Introduction

After a somewhat anticipatory wait, July and August 2023 has seen UK and EU regulators publishing documentation giving key indicators as to the ultimate landing points for both the UK Securitisation Regulation regulatory framework and the EU Securitisation Regulation risk retention requirements.

Whilst still at the consultation phase, the UK Securitisation Regulation developments give an insight into how HM Treasury and regulators are intending to move away from the EU regime as part of the UK government's Smarter Regulatory Framework for financial services tailored to the requirements of the UK. Whilst the intention appears to be that the UK securitisation regime will not be a huge sea-change from the EU securitisation regime, there are clear textual changes and policy shifts which will need to be considered in detail. In a positive sign, the envisioned changes to the due diligence requirements will help "fix" the issues with UK institutional investors investing in non-UK securitisations, whilst it seems that the equivalent EU rules will not be looked at in the near term. On the other hand, the proposed rules in relation to risk retention do not contain the provisions in the proposed text of the EU risk retention regulatory technical standards which allow a change of retainer "where the retainer, for legal reasons beyond its control and beyond the control of its shareholders, is unable to continue acting as a retainer", nor do they go as far as the EU securitisation regime with respect to NPE securitisations.

However, in reserving certain of the detail of the rules to the FCA and the PRA, with the aim of making the UK securitisation regime more agile compared to the more difficult to change EU securitisation regime, there is likely to be an increase in the complexity of the UK securitisation regime given it will now be set out across three overlapping rules (a statutory instrument, FCA rules and PRA rules) with the potential for lacunas and conflicts between them.

The FCA and PRA Consultation Papers also indicate further consultations, in particular with respect to the sometimes-vexatious disclosure requirements. Accordingly, whilst not concrete, it is hoped that the positive noises made in both the UK and the EU with regards to the amendment of the disclosure requirements for "private" as opposed to "public" securitisations materialise.

The EU Securitisation Regulation developments in relation to risk retention regulatory technical standards on the other hand are less of a new starting point and more of a culmination of a long journey to update these provisions.

We hope bringing these developments all into one place is helpful and insightful. Please do not hesitate to reach out to any of the Key Contacts to discuss any of the issues raised.

Key Developments

Contents:

UK securitisation regulation developments

1. UK Securitisation Regulation Statutory Instrument
2. UK Securitisation Regulation PRA Consultation Paper
3. UK Securitisation Regulation FCA Consultation Paper

EU securitisation regulation developments

1. Commission Adopted Text of Risk Retention RTS
2. ESMA Revised Q&As

UK securitisation regulation developments

UK Securitisation Regulation Statutory Instrument

Overview

On 11 July 2023, HM Treasury published the Draft UK SR SI , updating the draft statutory instrument published as part of the "Edinburgh Reforms" on 9 December 2022 (the Dec 2022 Draft SR SI), and the UK SR Policy Note. The Draft UK SR SI is part of HM Treasury's programme to deliver a Smarter Regulatory Framework for financial services tailored to the UK. Read more here.

UK Securitisation Regulation PRA Consultation Paper

Overview

On 27 July 2023, the Prudential Regulation Authority published Consultation Paper 15/23 – Securitisation: General requirements (the PRA CP). The PRA CP sets out the PRA's proposed rules to replace those retained EU Securitisation Regulation rules that apply to PRA-authorised persons within the UK Securitisation Regulation and related risk retention and disclosure technical standards. Read more here.

UK Securitisation Regulation FCA Consultation Paper

Overview

On 7 August 2023, the Financial Conduct Authority published Consultation Paper 23/17 – Rules relating to Securitisation (the FCA CP). The FCA CP sets out the FCA's proposed replacement rules for the UK securitisation markets and contains proposals for FCA-facing requirements of the UK Securitisation Regulation. Read more here.

EU securitisation regulation developments

Commission Adopted Text of Risk Retention RTS

Overview

On 12 April 2022, following the EBA publishing its EBA Draft RR RTS  and their submission to the European Commission (the Commission), the Commission published the Commission Draft RR RTS on 7 July 2023. Read more here.

ESMA Revised Q&As

Overview

In addition to the more substantive future changes set out in the Commission Draft RR RTS, the European Securities and Markets Authority (ESMA) published a revised and updated version of its questions and answers in relation to the EU Securitisation Regulation. Read more here.

Thank you to trainee Arun Bindra for his contribution to the UK Securitisation Regulation FCA Consultation Paper article.