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July 04, 2017

Yves Mersch, the ECB Executive Board Member, spoke at the 5th Anniversary of European Data Warehouse in Frankfurt. He discussed the to date contributions of the Eurosystem asset-backed securities (ABS) loan-level data initiative and highlighted that work still remains in this area.

Mr. Mersch highlighted the importance of transparency requirements for ABS products and discussed the reasons for ECB’s prioritization of ABS transparency. He emphasized that ECB has made a significant effort to ensure a high degree of transparency in European ABS by promoting the loan-level data initiative and that this initiative had an important contribution in the discussion on simple, transparent and standardized (STS) securitizations. It provides high-quality information that allows for informed credit risk assessments of ABS, either on the basis of the individual underlying loans, or on the basis of the aggregated summary information and enabled financial actors as well as policymakers to better assess the embedded risks in securitized portfolios. The final compromise version of the STS regulation, which was published last week, is significant as it creates, for the first time, a system of registration and supervision for ABS data repositories established in the EU. These securitization repositories will be subject to the same ongoing governance, technical, and operational requirements as trade repositories under the EMIR framework.

 

The securitization repositories will be expected to store not just loan-level data, but also all other documentation that the regulation requires originators, sponsors, and issuers to disclose under its transparency rules. The repositories will be registered, authorized, and supervised by ESMA. Furthermore, ESMA will be tasked with developing regulatory technical standards on the requirements for securitization depositories in the coming 18 months. While ECB welcomes the finalization of STS regulation, it has concerns regarding some aspects of the STS regulation. For example, providing a role in the legislation for third parties in the STS certification process introduces moral hazard for investors, as investor would have fewer incentives to undertake independent due diligence. Additionally, it would increase complexity and burden public resources, given the need to supervise such third parties separately. The compromise text no longer requires originators and sponsors to disclose the actual transaction contracts. Instead, this transparency enhancement has been weakened so a summary of the relevant documentation will also be accepted. This is a weaker requirement than the current provisions of Article 8b of the Credit Rating Agencies Regulation. These and other aspects will need to continue to be assessed as the regulatory technical standards become available in the coming months.

 

He also discussed non-performing loan (NPL) register as a new frontier for EU-wide transparency. One possibility to address the large stock of NPLs could be to create an EU-wide template and reporting system for such loans, alongside minimum standards for transparency. Efforts to enhance the transparency and standardization of NPLs could foster the creation of a NPL market, said Mr. Mersch .

 

Related Links

Speech

ECB Loan-Level Initiative

Keywords: Europe, ECB, Banking, Securities, NPL, ABS Loan-Level Initiative

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