Sector developments and company hires

The SFA has responded to the US SEC’s proposed new rules to enhance and standardise disclosures made by public companies regarding cybersecurity risk management, strategy, governance and incident reporting. The association believes the proposed rule to be focused almost exclusively on corporate registrants, ignoring the extensive fundamental and technical differences between the potential impact of cybersecurity risks and incidents on investors in corporate securities versus ABS.

The SEC proposal applies to registrants, including corporate issuers and asset-backed issuers, and would require: current reporting about material cybersecurity incidents; periodic reporting to provide updates about previously reported cybersecurity incidents; periodic reporting about a registrant’s cybersecurity risk policies and procedures, including management’s expertise in managing cybersecurity risk; and annual reporting or certain proxy disclosure about the board of directors’ cybersecurity expertise. In its letter, the SFA urges the SEC to propose tailored rules for asset-backed issuers that are appropriately aligned with the SEC disclosure and reporting framework for ABS and the relevant risks to ABS investors, and to give the ABS market an opportunity to provide public comment on those re-proposed rules.

An example of an important area where the proposal does not appropriately address ABS risk is its focus on the asset-backed issuer, whose limited activities do not present cybersecurity risk to ABS investors. Instead, the association believes the primary area of potential cybersecurity risk to an ABS transaction relates to the breach of information systems used by a servicer.

Further, the SFA notes that cybersecurity disclosure should be principles-based, focusing on material risks and risk management - rather than matters of cybersecurity strategy or governance - that would apply to Securities Act registration statements and prospectuses. It also calls for a transition period of at least six months for any proposed and adopted rules that the SEC may release for ABS transactions, and for the exclusion of legacy ABS from additional cybersecurity reporting requirements.

In other news…

North America

BTIG is set to expand its structured products trading team with the hire of James Mozer, who will serve as md within the BTIG fixed income, currency, and commodities division. Mozer joins the firm from Morgan Stanley where he most recently worked as executive director and head of the non-agency RMBS and ABS desk, and brings more than 13 years of experience to the new role.

New Debt Exchange has announced that it has raised US$1m in capital to boost product development. The US-based financial technology company is working to build an integrated connectivity and data utility for the global bond market, with an initial focus on CLOs. The capital was raised from a group of more than 20 strategic individuals, including consultants, former partners from Goldman Sachs, founders of CLO management businesses, portfolio managers, quants, risk managers, and lawyers. The firm hopes the fundraise will enable its expansion into offering greater technological solutions and automation to better support transaction execution for CLO market participants.

RFC issued on NPL standardisation

The EBA has launched a public consultation on draft implementing technical standards (ITS) specifying the requirements for the information that sellers of non-performing loans shall provide to prospective buyers. The objective of the draft ITS is to provide a common standard for NPL transactions across the EU, enabling cross-country comparison and thus reducing information asymmetries between the sellers and buyers of NPLs.

Common templates - including data fields - with their definitions and characteristics set out in the draft ITS would facilitate sales of NPLs on secondary markets, increase efficiency of those markets and reduce entry barriers for small credit institutions and smaller investors wishing to conclude transactions, according to the EBA. The draft ITS are based on the templates to be used for the provision of loan-by-loan information regarding counterparties related to NPLs, contractual characteristics of the loan itself, any collateral and guarantee provided with the associated enforcement procedures and the historical collection and repayment schedule of the loan. The NPL transaction templates are accompanied by a data glossary and instructions for filling in the templates.

The draft ITS also take into account the proportionality principle by setting different information requirements depending on the size of NPL, specifying the mandatory and non-mandatory data fields, and considering a different scope of application of the data fields in relation to the nature of the borrower (private individual or corporate) and that of the loan (secured or not). The EBA developed the draft ITS by leveraging on the experience gained with the voluntary use of NPL data templates.

Comments on the consultation should be submitted by 31 August. A public hearing on the draft ITS will take place on 15 June.

Following the consultation period, the draft ITS will be finalised and submitted to the European Commission by the end of 2022.