LMA responds to ESMA Consultation Paper on Securitisation Disclosure Templates
26 March 2024On the 14 March 2024, the LMA responded to ESMA’s Consultation Paper on Securitisation Disclosure Templates, with particular emphasis on the CLO market.
The Consultation Paper was published as a result of the European Commission’s October 2022 report on the functioning of the Securitisation Regulation, identifying a number of targeted improvements in its functionality. The Consultation Paper sets out four different alternative options for the way forward:
Option A - Delay any changes to the disclosure templates until the next review of the Level 1 text of the EU Securitisation Regulation.
Option B - Retain the existing templates with amendments to enhance disclosure (for example for climate-related data fields) and to limit the use of “No-Data” responses.
Option C - Develop a simplified template for private securitisations and streamline annexes in the current disclosure framework (including a relaxation of granular loan-level data).
Option D - A full overhaul of the templates to make them simpler, with a single template per asset class (regardless of public/private nature of transaction). This option also includes a move away from “No-Data” responses and instead introduces “mandatory” and “optional” data fields.
It is the view of the LMA that Option A which focuses on maintaining the current framework in its entirety is not the optimal solution. The reporting regime in its current form is not proportionate to the CLO market and imposes additional costs and operational burdens on CLO issuers, managers and trustees. Additionally, awaiting the next review of the Level 1 text of the EU Securitisation Regulation before making any adjustment would perpetuate the uncertainty for issuers, managers and investors. Option A would also not address concerns identified in the aforementioned European Commission report.
The LMA also does not believe that the adjustments proposed by Option B would be appropriate. By extending the scope of the reporting templates to include additional risk indicators, the already overly prescriptive templates would become even more burdensome. Climate-related terms and indicators are also evolving in the market and their inclusion in the templates would create confusion and complication alongside incurring additional costs. Reducing the availability of No-Data options would also make compliance with the template reporting regime more onerous.
The LMA’s support would be for Option C in the short term to provide relief to the market and address the more immediate concerns, followed by the longer-term solution in Option D to overhaul the framework. The LMA’s view would be that in relation to private securitisations, the adjustments proposed under Option C may be sufficient to address the concerns identified by the European Commission in the short term, whilst Option D is a good long-term solution for all asset classes.
The LMA therefore supports inclusion of a new simplified template for private CLO securitisations which focuses on the needs of the supervisors.
Nicholas Voisey, Managing Director – LMA, said
“The LMA welcomes the opportunity to continue our dialogue with ESMA and comment on how to improve the reporting functionality of the Securitisation Regulation. Our recommendation is a pragmatic short-term solution to the disproportionate reporting burden on CLOs. However, none of the proposals really shift the dial to optimise the funding role the CLO market can and should play. For that, the project needs to expand the scope of transactions that qualify for the more favourable capital treatment of STS status.”