Introduction
In 2022, whilst the securitisation market across the European Union experienced the headwinds of economic change it also bore witness to further regulatory evolution. This article will explore some of the main legal and regulatory developments impacting the securitisation market in Ireland over the last year. As a hub for securitisation activity in the EU, the legal framework in Ireland tracks both EU and domestic Irish legislation. Both the impact of new and proposed EU laws and regulations on Irish issuers of securitisation debt, and changes in Irish law which will be of interest to market participants generally are considered below
Central Securities Depository Regulation
The Central Securities Depositories Regulation (CSDR) was introduced in 2014 to harmonise how transferable securities, and proprietary interests in them, are represented over their life cycles, both at issuance and in secondary market trading. Article 3 of the CSDR aims to increase the safety of settlement and efficiency of transactions concerning in-scope securities by requiring them to be recorded in book-entry form by way of:
- immobilisation – the act of concentrating the location of physical/"certificated" securities in a central securities depositary (CSD) in a way that enables subsequent transfers to be made by book entry; or
- dematerialisation – the act of registering securities solely in electronic book-entry records.
From 1 January 2023, Irish issuers of certain transferable securities that are traded, or admitted to trading, on EEA trading venues will be required to represent new issuances in bookentry form. Following this first phase, issuers will have until 1 January 2025 to convert legacy inscope securities still existing in certificated form into book-entry form.
The move to book-entry securities is intended to centralise the ownership record and improve traceability in respect of transferable securities. Compliance with Article 3 will be a central focus of Irish issuers of listed securities which are not issued through the clearing systems in 2023. Increased engagement with CSDs and registrars is anticipated as market participants seek practical and efficient solutions for compliance with Article 3. Though it is likely that efforts will concentrate initially on new issuances of securities, it is expected that market participants will subsequently turn their attention to the significant task of making legacy securities Article 3-compliant in advance of the 2025 deadline.
Report on Functioning of Securitisation Regulation
On 10 October 2022, the European Commission published its report on the functioning of the EU securitisation regulation (the "Securitisation Regulation"). This review, which was mandated pursuant to Article 46 of the Securitisation Regulation, was originally due to be published by 1 January 2022, but was delayed by the COVID-19 pandemic among other things.
The review was not accompanied by a proposal for a legislative amendment to the Securitisation Regulation and concluded that the current framework is overall fit for purpose. However, the European Commission acknowledged that there was room for "fine-tuning" and issued certain clarifications and recommendations, such as the following.
Article 7reporting templates
The European Commission invited the European Securities and Markets Authority (ESMA) to review the currently published Article 7 reporting templates, with a view to addressing possible technical difficulties in completing certain fields, removing possibly unnecessary fields and generally aligning the templates more closely with investors' needs. It also invited ESMA to draw up a dedicated reporting template for use in private securitisation transactions, with a view to simplifying the transparency requirements for such transactions.
Jurisdictional scope
The European Commission suggested that the European Parliament, in its ongoing negotiations over the EU Green Bond Standard (GBS), as discussed below, should seek to ensure that the GBS is suitable for use by securitisations, echoing an earlier report by the European Banking Authority.
The publication of the review has generated much discussion within the European securitisation industry and the progress of the proposals will be followed closely by the market in 2023 and beyond. As Irish issuers often fulfil the role of the designated reporting entity in a securitisation, the proposals for more appropriate reporting templates for private securitisations will be welcomed.
Preventive Restructuring Regulation
The European Union (Preventive Restructuring) Regulations 2022 were signed into law on 27 July 2022, transposing the EU Preventive Restructuring Regulation into Irish law. The effect of the new regulations is to introduce certain changes to the Irish examinership process – for example, by introducing certain new protections for impaired classes of creditors upon an application to court to sanction a scheme of arrangement and by carving employees' claims out of the automatic moratorium that is imposed on enforcement actions during examinership.
Creditors subject to a stay on the enforcement of their claims are also prevented by the regulations from withholding performance, terminating, accelerating or otherwise modifying "essential executory contracts" (ie, contracts where the parties still have obligations at the time of the stay that are necessary for the continued operation of the business) solely because an examiner/interim examiner has been appointed and/or the company is unable to pay its debts. Similarly, the company must still comply with its obligations under those contracts during the stay. This restriction may also prevent counterparties from exercising netting and set-off rights under, for example, the International Swaps and Derivatives Association (ISDA) Master Agreements.
Whilst limited recourse and non-petition provisions (commonplace in contractual arrangements with Irish issuers) should limit the relevance of the examinership process to Irish special purpose vehicles themselves, the changes will be relevant to Irish issuers (and other market participants) wishing to commence or participate in the examinership process in respect of underlying debtors.
COVID-19 Measures
The Irish government responded to the COVID-19 pandemic by implementing the Companies (Miscellaneous Provisions) (COVID-19) Act 2020 (the "COVID Act") which introduced temporary amendments to the Companies Act 2014, particularly in the area of insolvency and restructuring.
Some of the measures impacting insolvency and restructuring included:
- easing of legal requirements in respect of convening and conducting annual general meetings and general meetings, allowing 240,000 companies and 950 industrial and provident societies in Ireland to hold such meetings online or in a hybrid capacity;
- an extension for an interim period of the debt thresholds for the commencement of a winding up by the court from EUR10,000 for an individual debt and EUR20,000 for aggregate debts to EUR50,000 in both cases; and
- a power for the courts to extend the maximum period in which an examiner can present a report to the court by 50 days (to 150 days) in "exceptional circumstances".
The interim period for the COVID Act was extended for the fourth time in April 2022, following government approval. All measures were to remain in place until 31 December 2022, having first come into effect on 21 August 2020.
Two particular measures – the ability of companies and co-operatives to hold annual, general and creditor meetings virtually and increases to debt thresholds (each as outlined above) – were further extended in December 2022 and will remain in place until 31 December 2023.
EU Capital Markets Union
On 7 December 2022, the European Commission published a series of proposed measures to further develop the EU's Capital Markets Union. Proposals include measures:
- to make clearing services more attractive and resilient in the EU, through targeted amendments to a range of financial regulatory frameworks (including the European Market Infrastructure Regulation, which governs the use of derivatives in the EU);
- to harmonise certain corporate insolvency rules, making them more efficient and helping to promote cross-border investment; and
- to introduce a new Listing Act which aims to alleviate the administrative burden for companies of all sizes and, in particular, SMEs so that they can better access public funding by listing on stock exchanges.
The proposals, which are still at an early stage, will potentially be of relevance to a broad range of corporates and financial market participants doing business in and from Ireland, including users of derivatives, issuers of listed securities and corporates considering the use of the European capital markets to raise financing. The proposals will arguably be of particular relevance to Ireland given its central role for EU securitisation transactions.
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Originally Published by Chambers And Partners
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