MOT PROFESSIONAL
As part of the actions aimed at re-launching the quality securitization market, avoiding making mistakes during the period preceding the 2008 financial crisis, with the Regulation (EU) 2017/2402 of 12 December 2017 (the "Securitisation Regulation") the European Union introduced a specific framework for simple, transparent and standardised securitisation (STS). To re-launch the securitization market, starting from 1 January 2019, rules are adopted to distinguish ABS STS from more opaque and risky operations that should allow investors to bear minor risks and for which it was decided to lower the weighting factor imposed by European regulatory capital rules.
The regulatory framework distinguishes between STS securitizations and STS-guaranteed commercial paper issuance programs and identifies the following requirements to which STS ABSs must comply:
1) Simplicity
The simplicity requirements concern the security used to purchase the underlying exposures through sale or effective transfer (true sale) by the special purpose vehicle. Strict clawback rules do not apply to the transfer in the event of transferor insolvency. Moreover, it is prohibited to include securitised notes in the transferred securities, and a standard of uniformity for the underlying exposures is also imposed.
2) Transparency
A series of disclosure obligations are imposed, particularly concerning the historic data on the performance of underlying exposures.
3) Standardisation
The standardisation requirements cover common characteristics that have to exist in the structure of the operation, such as the obligation for the originator to retain the risk, to attenuate currency or interest risks (and notification of the adopted measures, such as derivatives, etc.), the criteria used to determine the return rate, for management of the payments attributable to the various tranches, and the documentation concerning the operation.
Securitisations may be defined as STS only if the originator, sponsor, and SSPE are all established in the European Union. Other securitisations excluded by the STS system are, inter alia, securitisations of non-performing loans, collateralised loan obligations, securities backed by mortgage loans on commercial property, and synthetic securitisations (notwithstanding the fact that ABE has to publish a report on synthetic securitisation by July 2019).
Pursuant to the Securitisation Regulation, originators, sponsors and issuers (SPV) have joint responsibility for assignment of the STS designation. However, the Securitisation Regulation establishes an optional procedure according to which a third party authorised by ESMA may attest to satisfaction of the STS requirements. Nevertheless, the certification by third parties 2 does not absolve the originators, sponsors and issuers from their liability in relation to the STS prerequisites compliance.
The last step in the labelling process is notification of the STS designation to regulators. The STS labelling process requires that the originators, sponsors and SPV notify their NCA and ESMA, in accordance with a prescribed model. Thereafter, ESMA shall publish the STS notification in a register maintained on its own website. If the option of obtaining optional attestation by an authorised third party is exercised, the notice must include a statement certifying that the STS requirements have been checked by that third party. Nevertheless, the certification by third parties will not release the originators, sponsors and SPV from liability for initial verification and continued satisfaction of the requirements over time. Moreover, the attestation provided by the third party is an evaluation made at a certain point in time. Originators, sponsors and SPV assume the responsibility for notifying the authorities if a transaction no longer meets the criteria for designation as STS.
Following the normative references and the list published by ESMA:
- Regulation (EU) 2017/2402
- ESMA List