Insights

In this issue:

• European Banking Authority publishes consultation paper on draft standards on the recognition of stay powers
• ESMA publishes report on ratings of collateralised loan obligations

European Banking Authority publishes consultation paper on draft standards on the recognition of stay powers

The European Banking Authority (EBA) has published a consultation paper on draft regulatory technical standards (RTS) for contractual recognition of stay powers under the revised Bank Recovery and Resolution Directive (BRRD). The technical standards back the application of temporary restrictions on early termination rights in relation to financial contracts governed by the law of a third country. The supranational authority has proposed in the draft standards a list of mandatory elements which must be present in the contracts including without limitation provisions specifying the description of the powers, and recognition that the parties are bound by the powers to suspend certain obligations and restrictions of some rights. The deadline for the consultation period is 15 August 2020. The EBA will hold a public hearing via conference call on 16 July 2020.

ESMA publishes report on ratings of collateralised loan obligations

The European Securities and Markets Authority (ESMA) has published a report on collateralised loan obligations (CLOs) credit ratings within the Union. Back in May last year, the supranational regulator launched a review of the EU practices of the largest credit rating agencies (CRA) with respect to the validation and of CLO rating process and review methods. ESMA has now published this Thematic Report based on the collected information wherein it also pinpoints areas where it expects firms to further enhance their practices. Some of the main supervisory concerns which were highlighted in the report include:

• Internal organisation of CRAs and interactions with issuers
• Model / Third-party dependencies and Operational risks
• CRA rating methodologies and modelling risks