Ref. Ares(2017)3025174 - 16/06/2017
EuroABS Limited, 1 Royal Exchange Avenue, London EC3V 3LT +44-(0)800-772-3
276 xxxxxxxxxx@xxxxxxx.xxx
Access to Data Under STS Article 5
Problem
With no definition of
Eligible Recipients for the transparency requirements under Article 5 of STS
EuroABS fears danger in its implementation:
Possible inconsistency and ambiguity in
who can access
what (perhaps to be interpreted by
non-regulatory body 3rd parties)
Possible information asymmetry – some potential market participants or ABS professionals
have access and others not
ESMA not explicitly given the full set of tools needed to ensure an optimum solution for the
citizens of Europe.
Introduction
With regard to the transparency and disclosure of ABS Loan Level Data (LLD) under the STS
Regulations, EuroABS believe it is very important that ESMA are specifically given authority over LLD
templates
and a mechanism by which to control access to these data sets.
Regulatory requirements for disclosure of LLD in ABS markets give rise to an inherent tension
between transparency and data protection
. Please see our January 2016 report to EC for further
detail on this.
Summary
Perhaps in an ideal world a full set of unredacted and precise LLD would be available publicly for all
ABSs. However, this would present unacceptable data protection exposure and risks. There are three
main measures by which these risks can be mitigated:
1. Anonymisation
2. Reduction of the precision of the data and
3. Controlling access
1 and 2 can be controlled through the specification of the LLD templates for each eligible asset class
(RMBS, CMBS, Autos, etc.)
1 appears reasonably straight forward as names can be removed.
2 and 3 are spectra with transparency and data protection interests being inversely proportional to
each other. 2 and 3 therefore need to be carefully calibrated to strike the right balance.
In the view of EuroABS it is very important that the setting of both the
LLD templates and
control of
access (in the form of a definition of Eligible Recipients) are explicitly stated as under the control of
regulators (ESMA).
See recommended amendments to STS tex
t here (STS regulation changes marked-up with comments
in Word on pages 12, 16, 18 and 23 addressing 'Eligible Recipients' definition).
EuroABS Limited, 1 Royal Exchange Avenue, London EC3V 3LT +44-(0)800-772-3
276 xxxxxxxxxx@xxxxxxx.xxx
Access to Data Under STS Article 5
Importance of Data Precision
See:
“4.3
Justifying Loan Level Data as a Requirement” on page 7
Precise and accurate LLD leads to precise and accurate statistics, indices, accurate
investment proposition comparison, etc.
What use are statistics if you don’t know how accurate they are?
Re-identification Risk
The more precise some numbers are, the more vulnerable the data set to re-identification risk.
The problem here is that by creating transparency of, in particular, (LLD) for the assets underlying in
securitisations, there could emerge a problem of re-identification of individuals with sensitive
financial information that could violate data protection laws.
By putting a data set together with another and linking them, it might be possible to infer a sensitive
data set. For example a LLD set for a residential mortgage securitisation together with property
transaction data could be linked to identify individual properties accurately and then glean
knowledge about whether the owner is behind with their mortgage payments or the size of their
monthly mortgage payment outgoings, etc.
The concept is described usefully in an academic repo
rt here.
Access to the Data
Access to data sets is important for many types of legitimate users to provide optimum oversight for
the benefit of EU citizens and reduce reliance on a small number of large companies that have
traditionally overseen this work/these markets.
Back in the pre-crisis days, the big rating agencies had exclusive access to European ABS LLD.
EuroABS strongly believes that data should be available as widely as possible to increase:
Competition
Innovation
Consumer choice and
Investment in ABS market data analysis (ratings type functions) and general market
oversight
EuroABS accepts that some restrictions on access may/will need to be applied, but that access to
data for the people that legitimately need it/want to professionally analyse it is important for the
ultimate delivery of the optimum solution for the protection of EU citizens investing in these
instruments in the form of their pension funds and insurance premiums.
Restricting access to regulatory specified LLD may or may not be desirable, but EuroABS consider
that control of any access restriction policy must be explicitly kept in the hands of regulators and
carefully configured in conjunction with data template definitions.
There needs to be a mechanism whereby regulators (ESMA) can receive feedback from parties
professionally interested in the LLD and, where appropriate, adjust the definition of Eligible
Recipients to include or remove groups as necessary.
EuroABS Limited, 1 Royal Exchange Avenue, London EC3V 3LT +44-(0)800-772-3
276 xxxxxxxxxx@xxxxxxx.xxx
Access to Data Under STS Article 5
Suggested Solution
Give ESMA control over the definitions of:
LLD templates
and
Eligible Recipients
All Eligible Recipients receiving data should be required to agree to an acceptable use policy (see:
“7.4.1 Some Thoughts on Acceptable Use Policy Criteria” on page 16).
EuroABS also considers that, assuming costs to provide and securely host the data fall to the issuer,
all Eligible Recipients should explicitly be able to access the data without additional charge (beyond
the costs of Eligible Recipients’ own equipment required to receive the data).
In cases where access to LLD is disputed, ESMA should act as ultimate arbiter.
Suggested initial definition of
Eligible Recipients:
a) Banks and other recognised financial institutions
b) Any person or institution that has invested in asset backed securities and covered bonds
c) Organisations or individuals compiling research to be distributed to financial institutions and
other wholesale investors
d) Market data or cash flow model providers to the investor community
e) Governmental bodies, regulatory authorities and central banks
f)
Recognised rating agencies
g) Any other party which would normally be considered to be a market professional and is a
potential investor in asset backed securities and covered bonds
h) Professional advisers representing any of the above.
i)
Academic Institutions conducting serious research into ABS markets (to be confirmed by
institution departmental head)
See recommended amendments to STS tex
t here (STS Changes marked-up with comments in Word
on pages 12, 16, 18 and 23 addressing 'Eligible Recipients' definition).