European Commission Adopts Delegated Regulation Relating To Sustainability Disclosures For STS Securitisations

• Published date: 02 April 2024
• Subject Matter: Finance and Banking, Financial Services, Securitization & Structured Finance, Leasing
• Law Firm: Mayer Brown
• Author: Mr Neil Hamilton and Oliver Williams

On 5 March 2024, the European Commission adopted a delegated regulation that will supplement the EU Securitisation Regulation with regulatory technical standards ("RTS") in relation to simple, transparent and standardised ("STS") securitisations where the underlying exposures are residential loans or auto loans or leases. The RTS specify the content, methodologies and presentation of information related to the principal adverse impacts ("PAIs") of assets financed by the underlying exposures on sustainability factors for (i) non-asset-backed commercial paper ("non-ABCP") traditional STS securitisations and (ii) STS on-balance-sheet securitisations.

BACKGROUND

The Joint Committee of the European Supervisory Authorities ("ESAs") consulted on draft RTS in May 2022. Once the consultation period closed in July 2022, the ESAs analysed the responses and published a final report on the draft RTS in April 2023. The ESAs subsequently submitted its final draft RTS to the European Commission in May 2023. The RTS in the adopted delegated regulation (discussed herein) do not substantially differ from the final draft submitted to the European Commission in May 2023.

The ESAs aim in introducing the RTS is that they will standardise the type and presentation of information an originator may elect to disclose about the PAIs of assets financed by underlying exposures on socio-environmental factors. It is hoped that investors will, therefore, have more comparable and complete information to make informed decisions on the sustainability factors of their investments.

The RTS are not intended to create a framework for "sustainable" or "green" securitisations, but are aimed at enabling originators to disclose PAIs of STS securitisations using reporting which is broadly aligned with the EU Sustainable Finance Disclosure Regulation ("SFDR"). Although the SFDR is not directly applicable to securitisations, it is indirectly applicable through the entity level disclosure requirements (as PAI indicators under the SFDR cover all investments, including investments into securitisations). For further information about the SFDR, read our alert here.

APPLICATION

The RTS will apply to (i) non-ABCP traditional securitisation and (ii) STS on-balance-sheet securitisation, where the underlying exposures are residential loans, auto loans or leases.

The disclosure regime under the RTS will be voluntary, meaning that in-scope originators will be able to elect to comply with either (i) their original...