In September 2023, the Structured Finance Association (SFA) took a pivotal step towards enhancing transparency and consistency within securitization disclosures. The association published its ESG Best Practices for Auto Asset-Backed Securities (ABS) and Residential Mortgage-Backed Securities (RMBS) Disclosures, produced by an industry-wide working group comprised of issuers, investors, rating agencies, data & analytics firms, and other securitization transaction parties. Details of the publication can be reviewed in this JD Supra article.
The newly-published best practices aim to offer a principles-based approach for securitization disclosures. This approach has been developed through an industry-wide effort, reflecting the consensus-based views among stakeholders and is expected to have a direct influence on how businesses prepare and disclose the nature of Auto ABS and RMBS operations. Notably, the recommendations focus on facilitating greater transparency and fostering an environment of trust within the financial markets.
The guidelines also acknowledge the mounting global interest and active participation in environmental, social and governance (ESG) issues. Incorporating ESG considerations within the best practices represents the industry’s commitment to aligning investment activities with broader societal aims, apart from purely economic ones. The step taken by SFA reaffirms the industry’s endeavor to move with the current trends, while also securing the future of securitization transactions in the modern finance landscape.
Finally, it’s important to note that while these best practices offer a solid framework for companies to adhere to, they are not rules or regulations. Compliance is not mandatory, rather it is encouraged as a means to establish trust and ensure transparency within the industry. This is essential for the healthy functioning of the securitization market, which is a critical component of the global financial system.