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NPL Markets Ltd.

We agree that the draft ITS is generally fit for purpose.

We are concerned, however, that the large number of mandatory fields will act as a deterrent to data providers who are not willing or able to provide all mandatory fields. The introduction of the materiality threshold of EUR 25,000 reduces the number of mandatory fields for smaller exposures but does not eliminate the risk that mandatory fields will deter banks from selling. The objective of the underlying directive is to make the market for non-performing loans more efficient. A data template which resulted in a deterrent for banks to sell NPL would be in direct contradiction to the intentions of the underlying directive.

We understand that when ESMA drafted the securitisation disclosure templates a few years ago and proposed it to the European Parliament, the EP reduced the number of mandatory fields significantly, i.e., those fields that are not eligible for a no-data option, in order not to create an additional barrier for market participants to use securitisation. The same design principle should apply here, the template defines data fields as part of the standardization and a label signifies the importance of the data field. The label provides useful guidance to sellers and buyers. However, sellers need a clear confirmation that a deal will still be legal and compliant even if the data for one or more mandatory fields are missing. Investors and transaction platforms can handle incomplete information. The decision about how much information is sufficient to conclude a sale should be left for sellers and buyers to negotiate and not subject to rigid legal requirements.

The mandatory data fields require clearer instructions, so the risk that they act as a deterrent is minimised. The proposed option that allows data providers to use ND4 no data option for all mandatory fields must be discussed more explicitly in the instructions. In our experience with securitisation data, the Not Applicable no data option (ND5 for securitisations) is often used when the data is not available even if the data field is applicable from an economic perspective. If it is the intention of EBA to allow ND4 whenever data is not available, then this should be clearly stated in the instructions in which case in effect no data field will be mandatory and there will be no deterrent to banks who don’t deliver all mandatory fields. If EBA believes that certain data fields cannot have missing data, then the ND4 option must be disallowed for those fields. To avoid a deterrent for banks to sell NPLs, we argue that the number of mandatory fields without a no data option should be very small (e.g., just the identifiers and the Total Balance). Sellers could be asked to justify their use of ND4 for mandatory data fields on a deliver-or-explain basis. Adding a list of mandatory fields that are not delivered or incomplete with a brief explanation is considerably less effort for the seller than being forced to collect the information. We propose to add one or more columns to the data glossary with the available no data options like in the ESMA templates for securitisations.

Our second concern arises from our experience with NPL securitisation transactions where the standardized regulatory disclosures exist in addition to non-standardized data tapes and investor reports. In the case of NPL securitisations, it is the non-standard data which are the focus of investors as they contain critical information not part of the ESMA securitisation templates (for example, business plan projections and detailed collection and expense cashflows). We think it is important to avoid a situation like in NPL securitisations, where buyers and sellers work with non-standard data for due diligence and valuation and prepare the standardised data only for compliance reasons. Point 29 of the consultation paper recognises that investors may request further information not included in the NPL data templates. We believe that the instructions need to be more explicit on how such further data can be provided as part of the same data tape. Standardized data that are not used in practice would be an additional burden on market participants without any efficiency gains.

To avoid the need of a second data tape, it should be clear that the EBA NPL templates are a common denominator or a standardized core set of information which may not capture all relevant information. The instructions should clarify that sellers and investors can extend the templates as deemed necessary without risking non-compliance. This means the data covered by the templates must be reported in standardized form using the specified field names and value choices and formats. However, the data tape can be extended with additional data fields that are clearly indicated and such additions do not invalidate the compliance of the data tape with the directive and the ITS. For example, any additional data field or data table could be marked with a prefix “ADD_” and if, for instance, data providers want to report a mortgage identifier, which we deem important for property secured loans, then they can add a field called “ADD_Mortgage Identifier” field to the data tape in templates 2 and 4 without risking non-compliance. As another example, Template 5 could be provided in the proposed wide format and in addition the seller could provide an extended data table with monthly historical collection data in long format as discussed in questions 5 called ADD_Historical Collections.

