New ESMA requirements are here. Are you prepared?

New ESMA securitization directives are expected to go into effect this year, which means managers need to ensure they’re positioned to comply. Learn how this rollout will impact tracking, reporting and more.

Tags: Compliance, Risk mitigation, International, Regulations
Published: September 15, 2020

This year, the European Securities and Markets Authority (ESMA) – the EU’s securities markets regulator – will start enforcing new securitization reporting rules. This regulatory development impacts all securitization types in Europe – with a wide-reaching ripple effect.

The new rules, in short, require that every European securitization produces an annex (or annexes) to provide greater visibility into underlying assets and test results. Failure to comply can result in significant penalties including fines of up to five million euros.

These demands may seem daunting, especially in addition to other tracking and reporting obligations. But with the support of a well-prepared, well-resourced service provider, you should be able to accommodate these requirements smoothly and seamlessly.


Why are these requirements necessary?

The new ESMA requirements were designed to give investors more visibility into securitizations’ underlying assets and the potential risks. Securitizations will now need to produce annexes that provide detailed asset information, alongside test results, compiled into specific templates.

ESMA made 14 templates available for industry players to apply as appropriate to different securitization types. U.S. Bank, taking a leadership role, called together a collaborative CLO working group in 2019 to define a fulfillment framework. Managers, service providers, attorneys and other stakeholders assessed the mandates, discussed needs and set up guidelines so there’d be consistency across the industry from provider to provider.

As a result, clear expectations were established for reporting and tracking.


What do the mandates require?

Although compliance accountability rests with the issuers, managers or arrangers, much of the actual work responsibility falls onto the service providers.

Here’s how the mandates apply in practice: An administrator must collate its information with information from other parties, enter it all into its system and fully fill out the appropriate templates. The templates are then reviewed and vetted by the relevant transaction parties. If everything’s in order, the administrator will prepare the final template files, convert them into the required format and post the report (or make it available) for access by investors, potential investors and applicable regulatory bodies.

Some of the most pertinent annexes that need to be completed include the following:

  • Tracking annex: This annex can contain more than 120 fields that need to be filled out. While some of this data might already exist, much of it needs to be pulled from various sources.
  • Reporting annex: This annex requires service providers to expand existing reporting procedures by adding further information and presenting reports in specific formats.
  • Specific annex for public deals: This annex is an additional requirement for public deals to provide details about significant transaction events and other information that needs to be made public.


What do I need from my service provider?

Some administrators are better prepared than others to handle the additional tracking and reporting responsibilities the ESMA mandates entail. By working with a firm that embraces these changes, you’ll have greater confidence in their readiness. You can trust that they’ve updated their systems and evaluated their processes to handle an increased workload – and create efficiencies as well.

Here are five qualities you should look for in your provider:

  • Proactivity, not passivity: Due to initial uncertainties surrounding the requirements, it’s easy for providers to take a passive approach. They might outsource the work – or let other firms establish protocols, then just follow their example. Ultimately, you’ll have greater confidence in a firm that demonstrates ownership, leadership and has taken proactive steps to prepare.
  • Proper experience, expertise and infrastructure: As the requirements go into effect, unexpected issues will undoubtedly arise. Flexibility and experience will be critical. You need a firm with a solid infrastructure and a strong track record for navigating obstacles associated with new regulations.
  • Prepared systems and procedures: You need a provider that’s been preparing, updating its systems and procedures behind the scenes and ensuring it has the right resources to handle the workload and additional tracking and reporting volumes.
  • Progressive technology: You’ll want your provider to have a robust technology platform that can handle the significant increase in tracking and reporting demands. At U.S. Bank, our interactive client portal, Pivot, provides you with flexible, real-time access to your information.
  • Provisions for the impact to U.S. securitizations: While the ESMA requirements only apply to European securitizations, they’ll likely have an unintended impact on U.S. structures as well. A provider with global resources, expertise and flexibility can help you navigate your options and find the best solutions to your specific needs.

With the right support, the new ESMA tracking and reporting processes should be smooth and seamless to accommodate – and give investors a better view into your securitizations’ underlying assets.


U.S. Bank offers customized operational solutions combined with the strength and security of a major financial institution. Learn more here.

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