The French Autorité des Marchés Financiers (AMF) published a remarkable report on the review of STS securitisation rules on 30 August. On 20 pages, the main findings of a review of five French institutions (originators, arrangers and sponsors) on the implementation of STS regulation are summarised. The review phase took place between November 2021 and February 2022. Several deficiencies were identified. Practices were classified as “good” and “poor”, and recommendations ("best practices") were formulated.
Approach of the AMF
The AMF has placed a strong focus on the following factors in its review: the internal organisation of financial institutions to verify the STS status of securitisations at the outset of a transaction, the internal control systems of processes, and the ongoing monitoring of STS status. Within the scope of samples with a total of 31 STS securitisations, consistencies of information from the STS notifications to ESMA and the AMF as well as - if available - from the STS verification reports of the independent third party verifiers were checked. A content check of the STS criteria per se did not take place.
“Good” practices identified include:
- Establishment of an STS securitisation committee independent of the market side (review of STS at the start of the transaction and on an ongoing basis)
- Involvement of an independent third party verifier (such as STS Verification International "SVI").
- Automation of the process for transmitting STS notifications
- Formalise the operational conditions and deadlines for STS notifications to ESMA and the AMF in a specific internal procedure
- Use of an IT tool to review and monitor STS criteria
- Identify and record events that may lead to withdrawal of STS status.
“Poor” practices were identified as including:
- Lack of review of verification reports or gap analyses
- Ongoing monitoring only on the basis of the Servicer Report without consideration of other data sources
- Failure to inform other parties to the transaction, including the originator, about the loss of STS status
In addition, the AMF felt compelled to remind market participants of some regulatory responsibilities in its final report.
Originators, arrangers and sponsors in the EU will certainly think about the internal processes of STS securitisations as well as their documentation on the occasion of the AMF report. In our assessment, it can be assumed that the extensive EU Securitisation Regulation as a whole and the STS rules in particular have be implemented and applied by market participants with an extremely high degree of diligence; the sanctioning mechanism set out in the Securitisation Regulation alone speaks for this.
Given the scope of regulation and the external environment over the last three years, we believe it is understandable that the formalisation of processes and the documentation of the implementation of STS regulation follows some time behind for some market participants. Nevertheless, the AFM's message is clear that increased attention must be paid to STS-related processes and controls in the future. Also noteworthy is the AMF's statement that the involvement of an SPV is mandatory for true sale securitisations. In our opinion, this assessment is not shared by significant market participants and a clarification by the European supervisory authority is very welcome.