European Central Bank and Bank of England liquidity schemes require that loan-level data be disclosed on a regular basis (no less than quarterly) with respect to asset-backed securities which are to be used as collateral.  On 27 November the ECB announced that it would postpone the introduction of mandatory loan-level data reporting requirements to 3 January 2013 for RMBS, 3 January 2013 for ABS backed by SME loans and 1 March 2013 for CMBS.  Both the Bank of England and the ECB provide templates for disclosure of loan-level data on their websites.

The ECB describes the rationale for its loan-level data initiative as being to help “both investors and third-party assessment providers with their due diligence” and states that “Ultimately, more transparency will help to restore confidence in the securitisation market”.  It is clear that the intention is to set a standard not just for the central bank liquidity scheme but also for the ABS market in general.

Opinion is divided among market participants as to whether the requirements to disclose loan-level data bring meaningful benefits for investors in all cases and particularly whether such benefits outweigh the cost to originators of providing this information in the appropriate formats.  Increased compliance costs are of course a disincentive to ABS issuance although, if the prognosis of the ECB is correct, this might be compensated for by increasing the investor base for ABS.

There seem to us to be certain wider regulatory implications of the loan-level data initiatives.  First, where investors need to demonstrate compliance with the ongoing monitoring requirements of Article 122a and its equivalents for insurers, hedge funds and similar entities (or indeed where credit institution originators are required to demonstrate compliance with the equivalent disclosure obligations of that article), the disclosure templates are likely to be held up as a model for the appropriate level of detail.  Second, these requirements are likely to be instructive as to what should be disclosed for the purposes of the new Article 8a  (Information on Structured Finance Instruments) of the Credit Rating Agency Regulation (assuming that it becomes effective in the current form – see our earlier blog posting).  With respect to Article 8a, the market is awaiting guidance from ESMA and it would be particularly disappointing if it were necessary to disclose broadly the same information in different templates on the ESMA credit rating agency regulation website and to the ECB.