On 19 August, the ACC published its position paper ‘Reviving the UK securitisation market’ on the key priorities to reform the UK securitisation regulatory framework. 

The paper presents key proposals to achieve a successful UK securitisation market and outlines the negative impact of the current regulatory framework, as well as the economic relevance of securitisation and the key role that asset managers play in the market.   The proposed essential reforms to revive the EU securitisation market are:

Broaden the UK investor universe

• Introduce differentiated and proportionate due diligence and transparency requirements for sophisticated investors and issuers of securitisations:  Detailed due diligence obligations for institutional investors add little value, yet the associated compliance risks are a significant barrier to their investment in securitisation products. Requirements for the most sophisticated investor groups, such as Alternative Investment Fund Managers (“AIFMs”), should be derogated for investors already covered by AIFMD. There should also be more proportionate transparency and disclosure rules for issuers and managers of securitisations.

• More risk-based capital and liquidity requirements for prudentially regulated investors: Solvency UK and other capital requirements on insurers have significantly reduced the incentives for insurers to invest via securitisations, despite the fact that the asset profile of many securitised products is a natural fit for insurance liabilities.

• Permit sophisticated investors to invest in non-UK securitisation markets:  UK investors are prohibited from investing in some of the largest and most liquid US securitisation products, specifically US open-market CLOs. This restricts UK investors and those captured under the definition of institutional investor and hampers their competitiveness in relation to their global peers.

Mobilise private capital to support investment in the real economy

• Broaden the population of financial institutions participating in the production and distribution of securitisations: Permitting AIFMs to act as sponsors will allow the UK to develop a middle-market securitisation sector which will improve the availability of finance and liquidity to SMEs.

• Simplify and broaden the scope of the STS labels: Actively managed CLOs should be permitted to qualify as Simple, Transparent and Standardised. Synthetic securitisations should also be permitted to qualify as STS.

• Narrow the scope of the SR to enable the green and digital transitions: Any type of transaction that involves the tranching of risk, however simple, might fall within the scope of the Securitisation Regulation, which captures transactions that should otherwise not be considered as securitisations, either because they are simple products or because they play a strategic role in mobilising private capital for UK social, economic and political objectives.

For more information, please contact Guillermo Pérez Molina, Private Credit Associate.