Preparing for the new UK securitisation framework

Effective from 1 November 2024, the new UK securitisation framework has replaced the previous EU securitisation regulation. While many foundational elements remain unchanged, the new framework, as detailed in the rules set out by the FCA’s securitisation sourcebook and PRA rulebook, includes several key exceptions and distinctions, particularly in areas such as investor due diligence and risk retention. 

In this article, our Head of Capital Markets for EMEA, Kevin Butler, addresses questions regarding these new regulations and discusses potential future changes.

What is the new UK securitisation framework? 

As a consequence of Brexit, the UK Government has introduced a new “smarter regulatory framework” aimed specifically at the UK market. Although the existing securitisation regulations (which were based upon EU law) are largely being maintained, there have been several specific policy adjustments. 

Some notable examples of these policy changes between the UK securitisation rules and the EU regime include:

Risk-retention requirements

• The new UK securitisation rules allow the risk retainer to change on the insolvency of that party, but it does not appear to allow a change in any other circumstance.
• While the new rules have specific guidance and reference certain factors which must be “taken into account” when assessing whether an originator is operating under the “sole purpose” of securitisation (and therefore cannot act as Risk Retainer under the regulations), the old regulations reference the securitisation and business being the Originators “predominant source of income.”  This is arguably a relaxation of the regulations.
• The ability of sponsors to maintain any hedge arrangements relating to their retention exposure being securitised is also clarity which will be welcomed by the originator community.

Due diligence requirements

• A new principles-based approach is being implemented which requires investors to verify that they received “sufficient information” to independently enable them to understand and assess the risks of investing into a specific securitisation. This information no longer needs to be provided in the form of predefined templates.
• This obligation can be delegated but unless its delegated to an FCA/PRA regulated entity the responsibility remains with the institutional investor.

Disclosure requirements

• Institutional investors in the UK will no longer be required to produce disclosure templates. Instead, they must ensure that specific prescribed information is provided, irrespective of the format used. However, if there is involvement from a UK sponsor, originator, or securitisation SPV, those entities are still obligated to produce the disclosure templates.

When will the new UK securitisation rules start to apply?

The new UK securitisation framework will apply from 1 November 2024. The regulatory framework in the UK now comprises of the following:

• The Securitisation Regulations 2024,
• The Securitisation (Amendment) Regulations 2024, and
• The UK Regulators rules set out in both the new FCA rulebook and in a new securitisation section of the PRA rulebook.

Who does the new UK securitisation framework apply to?

The new UK securitisation framework is limited to entities established in the UK and has effect for transactions established from 1 November 2024.

Grandfathering provisions have been established for all earlier transactions. 

An exception to this general grandfathering provision relates to due diligence obligations on the delegation of due diligence obligations from an institutional investor to a non-institutional investor. Where unless the delegate is FCA/PRA regulated the original investor retains responsibility for compliance with the regulations. 

What do I need to do next?

Contact our Capital Markets team to ensure you stay ahead of the latest developments and find out how we can help your business navigate the new regulatory environment.