The public hearing identified several topics where investors may require more information such as a history of forbearance measures or any information on deficient claims or time barring. Other items not covered currently include the ESG related data fields related to the counterparty, cash in court, discounted payoffs, the percentage allocated to the lender of pooled collateral ownership, a property status field indicating whether the property is real estate owned with or without completed regularization, additional fields covering the operating and capital cost of real estate, service charges and insurance.

We propose some specific text changes in the Commission Implementing Regulation as follows:

(5) Where credit institutions are not able for various reasons to provide the required information for the data fields that are not mandatory, they should explain the reasons by using the ‘no data option’ provided in the instructions to the templates set out in Annex III of this Regulation. Where credit institutions are not able for various reasons to provide the required information for the data fields that are mandatory, they should use the ND4 no data option and provide a brief textual explanation why the data has not been provided.

Where credit institutions are not able to provide to prospective buyers the information specified in this Regulation, and, in particular, mandatory information, where no specific ‘No data options’ are permitted by the data glossary, credit institutions should be aware that providing insufficient information may prevent investors to price the loans efficiently and may jeopardise a successful transfer of the loans.

(6) Information to be provided by the credit institutions to prospective buyers of non- performing loans is important for the purposes of financial due diligence and valuation of non-performing loans that is performed by the prospective buyers before entering into the buy-sell transaction. To this extent, information should be submitted by the credit institutions early enough in the sale process to allow prospective buyers to perform their analysis before committing to a specific price.

However, considering the level of the detail of the information needed by the prospective buyers for the purposes of financial due diligence and valuation of non-performing loans and associated confidentiality implications, such information should be provided by the credit institutions only to the prospective buyers that are seriously interested in purchasing the assets in question. For the reason of protecting confidentiality of information, all the detailed information should not be provided very early in the transaction process to all prospective buyers that may be interested in purchase, but not committed to it. Credit institutions shall provide the prospective buyers the information needed for the financial due diligence and valuation as specified in this Regulation and only to the prospective credit purchasers that have signed non-disclosure agreements drafted in compliance with the applicable legislation and market practices.

(7) Information needed by the prospective buyers for financial due diligence and valuation of non-performing loans may contain elements considered confidential by the credit institutions on the basis of the requirements applicable to them based on confidentiality and bank secrecy legislation, or on the basis of commercial considerations. This Regulation does not specify what data fields should be considered confidential, as this determination should be made by the credit institutions providing the information on the grounds of the applicable legislation, internal rules or on the basis of commercial practices. It is important, however, to ensure that all confidential information should be shared through secure channels and only after appropriate confidentiality arrangements have been put in place between the credit institution and the prospective buyers. Such secure channels may be electronic virtual data rooms set up by the credit institutions to grant access to the prospective buyers to the information requested in accordance with this Regulation. Credit institutions should ensure that such virtual data rooms meet the applicable industry standards for confidentiality and data security requirements.
Please see attached Annex II.
Please see attached Annex II.
Please see attached Annex II.
We do not consider template 5 fit for purpose as the proposed date/period structure and data fields are too restrictive. Given that there are three dimensions in this table the data field name, the value and the date/period it is not clear how this annex should be reported exactly in practice. At a minimum, the template must state the expected date/period field names e.g. Total Amount Before COD Year 1, Total Amount Before COD Year 2, or similar. Just requiring that the annual amounts in field 5.08 and 5.09 should be reported in a separate column is not sufficient as it lacks a standard field name.

It would be preferable, however, to drop the rigid date/period structure altogether and instead introduce a single date field called Collection Period End Date in a long table format rather than the proposed wide table. In the long table format each loan/counterparty identifier would have several rows with different Collection Period End Dates. The requirement of providing pre-cutoff-date data on an annual basis and post-cutoff-date data on a monthly basis could be maintained, but sellers should be free to report historical collections at a higher frequency than annual and provide the breakout of collections in periods going back more than two years.

