On Jul. 27, UK PRA issued proposals for new Securitization Part.
UK PRA issued consultation paper with proposed new PRA RB Securitization Part and adjustments to scope of its Supervisory Statement (SS) 10/18 on securitization.
Along with a proposed new statement of policy on permissions for re-securitizations.
Securitization Regulation is retained EU legislation that aims to address behavioral risks in securitization markets, supervisory responsibility for it split between FCA, PRA.
Following enactment of Financial services and markets act 2023, UK Treasury plans that most firm-facing provision of Regulation to be replaced with PRA and/or FCA rules.
Consultation relevant to all categories of PRA-authorized persons established in UK, to qualifying parent undertakings, credit institutions, investment firms, their subsidiaries.
Consultation Paper
Sets out proposed rules to replace retained EU law requirements on PRA-authorized persons in provisions of the Securitization Regulation for which PRA is responsible.
The related Risk Retention Technical Standards and Disclosure Technical Standards.
Also covers adjustments to scope of SS10/18, includes new statement of policy (SoP).
Proposals
Largely preserve current requirements when retained EU law moved to PRA Rulebook.
Proposes targeted adjustments to these requirements, including: clarification of the person scope of requirements on manufacturers, adjustment to SS10/18 person scope.
More principles-based approach to due diligence obligations on PRA-authorized institutional investors re disclosures by manufacturers, to make more proportionate.
Clarification of provisions on delegation of due diligence, clarifying circumstances in which only managing party and not delegating party subject to due diligence rules.
Amendments to risk retention requirements in non-performing exposures (NPE) securitizations, to facilitate their use by PRA-authorized persons to reduce credit risk.
Clarification of timelines for manufacturers making available certain information.
Other smaller changes to risk retention requirements to make clearer, also addresses distinction between public/private securitizations re their transparency requirements.
PRA may consult on proposals in the latter area in a future consultation paper.
Effectiveness
The closing date for submission of responses to the consultation is Oct. 30, 2023.
In Jul. 2023, UK FCA said it will issue securitization rules consultation, see #122026.
In Aug. 2023, UK FCA proposed rules for the UK securitization markets, see #181276.
Apr. 30, 2024 Policy Statement and Rules
On Apr. 30, 2024, UK PRA issued policy statement providing feedback to responses to the consultation, final version new Securitization Part, updated supervisory statement.
Responses to consultation were largely supportive of the proposed policy changes, though respondents also requested a number of changes and clarifications on them.
As a result, PRA has made adjustments to the policy package including: 6-month implementation between publication of policy statement and implementation date.
Adding transitional provisions for pre-transfer securitizations to largely preserve their treatment under the Securitization Regulation and related technical standards.
Better aligning PRA and UK FCA rule drafting; clarifying meaning of before pricing in due diligence and transparency requirement; changes to due diligence requirements for secondary market investors re what disclosures are made by manufacturers.
Clarifying possible for UK institutional investor to delegate its due diligence to another investor, in which case UK institutional investor remains responsible for compliance.
Clarifying that firms may comply, as before, with transparency requirements by disclosing data only in aggregated or anonymized form, in certain circumstances.
Clarifying prohibition on hedging of material net interest required to be retained under risk retention requirements and that no need for risk retention re securitization of own liabilities; not proceeding with statement of policy on permission for re-securitizations.
PRA Rulebook: CRR Firms, Non-CRR Firms, Solvency II Firms, Non-Solvency II Firms: Securitization (And Miscellaneous Amendments) Instrument 2024 (PRA2024/3) makes the rules for the new Securitization Part, minor amends to 2 other Rulebook Parts.
PRA also issued updated Supervisory Statement(SS) 10/18Securitization: general requirements and capital framework, which will come in force at same time as rules.
Changes will come into force on Nov. 1, 2024, subject to revocation of Securitization Regulation, related technical standards, if that is later PRA will delay or revoke rules.
PRA, FCA expect to consult on more changes to securitization rules Q2 2024/Q1 2025.
