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    ESMA Proposes Technical Standards on Synthetic Securitizations

    May 27, 2021

    ESMA published a consultation paper on the technical standards implementing the amended Securitization Regulation. The paper sets out the proposed draft regulatory and implementing technical standards specifying the content and the format of the standardized templates for simple, transparent, and standardized (STS) notification of on-balance sheet (synthetic) securitizations. ESMA is seeking feedback from originators, sponsors, and institutional investors in securitization. The consultation is open for feedback until August 20, 2021, with ESMA expecting to publish a final report and submit the draft technical standards to EC for endorsement by October 10, 2021.

    The consultation paper builds on the existing technical standards for STS notification of traditional securitizations, while taking into account specific features of synthetic securitizations. In general, the paper sets out the general approach of ESMA regarding the proposed content required for the STS notification for STS on-balance sheet securitizations. In particular, the consultation paper sets out the general information to facilitate identification of the securitization by investors and competent authorities, specifies the proposed approach to private synthetic securitizations, specifies the information for assessing that a synthetic securitization complies with the STS criteria, and sets the form and format under which the information should be notified to ESMA. The consultation paper also includes targeted technical amendments to the STS notification templates for traditional securitizations. In addition, ESMA has published the interim STS templates for synthetic securitizations; these templates may be used on a voluntary basis until the regulatory technical standards become applicable.

    In line with the approach taken under the regulatory standards on STS notification for traditional securitizations, ESMA considers that the definition of “private securitizations” for traditional securitizations as meaning those where “no prospectus must be drawn up in accordance with Regulation (EU) 2017/1129” should also be applied to synthetic securitizations to meet the Securitization Regulation STS notification requirements. It is, therefore, appropriate to restrict the information published concerning STS notifications of private synthetic securitizations to non-sensitive commercial information. In developing the draft regulatory technical standards on STS notification for synthetic securitizations, ESMA is not aiming to provide clarifications on the interpretation of the STS criteria. Instead, ESMA aims to specify the information that the originators are required to notify to ESMA and competent authorities to demonstrate compliance with the STS notification requirements, which should enable investors to determine whether and how the STS criteria are met. Where the STS requirements are common to the STS notification for traditional and synthetic securitizations, ESMA considers that the required level of explanation for the synthetic securitization should be closely modeled to the one used for traditional securitizations.

    The amended Securitization Regulation, which entered into force on April 09, 2021, introduced an STS framework for synthetic securitizations supplementing the existing STS framework for traditional securitizations. The amended Securitization Regulation requires that certain securitizations meeting pre-defined simple, transparent, and standardized (STS) requirements must be reported using standardized templates for STS notification. Article 27(6) and (7) of the Securitization Regulation requires ESMA to develop the draft regulatory and implementing technical standards specifying the information and the standardized templates of the STS notification, which shall include the explanation by the originator and sponsor on how they complied with the STS requirements set out in Articles 26b to 26e of Securitization Regulation.


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    Comment Due Date: August 20, 2021

    Keywords: Europe, EU, Banking, Securities, Securitization Regulation, Regulatory Technical Standards, Implementing Technical Standards, STS Securitization, Synthetic Securitization, Notification Templates, Reporting, ESMA

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