Banks sometimes report the post default collections at the counterparty level and not at loan level. The template recognises this business practice but for external collections only. We suggest that any type of collection should either be reported at counterparty or loan level. Data providers should be allowed to report additional information as part of the historical collections, for instance, the historical legal expenses by adding an additional field column which is easier to do in the long format.
We recommend to adding a mortgage identifier field to template 2 and template 4 which allows the separation of the mortgage from the collateral assets. This change is important as the fields lien and mortgage amount are expected to be reported at the level of the mortgage and thus the mortgage must be identifiable.

To collect all relationships in one table is possible, but not current market practice as it makes the relationship table very hard to read with the potential for a very long table. The instructions should clarify that while template 2 must be reported as proposed, the data provider can add additional relationship tables that break out the individual relationships in line with current market practice, for instance, showing the relationships Loan-Instrument-Counterparty, Loan-Mortgage-Property, Loan-Non-Property Collateral and Loan-Guarantee-Guarantor as separate relationship tables.
Please see attached Annex II. As a general comment, we don’t think that the distinction between static and dynamic fields is required for a transaction data template. Additional columns with the permitted use of no data options should be added to Annex II like for the ESMA securitisation templates.
The instructions should be clearer regarding the potential non-delivery of mandatory fields and the use of the ND4 no data option for mandatory fields as explained in question 1 above.

The instructions should offer the possibility to extend the data tape with non-standard additional information as explained in question 1 above.
We do not agree with the proposed use of no data options. The options ND1 to ND5 were introduced in the securitisation regulation to provide some clarity regarding legacy data systems and the potential availability of data starting from a certain date (ND4 DD-MM-YYYY). The NPL data templates are transaction templates and are not intended to be used for ongoing reporting nor for delivery to a central data repository in their current form. The important no data option indicating “Not Applicable” is ND5 in the securitisation regulation whereas it is ND4 in the NPL templates which might be confusing. In practice it may not be impossible to clearly distinguish ND1 „Data not collected“ or ND2 “Data not uploaded into the main reporting system” from ND4 „Data not applicable in relation to the underwriting criteria specified in the description of the data field“ and if at all unclear data providers will use “Not Applicable” if this is the only available option. Sellers are incentivized to deliver all available and relevant information as better information can result in higher prices. However, the non-delivery of any one mandatory data field does not automatically result in a lower price or the cost of collecting the additional data may be too high vis-à-vis the expected price benefit.

In our experience with securitisation data, the no data options add complexity without adding value or insight. We see a widespread market practice for securitisations to use the ND5 Not Applicable option wherever this option is available even if the data field is applicable from an economic perspective and relevant to investors. As ND5 is not counted towards completeness checks, practically all securitisation deals comply with completeness checks even in the extreme case that all fields that allow ND5 are set to ND5.

As mentioned in our answer to question 1, the ITS instructions for the NPL templates propose that ND4 Not Applicable can be used for all data fields including data field marked as mandatory. We expect widespread use of this ND4 option if available in the final version of the ITS. If there is no additional check on the appropriate use of ND4, then effectively no data field is mandatory, and the materiality threshold becomes obsolete.

In our view, a small number of fields like the counterparty and contract identifiers as well as protection identifiers for secured loans plus the Total Balance should not be empty as otherwise the relational structure of the data is incomplete, and the data is no longer machine readable in the sense of being able to upload to a relational database. If and to the extent that fields marked as mandatory are empty, the data provider should provide a brief explanation. As a result, the risk that a missing mandatory data field would act as a deterrent for the seller to sell is reduced and investors immediately see where “mandatory” information is missing.
We consider it important that the NPL data tape and delivery format is defined such that it allows both immediate inspection of the data in Excel as well as guaranteeing a high degree of standardisation for digital processing and validation. The current market practice is to deliver NPL transaction data as Excel spreadsheets in .xlsx, .xlsb or .xlsm format and many investors use spreadsheets for due diligence and valuation. Market participants are also familiar with data deliveries in csv or other text formats. We are not aware of NPL data deliveries in XML format. Even for securitisation transactions where securitisation disclosures must be reported as XML files, the data most frequently used by investors are in Excel or csv format. The European DataWarehouse offers securitisation data in the XML format defined by the regulation as well as csv files which for many investors are easier to use. Excel is not a preferred choice for delivering standardized machine-readable data as Excel often automatically transforms data upon opening and the transformations depend on the user’s settings. Our preference would be for each template to be delivered in csv format with UTF-8 encoding. These files are easy to open in Excel and to read by machines.

