REFILE-ECB launches structured transparency programme
* Look-through transparency for all ECB-ready ABS
* Loan-level disclosure project finished and CEO appointed
* Central bankers applied pressure to raise funds
By Owen Sanderson
LONDON, Nov 30 (IFR) - The European Central Bank's loan-level data initiative for structured finance, which should provide detailed loan data to the whole market through the European DataWarehouse (ED), is ready for action.
The ED was established to ensure the ECB's loan information - which it needs to monitor ABS collateral used for its repo operations - is easily accessible to the whole market. The ED will check data that comes in from issuers, ensuring full compliance with the ECB's standard templates, and provide the IT systems for data providers to hook into its systems.
The project is supposed to "create a central point (or forum) where industries, associations and national agencies can lodge their data and information in an open, transparent and trusted environment".
The ECB hopes this will boost private sector demand for securitisation - allowing peripheral banks to replace some of their EUR371.7bn of ABS-backed central bank repo funding with transactions placed with third-parties. Issuers wanting their securitisations issues to be ECB-eligible will have to provide this data to the European DataWarehouse.
There will be a nine month phase-in period, during which the ED will assign issuers a quality score for the data. And existing ABS that does not comply with the terms of the loan-level reporting will remain ECB eligible until the end of March 2014.
Although the ED is operational, full functionality will come online when the implementation period for loan reporting begins on January 3 2013. Markus Schaber, formerly of the European Investment Fund, has been appointed its CEO.
The nine month phase-in process for RMBS was scheduled to begin on December 1, but the formal notification process for changes to Eurosystem rules was not completed in time.
SME CLOs will have a smaller pushback, from January 1 to 3. CMBS will need to have loan-level reporting in place by March 1, instead of January 1. All other asset classes keep the loan-level reporting deadline of January 1 2014.
Some issuers have already loaded their data to ED for extra testing.
THE LONG LOAN LEVEL JOURNEY
The data initiative began in 2009, when regulators became convinced that the securitisation industry needed to improve disclosure on the assets which backed the securities if it was to regain investor trust. Transparency became a major part of the drive to re-regulate securitisation.
The ECB and the Bank of England decided to encourage loan-level data through their collateral eligibility requirements - if issuers could not provide the data, their bonds would not be eligible central bank securities.
Various senior market participants were invited to help draft templates to present loan level data in standard, comparable format across Europe. Each jurisdiction records different data about borrowers - and different information depending on whether they are borrowing via credit card, mortgage, or unsecured loan. This must be anonymous - but be specific enough to be useful.
Following production of the templates, the ECB decided to encourage the construction of a whole new piece of market infrastructure to provide this data. Paul Burdell of Link Financial, acting as an adviser to the ECB at this time, took on the project, soon dubbed the European DataWarehouse. Eight institutions drawn from the technical working groups managed the procurement process, picking Sapient Global Markets as constructor.
The ECB maintained an arms-length distance from the project, aiming to present the European DataWarehouse as a market-driven exercise.
Speaking on Thursday in Frankfurt, Peter Praet, chief economist at the ECB, described loan-level data as a classic collective action problem - no individual issuer had an incentive to start making this data available, but official sector organisations could act as catalysts to improve market practice.
The central bank retained an observer role, since it anticipated being a major user of the resulting data - indeed, it is the only institution so far to have trialled access to the data. No third party investors in ABS have yet approached the ED about using the data.
The project has proved controversial, particularly with some of the large UK issuers, because while the ECB was the main driver of the project, the central bank refused to pay for it, arguing that the industry needed to show willing.
Instead of being a public utility, ED is a profit-making private sector company, paid for by a private share placement to market participants, managed by Perella Weinberg. Shareholders get a discount on submitting their data. The idea was a co-operative system, analogous to SWIFT, the payments communication standard owned by its member banks.
Loading loan-level data into the DataWarehouse is necessary to make ABS central bank eligible, but can only be achieved by paying ED a fee. One senior figure close to the project described it as a toll-booth on the only route to a destination. However, the profit rate is to be limited to 10% and is to be used for reinvestment.
Initial target funding was EUR20m, though this was subsequently revised to EUR11m. Fundraising for this smaller amount was completed by July 2012, but 15 other institutions have publically committed funds so far, with Dutch institutions also involved, despite reports to the contrary.
The shareholder list, available on the ED website, is heavily skewed towards peripheral institutions. Some firms were initially reluctant to offer financial backing to the project - Executive Board members of the ECB had to use their contacts with senior bank management to encourage them to buy shares.
Despite this encouragement, some issuer communities decided to only invest under the guise of existing market associations - German banks under the banner of True Sale International and Dutch banks through the newly minted Dutch Securitisation Association.
ED will eventually have around 25 employees, who will largely be working in specialist helpdesk roles, assisting issuers with loading the data and investors with accessing it.
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