Introduction
The Commission Delegated Regulation, supplementing Regulation (EU) 2017/2402 (the "Securitisation Regulation"1), entered into force on 8 July 2024 (the "Commission Delegated Regulation" 2). It provides for regulatory technical standards ("RTS") on the content, methodologies and presentation of information related to the principal adverse impacts of the assets financed by the underlying exposures on sustainability factors for (a) simple, transparent and standardised ("STS") non-ABCP traditional securitisation, and for (b) STS on-balance-sheet securitisation.
Key elements of the Commission Delegated Regulation
The Commission Delegated Regulation applies to originators of (i) non-ABCP traditional STS securitisations and (ii) on-balance-sheet STS securitisations where the underlying exposures are residential loans, auto loans, or leases.
The RTS are applied by in-scope originators on a opt-in basis, as an alternative to Article 22(4) and 26d(4) of the Securitisation Regulation, requiring the publication of information on the environmental performance of the assets financed by the underlying exposures. As a result, in-scope originators are able to elect to comply with either (i) the original environmental performance disclosure requirements as set out in Article 22(4) and 26d(4) of the Securitisation Regulation or (ii) the disclosure requirements set out in the RTS.
The primary objective of the RTS is to enhance coherence with the sustainability-related disclosures in financial services as provided for in Regulation (EU) 2019/2088 (the "SFDR").3 Although the SFDR is not directly applicable to securitisations as defined in the Securitisation Regulation, originators may be requested to provide relevant information to financial market participants in scope of SFDR who are investing in the relevant securitisation positions and must comply with their SFDR disclosure obligations.
Principles for the presentation of PAI
Pursuant to the RTS, in-scope originators must inform their investors of the principal adverse impacts on sustainability factors (the "PAI") of the assets financed by the underlying exposures of the securitisation, when such exposures are residential loans, auto loans or leases, through templates, definitions, and formulas in the format set out in Tables 1, 2 and 3 annexed to the RTS.4 In addition, originators must ensure that the information related to the PAI is presented prominently, simply, concisely, comprehensibly, fairly, clearly, and without misleading content. Furthermore, this information must be accessible in a searchable electronic format.
Content of PAI disclosures
By choosing to apply the RTS, in-scope originators will fill out PAI templates that are similar to the ones set out under SFDR, although adapted to residential loans, auto loans and leases. Social indicators refer directly to the content of the PAI template set out in Annex I to the SFDR RTS [1]. Information to be published covers, inter alia, the following indicators:
- Fossil fuels and energy efficiency with respect to residential loans and emissions and pollution with respect to auto loans and leases;
- Additional indicators such as water, waste and material emissions; and
- At least one social indicator related to employees, respect for human rights, anti-corruption and anti-bribery matters.
Furthermore, in-scope originators must ensure that PAI are reported using specific qualitative or quantitative factors and metrics.
Next steps
The Commission Delegated Regulation came into force on 8 July 2024 and is a key step for securitisation originators in playing their role into the transition to a more sustainable economy.
Footnotes
1. Regulation (EU) 2017/2402 of the European Parliament and of the Council of 12 December 2017 laying down a general framework for securitisation and creating a specific framework for simple, transparent and standardised securitisation, and amending Directives 2009/65/EC, 2009/138/EC and 2011/61/EU and Regulations (EC) No 1060/2009 and (EU) No 648/2012.
2. The Commission Delegated (EU) 2024/1700 of 5.3.2024 supplementing Regulation (EU) 2017/2402 of the European Parliament and of the Council with regard to regulatory technical standards specifying, for simple, transparent and standardised non-ABCP traditional securitisation, and for simple, transparent and standardised on-balance-sheet securitisation, the content, methodologies and presentation of information related to the principal adverse impacts of the assets financed by the exposures on sustainability factors.
3. Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability‐related disclosures in the financial services sector
4. As stated in Tables 1, 2 and 3 of the ANNEX to the Commission Delegated Regulation 2017/2402 supplementing Regulation (EU) 2017/ 2402 of the European Parliament and of the Council with regard to regulatory technical standards specifying, for simple, transparent and standardised non ABCP traditional securitisation, and for simple, transparent and standardised on-balance-sheet securitisation, the content, methodologies and presentation of information related to the principal adverse impacts of the assets financed by the underlying exposures on sustainability factors.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.