respect to article 8b, but it does seemingly seek to address certain matters relating to compliance action and the timing for this. In particular and in keeping with previous indications, the statement includes an express confirmation that ESMA is unable to establish the new website required under article 8b for disclosures (and does not expect to publish corresponding technical specifications for the site). The statement also confirms that, as a result, “ESMA does not expect to be in a position to receive the information related to SFIs from reporting entities” from the initial application date of 1 January 2017. If ESMA is not in a position to receive the information, it seems logical that market participants should not be required to provide it.
Clarification of these matters is helpful in general as it indirectly signals to market participants that ESMA does not expect compliance action to be taken under article 8b in the foreseeable future and certainly not on the original application timeline. Given that the initial application date is just months away and that the remaining period prior to such date is not considered sufficient in the estimation of many market participants to develop the necessary systems to start delivering the required information from the start of 2017, the effective postponement of the application of article 8b provided by ESMA's statement is to be welcomed.
Such clarification is also helpful given current expectations that the European authorities will repeal article 8b and replace it with a set of recast disclosure obligations through the securitisation-related legislative proposals published under the Capital Markets Union initiative (previous eAlert linked here), which proposals are unlikely to be finalised and adopted by the initial article 8b application date. In the absence of a postponement of the application of article 8b, concerns had been raised by market participants regarding the possible need to comply with two different disclosure standards in respect of certain securitisations and/or to prepare for compliance with article 8b notwithstanding its likely repeal shortly after taking effect. ESMA expressly notes in the statement that it expects that the “new securitisation legislation, which is currently in the legislative process, will provide clarity on the future obligation regarding reporting on SFIs”.
As a final matter, ESMA indicates in the statement that it will keep interested parties informed of further developments in connection with the new securitisation legislation. If matters do not unfold through the political negotiation process as expected, presumably ESMA would need to reconsider the application of article 8b and its position in enabling compliance action to be taken. For this reason and given that article 8b has not yet been formally repealed, market participants may want to continue to bear article 8b in mind on some level when structuring new transactions involving relevant underlying assets, including through identifying and appointing a designated reporting entity where this is feasible, or through the inclusion of provision for this to occur if required.
We remain committed to assisting our clients in navigating the relevant issues ahead and encourage interested clients to contact us with any questions relating to ESMA's statement and/or to article 8b more generally.
