We summarise our response to the recent consultation of ESMA on revising the framework for mandatory investor disclosures of European securitisation transactions. We compare our findings to some public industry responses.
The key questions from ESMA were related to four options on how to improve the investor disclosure framework: Simplified, option A means to do nothing, option B is to add some missing data fields, option C suggests a major simplification especially for private securitisations, and option D suggests a complete review and overhaul of the securitisation regulation and disclosure requirements. Some important industry responses seem to agree that improvements and simplifications are in order and prefer option C. We agree with much of the reviewed industry feedback like giving up on full loan-level disclosures for highly granular asset classes like credit cards or the deletion of Annex 14. We disagree with suggestions to create different data templates for private securitisations. We are concerned that radically simplifying the templates will reduce their usefulness.
Private securitisations are a large and growing part of the securitisation market and excluding private securitisation from detailed investor disclosures can have unintended consequences. We argue that transparency is an important part of reviving securitisations in Europe especially in its relation to the systemically relevant private debt and commercial real estate sectors. We argue that the cost of more transparency is relatively low. European securitisations would benefit from simplifications and more standardisation not just for loan level data but also for transaction structures and legal documentation. The active use of ESMA templates was slow initially but is now accelerating. We have implemented automatic monitoring and warning systems for several large banks based on ESMA reports where the banks prior monitoring practice based on unstructured pool level investor reports was deemed less detailed, costly, slow, and inflexible.
Voltaire famously remarked: „…the Holy Roman Empire was in no way holy, nor Roman, nor an empire.“
What would he say about Simple, Transparent and Standardised securitisation transactions?
