Detailed transparency requirements for asset backed securities and covered bonds - Market Notice 11 October 2019

This Market Notice sets out the Bank of England’s (the Bank) detailed transparency requirements for asset backed securities and covered bonds.
Published on 11 October 2019

It consolidates and supersedes all Market Notices previously published on the Bank’s transparency requirements for asset backed securities and covered bonds.   

These transparency requirements apply to all asset backed securities and covered bond transactions. 

Eligibility Request

When requesting eligibility for an asset backed security or covered bond, the Bank’s ABS-CERT template  must be completed by the SMF participant requesting eligibility.

Transparency Requirements for Asset Backed Securities and Covered Bonds

In order to be eligible in the Bank’s operations, the following transparency requirements will apply to asset backed securities and covered bonds:  

Loan Level Information

Anonymised loan-level data must be made freely available to investors, potential investors and certain market professionals acting on their behalf. Such data must be available in a recognisable spreadsheet format (eg. .xls, .csv, .xlsx). It must be provided on at least a quarterly basis on, or within one month of, an interest payment date.  The information on the assets must be no more than one month old at the time of publication. For large files, multiple spreadsheets may be provided. 

The Bank requires loan-level data to be provided using the relevant template published for each asset class. These templates can be found on its website at https://www.bankofengland.co.uk/markets/eligible-collateral. The Bank has included guidance on the templates in order to assist issuers in providing this information.

In order for this requirement to be considered satisfied, the mandatory fields indicated in each template should be completed. The Bank reserves the right to request additional data in respect of any given transaction.

The definitions used for the loan-level data should, where possible, be consistent with those given in the template, or those considered to be standard market practice.  Where issuers are not able to report using these published definitions, they will need to clearly state the definitions used for the purposes of their data set. Issuers should make clear in their loan-level data, or in the investor reporting glossary, which definitions they use.  The Bank would not expect there to be marked divergence from published definitions, and may apply higher haircuts to transactions where this is the case.

Loan-level data made available should be anonymised in order to comply with relevant data protection regulations.

Transaction Documentation

The following requirements in relation to the publication of transaction documentation apply to all transactions, irrespective of asset class.

The prospectus, together with the closing transaction documents, including any public documents referenced in the prospectus or which govern the workings of the transaction (excluding legal opinions), will be required to be made freely available.  Where applicable these will include, but not be limited to: the asset sale agreement (and any relevant declaration of trust), servicing, administration and cash management agreements, trust deed, security deed, agency agreement, incorporated terms or master trust framework or master definitions agreement, swap documentation and liquidity facility agreements, as well as any other relevant underlying documentation. Included in this requirement will be documentation covering any related, including otherwise private, transactions where there are any interactions which could impact the cash flows on the transactions for which eligibility is being considered.

Where transaction documents contain commercial terms (eg. the up-front costs associated with a swap), the Bank would not object to such terms being redacted for the purposes of publication, but only if these are previously non-public documents and refer to sunk costs which do not and could not impact the cash flows of the transaction.

To the extent private placement or unlisted notes have been issued from the same deal platform as notes for which eligibility is sought, the “final terms” document for these issues must be made freely available. The Bank is prepared to allow for the coupon (and related information) on these private placement or unlisted notes where publication is required to remain confidential.

Legal opinions may be requested by the Bank. However, legal opinions will always be required when a transaction is retained by the originator of the underlying loans. The Bank reserves the right to use an external legal counsel to undertake part or the entirety of the legal analysis of a transaction, the cost of which will be charged back to the SMF counterparty requesting eligibility for the deal.

The Bank will require new issue reports published by each credit rating agency responsible for allocating ratings to the securities.

Standardised Monthly Investor Reports

The Bank requires that investor reports be made freely available. Investor reports should be based on industry standards and reflect the current regulatory requirements in terms of disclosures, regardless of issuance date.  Investor reports must be provided on at least a quarterly basis, or within one month of, an interest payment date. They should be downloadable in a recognisable spreadsheet format (e.g. .xls, .xlsx, .csv).

Investor reports should include information on: asset performance; a detailed cash flow allocation; a list of all triggers and their status; a list of all counterparties involved in a transaction, their role and their credit ratings; details of cash injected into the transaction by the originator/sponsor or any other support provided to the transaction including any drawings under or utilisation of any liquidity or credit support and support provided by a third party; amounts standing to the credit of guaranteed investment contract and other bank accounts; details of any swaps (e.g. rates, payments and notionals) and other hedging arrangements to the transaction, including any related collateral postings; and definitions of key terms (such as delinquencies, defaults and pre-payments).

