The European Securities and Markets Authority (ESMA) has published a peer review report on the supervision of simple, transparent, and standardised (STS) securitisations by national competent authorities (NCAs). The report examines the approaches adopted by selected NCAs when supervising STS securitisation transactions and provides best practice recommendations.
The review focuses on four NCAs: Germany’s BaFin, France’s AMF, The Netherlands’ DNB, and Portugal’s CMVM. These NCAs were chosen based on the number of STS securitisations in the member state they were in, and to achieve a balanced geographical distribution.
Good practices
ESMA’s Peer Review Committee (PRC) “positively regards” what DNB and CMVM have done to verify that transactions comply with STS requirements. Other good practices identified during the review include “not relying only on the statements declared by the entities but also performing verifications on the underlying transaction documentation” and “documenting the approach followed by the NCA in internal policies and processes to ensure consistency in implementation”.
More to do
The PRC recommends that NCAs scale up their approach to STS supervision “so that risks arising from these transactions are adequately identified, assessed and addressed”.
Some recommendations given are specific to particular NCAs – BaFin and AMF, for exmaple, are advised to ensure that their supervisory approach includes a combination of activities at transaction level to ensure compliance with STS criteria, as well as at entity level through regular reviews of processes of originators and sponsors. They should also “introduce a more formalised and thorough supervisory framework using a well-defined risk-based approach and ensure that sufficient resources are allocated to STS supervision”.
Gear up
The report concludes that it is “important for all NCAs to continue monitoring the evolution of their STS market going forward and adapting their supervisory approach and/or resources where necessary”. Keeping in mind the current concern with reviving the EU securitisation market, the PRC reminds NCAs to “consider how they would cope with an increase in STS transaction issuance, taking into account their national specificities”.
Although the peer review only covers four NCAs, the PRC advises all NCAs in the EU to consider the recommendations and good practices in the report in the context of their supervisory framework.
