The regulatory technical standards (RTS) setting out ESG disclosures for STS securitisations (both non-ABCP traditional and on-balance sheet) where the underlying exposures are residential loans, auto loans and leases were published in the Official Journal yesterday, 18 June 2024: Commission Delegated Regulation (EU) 2024/1700.
For these types of STS securitisations, the EU Securitisation Regulation requires the originator and sponsor to "publish the available information related to the environmental performance" of the underlying assets as part of their transparency disclosures (Articles 22(4) and 26d(4)). In 2021, as part of the Capital Markets Recovery Package, the EU Securitisation Regulation was amended to let originators opt to publish "the available information related to the principal adverse impacts" (PAI) of the underlying assets instead. The European Supervisory Authorities (ESAs) were tasked with preparing RTS on the content, methodology and presentation of that PAI information based (to the extent possible) on those set out in the RTS under the Sustainable Finance Disclosures Regulation (SFDR).
When preparing the RTS, the ESAs reiterated that they are not a framework for sustainable securitisation, but are instead designed to give originators the option to disclose PAIs of underlying assets in certain STS securitisations using SFDR-based reporting (with some PAI indicators (those relating to motor vehicles) drawn from the Climate Delegated Act under the EU Taxonomy Regulation as there is no equivalent in the SFDR).
Originators can still decide to continue to comply with the original disclosure requirements (on environmental performance) instead, rather than opting for PAI disclosure.
As noted above, the framework applies to STS securitisations where the underling exposures are residential loans, auto loans and leases. As part of the original 2022 consultation by the ESAs, they sought feedback on whether the optional PAI disclosure framework could be extended to STS securitisations with other types of underlying exposures. Feedback was mixed, so the framework has not been extended beyond residential loans, auto loans and leases for the time being.
Other key points to note are:
- There are no grandfathering/transitional provisions. This is because originators can simply continue to disclose environmental performance information in line with the original requirement until such time as they are in a position to switch to the PAI disclosure regime if they wish to do so.
- Reporting will be quarterly in line with the quarterly reporting obligation for information on underlying exposures under Article 7(1)(a) of the EU Securitisation Regulation (and that information should also be made available pre-pricing).
- Supervision of compliance with the requirements of the optional disclosure regime will rest with the competent authority responsible for supervising compliance with the STS provisions of the EU Securitisation Regulation.
- If an originator selects the optional disclosure regime, the PAI information must be disclosed in accordance with the RTS. The RTS distinguish between (a) the publication of information on mandatory indicators, and (b) the publication of information on additional indicators. For additional indicators, originators will only be required to report on one social or governance-related factor, and one environmental or climate-related factor.
The RTS will come into force on 8 July 2024. Originators of in-scope STS securitisations who wish to disclose PAIs in accordance with the RTS in place of environmental performance under the EU Securitisation Regulation may opt to do so once they are in a position to comply with the RTS.
This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.