For private placements or unlisted issuance, the Bank requires that information on each such issuance be reported in the same manner as for public issuance, with the exception of the coupon.  Instead, the weighted average of the coupon on all private placements or unlisted bonds can instead be reported, via providing a 50 basis point range within which the weighted average coupon resides, once private placement or unlisted issuance comprises more than 30% of the total issuance volume.

Cash Flow Models

A cash flow model is required to be made freely available by or on behalf of the transaction originator, arranger or cash manager (the ‘Information Provider’). The cash flow model must precisely represent the contractual relationship between the underlying exposures and the payments flowing between the originator, sponsor, investors, other third parties and the securitisation special purpose entity. A full specification is included in Annex A of this notice.

Cash flow models may be provided in either a spreadsheet format or on a website maintained by or on behalf of the transaction Originator or Arranger; or in a proprietary format on the platform of a third party provider but access must be free of charge to users. The calculations used in the cash flow models should be transparent to the user (either within the model or by the provision of ’plain English’ payment rules) and the results of a cash flow run must be capable of being recorded and retained by the user.

This requirement does not apply to covered bonds given the greater simplicity of liability structures for these instruments.

Access to Information

All of the information listed above must be made freely available via a website managed by or on behalf of the Information Provider. Data made available should be anonymised in order to comply with relevant data protection regulations.

Access to the anonymised loan level data could be via an appropriately protected "data room”.

While this may require users to register prior to access, the registration process should not result in a significant delay to access. Disclaimers, where used, should not seek to detract from the validity of the information nor disassociate the provider from them.

Other restrictions on access for legal/regulatory reasons are permissible but must be clearly justified.

The Bank would expect the following European Economic Area domiciled users to have access to the information:

a. Banks and other recognised financial institutions
b. Any person or institution that has invested in ABS 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.

Non-UK Transactions

Asset backed securities and covered bonds backed by collateral from non-UK jurisdictions will be required to comply with the Bank’s eligibility criteria.

The Bank will adopt a principles based approach to non-UK transactions, with exemptions granted only where criteria are not relevant. Any such requests for exemptions should be discussed with the Bank on an individual basis.

The Bank templates for loan-level data published are applicable for all EEA transactions.

Transaction documents, standardised investor reports, cash flow models and transaction overviews for non-UK transactions should be based on the requirements outlined above.

The Bank reserves the right to require additional information for any reason, at any time.

    1. Global Requirements for Cash Flow Models
    • Cash Flow models may be provided in whichever format the Model Provider chooses (e.g. website, downloadable program or spreadsheet) however it should enable the user to input key collateral data as well as  output results using a recognisable spreadsheet format (e.g. .csv, .xls or .xlsx).
    • The model should incorporate data from a pre-configured table of inputs to drive a cash flow model, provided by the Model Provider, and output the resulting cash flows for the expected life of the relevant bond.
    • Whilst inputs and outputs are bespoke to each transaction, at a minimum the Bank would expect inputs to cover asset specific (e.g. principal and interest received, delinquencies and defaults), liability specific (e.g. note balances, trigger breaches) and sundry factors (e.g. interest and exchange rates). The output of the cash flow model should clearly show the activities (e.g. waterfall payments, account balances, note balances etc.) for the life of the transaction i.e. until assets have been exhausted under the assumptions being run. The model should incorporate all features of the transaction which are not open to change or interpretation (e.g. note interest margins, waterfalls etc.).
    • The model will be required to be updated should there be any changes to the structure which may impact the cash flows.  For example, updates would not be required to reflect the amortisation of notes (note balances should be an input to the model) but will be required if there are changes which may impact the published model or to reflect changes to the transaction which may have occurred (e.g. the breach of a given trigger).
    • The Bank would not object to legal liability disclaimers on the cash flow models however such disclaimers should be reasonable, for instance they should not look to disassociate the model from the Model Provider or the transaction.
    • The Model Provider may accompany the model with guidance notes, including instructions, assumptions made and further information, however the notes should not be unreasonably long or excessively technical.
    • Where the model may utilise a scripting code the Model Provider should make the code available, setting out in clear detail how the model operates i.e. which accounts funds are assumed to come from, and how those funds are applied in the waterfall.
    • The Bank may perform qualitative and quantitative reviews of the cash flow models provided for transactions and if the model is not considered to provide a reasonable basis on which to simulate the transaction, the deal could be considered ineligible. 
    All models will be expected to include the following example inputs and outputs where relevant to a given transaction. This list is not intended to be exhaustive and is expected to be used as a guide only. 
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