CP23/17: Rules relating to Securitisation

In context with the draft Statutory Instrument (Draft SI) that introduces a new regulatory framework for securitisation, intended to replace the existing EU Retained Securitisation Regulation (UK SR) and associated legislation (please see EventID#22190 for details) and the related proposed changes, the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) have coordinated their approach to the replacement of relevant provisions, ensuring coherence in the regulatory framework.
The PRA has already published a consultation paper (PRA CP15/23) on its new rules replacing most firm-facing provisions of the UK SR (please see eventid=22459). Therefore, the FCA now consults on its proposal to replace firm-facing provisions from the UK SR with new Handbook rules. The proposed changes focus on due diligence obligations, risk retention provisions, and clarifications based on market feedback and the Treasury 2021 Review of the UK SR.
Key changes involve due diligence obligations for institutional investors, aimed at enhancing transparency. The proposed rules align with those set by the Treasury and the PRA for authorised firms.
The Designated Activities Regime (DAR) under the Financial Services and Markets Act 2023 empowers the FCA to establish rules for designated activities. The DAR covers authorised and unauthorised firms, including originators, sponsors, lenders, and SSPEs in securitisation. Proposals also encompass rules for Simple Transparent and Standardised (STS) securitisations, securitisation position sales to retail clients, and due diligence requirements for small UK Alternative Investment Fund Managers (AIFMs).
The structure of the consultation paper entails chapters addressing broader context, approach to replacing provisions, due diligence requirements, risk retention provisions, and other related proposals. The consultation outlines a cost-benefit analysis, with a focus on enhancing the securitisation market while considering market views and evidence of success.
The outcomes sought include a more proportionate UK SR, reduced barriers to securitisation issuance and investment, and a coherent regulatory framework. The success of the proposals will be gauged based on market views and evidence of a well-functioning securitisation market.
This consultation primarily impacts authorized firms, unauthorised entities, individuals in management positions, TPVs, and SRs. Proposed changes aim to balance market growth with investor protection.
The implementation period is expected to be short, given that changes do not require alterations to reporting templates or transparency requirements. The anticipated outcome includes a more effective UK SR that bolsters the country’s position in global wholesale markets.
The structure of the consultation paper entails chapters addressing broader context, approach to replacing provisions, due diligence requirements, risk retention provisions, and other related proposals. Furthermore, the CP includes a discussion on the definitions of public and private securitisations. A future consultation is planned for the proposed changes to the reporting regime, with a specific focus on private securitisations. The intention is to enhance the reporting process by introducing more proportionate measures. The review of the reporting regime also aims to incorporate environmental, social, and governance (ESG) reporting, aligning with broader sustainability goals. The FCA states that a comprehensive comprehension of associated changes to the disclosure and reporting framework is necessary. Presently, the focus lies on initiating a discussion about the definitions of public and private securitisations. The thorough evaluation of these proposals is reserved for the second consultation phase. Feedback received from this initial discussion will play a pivotal role in shaping the subsequent proposals intended for the later consultation concerning the reporting regime. This iterative approach ensures a well-informed decision-making process.