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ECB loan-level reporting requirements confirmed

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Clist Angela
Angela Clist

Partner, Head Of Advanced Delivery - Legal Services

Belfast

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Salim Nathoo
Salim Nathoo

Partner

London

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11 February 2011

In December 2010, the European Central Bank (ECB) confirmed that it will introduce new standardised loan-level reporting requirements for asset-backed securities (ABS) as part of its eligible collateral framework.

In keeping with prior announcements, it appears that the new requirements will apply in respect of new and existing ABS (without provision for grandfathering), although the ECB has provided for a transition period of approximately 18 months to allow relevant market participants to prepare.

The ECB's announcement was released just weeks after action taken by the Bank of England (BoE) to confirm the introduction of similar requirements, although there are differences in the measures adopted by the central banks.

Key points to note

While limited details are available with respect to new eligibility requirements adopted by the ECB, below is a short summary of certain key points to note.

  • Scope - as noted above, the requirements apply in respect of all ABS (existing and newly issued) without provision for grandfathering, although the ECB has indicated previously that historical information reporting will not be required. Helpfully, the ECB has indicated that loan-level information may not be required for some "very granular and well-diversified ABS asset classes", noting that "pool or summarised loan-level information may suffice". It remains to be seen how the ECB will apply this effective exemption in practice. In contrast to the BoE's new requirements, the ECB requirements apply in respect of ABS only (there is no reference to covered bonds in the materials).
  • Timing - as noted above, the ECB has indicated that the requirements will take effect in approximately 18 months time (so in mid-2012), thereby allowing some time for the market to prepare. The requirements will apply in respect of RMBS first, with similar requirements for ABS to follow (in this regard, the ECB expressly refers to CMBS and SME transactions). With respect to the required frequency for reporting, the ECB has indicated that loan-level data is required to be provided on at least a quarterly basis, within one month of the interest payment date.
  • Eligible collateral connection - to be clear, compliance with the new requirements will be necessary in order for relevant securities to be eligible collateral under the Eurosystem framework from the relevant implementation date. Given the continuing significance of eligibility for ABS generally, it seems likely that the new requirements will shape ABS disclosure and reporting standards going forward.
  • Compliance - the use of standardised templates is required under the reporting requirements, although only a portion of the template fields will be marked as mandatory information items and a "comply or explain" approach may be applied in general (meaning that failure to provide information with respect to a mandatory field will not automatically render the securities ineligible). A dedicated manual with reporting instructions will be available via the ECB's website for each template to assist market participants with complying with the requirements (the RMBS manual will be published in due course). The ECB has indicated that the templates are designed to "ensure compliance with the data protection, bank secrecy and confidentiality regulations" which apply throughout Europe and which may vary by member state. In keeping with previous statements, it is intended that the completed templates will be verified and published by market participants via a new "data-handling infrastructure" (i.e. an on-line platform) to be developed in 2011 by market participants working with an independent party or parties external to the Eurosystem. Few details are provided with respect to the infrastructure and any requirements to be applied in respect of it.

Next steps

Further information on the new requirements is expected to be made available by the ECB in 2011. To date, the ECB has worked with a Technical Working Group comprised of various market participants to develop the new requirements and we expect this process to continue.