We preferred if the EBA templates followed the format standards set by the ESMA securitisation templates where possible. For such alignment, date formats should be “YYYY-MM-DD” and not MM/DD/YYYY, Boolean should be Y/N rather than Yes/No and choices should be capitalised four-character abbreviations to avoid any risk of misspelling and the use of special characters or blank spaces. Regardless of whether the ESMA formats are used, for fields in number formats the use of thousand separators and the use of the decimal separator should be prescribed. Identifiers should be reported as text only as identifiers reported as long integers with leading zeros or too many digits can cause problems as they may be automatically converted or truncated by the machine.

We disagree with the proposal to convert all currency amounts to Euro. The amounts should be reported in their actual currency as indicated in the respective currency fields. Where non-Euro amounts are reported, the EUR equivalent amount could be reported as a separate field with the same field name and suffix “_EUR”, e.g., Latest External Valuation Amount_EUR. A Bulgarian portfolio with mostly BGN loans and some EUR and CHF loans can be reported with BGN as reference currency by adding data fields like External Valuation Amount_BGN to show the BGN equivalent amount for all loans.
We do not object to the principle of proportionality or the proposed EUR 25,000 threshold. As mentioned in questions 1 and 9, if all mandatory data field have the ND4 no data option available to them then in practice we expect this option to be used and the materiality threshold becomes largely irrelevant.
We do not disagree with the EUR 25,000 amount threshold, but this amount should be with reference to the Total Balance and not with reference to the carrying amount which banks are typically reluctant to report and the carrying amount is not part of the data templates.

Following repeated questions in the public hearing and other events, the instructions need to better explain the scope of applicability of the NPL data template. Do single name transactions, loans in the trading book, or large syndicated loans in the banking book fall under the directive? If not, it might make sense to define the exceptions with reference to a minimum notional threshold for a large loan trading in the syndicated loan markets, such as a EUR 50 million total outstanding notional amount. It should be clarified that European banks selling NPLs from a non-European subsidiary or branch do not fall under the directive, but non-European bank selling out of their European subsidiaries or branches do fall under the regulation.
To make the templates operational we emphasise in our answer to question 1 the importance of not creating a deterrent for sellers who may not be willing or able to deliver all mandatory data fields. We propose to discuss the use of the no data option ND4 for mandatory fields in more detail.

A second point discussed in our answer in question 1 is to clarify how the seller can add information to the templates beyond the required standard defined in the ITS to avoid the need for alternative data sets and reduce the risk that the EBA NPL data templates are not viewed as a common core, but as an additional regulatory burden with little benefit.

Finally in our answer to question 1, we marked up some of the introductory text of the ITS with the aim to clarify the use of ND4 for mandatory fields and to let sellers decide at what stage to share confidential information with investors who have signed the required non-disclosure agreement.

We propose to delete article 7 (3) as the term “reputable technology provider” is not clearly defined. The need to handle sensitive information through secure channels meeting applicable industry standards is already covered in section 7 (2) and is all that is required in our view. Virtual data rooms are often provided by young innovative technology companies in line with applicable industry standards. The regulation should not create a barrier for new entries into this market by requiring becoming a “reputable technology provider” first, a term that lacks objectivity.

Annex II - NPL data templates glossary with questions for consultation_NPL MARKETS COMMENTS.xlsx
NPL Markets Ltd.