On 17 February, the UK Financial Conduct Authority (FCA) published a consultation paper (CP26/6) on reforming the UK securitisation framework. This included multiple proposals to introduce more principles-based requirements in areas of the securitisation framework that are seen as prescriptive or create material burdens for investors and issuers.

The FCA have taken on board a lot of AIMA and broader industry feedback on key issues such as due diligence and transparency when compiling these proposals.  The summary of the key proposals is:

Simplification of due diligence

• Replace investors’ verification requirements for credit granting, transparency and risk retention with a principles-based approach.  Under this approach there would be more flexibility for the investor to decide if credit granting standards are ‘robust’, whether they have ‘sufficient’ information or that there is sufficient and appropriate alignment of interest between manufacturer and investor beyond risk retention. The proposed changes to risk retention are seen as necessary to enable investors to access a third country securitisation assets that do not comply with the risk retention requirement and support UK based firms’ ability to compete with overseas firms. However, the FCA notes there these proposals do not modify existing requirements applicable to UK manufacturers as regards risk retention.

• Introduce a simplified and principles-based assessment process for prospective investments in securitisations. This would still require that investors consider and understand all structural features and risk characteristics of the securitisation, but would no longer make it a requirement for investors to review a specified list of features around:
  • assessing the underlying exposures’ credit risk, including credit quality, diversification and historical performance;
  • assessing the securitisation’s structural features, such as credit enhancement features, liquidity support features, cash flow waterfalls, investor voting rights and triggers; and
  • verifying compliance with STS criteria.
• Remove the prescriptive elements in the ongoing due diligence obligations, instead requiting investors to establish written policies and internal reporting procedures up to its management body regarding ongoing monitoring of securitisation positions The FCA noted that the current level of detail is overly granular and duplicative of more general requirements contained in sectoral legislation, adding that the current approach also fails to take into account the degree of actual risk that investors are exposed to. Investors will be required to monitor, on an ongoing basis, the performance of the securitisation positions and of the underlying exposures in a manner proportionate to the risk profile of the assets. Additionally, the prescription for investors to perform stress tests on underlying exposures will be eliminated.

Streamlining transparency

• Removing the differentiation between public and private securitisations in the application of transparency requirements.  Here the FCA noted that this change should be understood in the context of the rest of the proposals, and highlighted that investor feedback emphasised that transparency obligations should apply based on the type of underlying exposure rather than on whether a transaction is public or private.
• Introducing of a simplified reporting template for CLOs which would have 43% fewer fields than existing template for corporate securitisation.  The FCA noted that it might consider disapplying the requirement to complete this template during the warehouse phase of a CLO.
• A reduction in the number of reporting templates, replacing them with a more principles-based approach calibrated for each asset class. This will involve:
  • A principles-based approach for asset classes for which standardisation is not suitable. Manufacturers will be allowed choose the most appropriate way to report on ABCP and on securitisations with underlying exposures to:
    • Credit card receivables and trade receivables, and other short-term highly granular exposures.
    • Commercial real estate.
    • Corporates.
    • Esoteric assets.
  • Moving to a principles-based approach for investor reports and inside information or significant event reporting.
  • A simplification of retained underlying exposures templates for more mature and homogeneous asset classes such as residential RE, auto loans, consumer loans and leasing. These retained templates will be simplified and harmonised with the Bank of England loan level data templates.
• Exempting single-loan securitisations from the requirement to make underlying exposures information available in the prescribed underlying exposure template.
• Removing the requirement to report to securitisation repositories. The FCA considered that with very few templates remaining in place, it is difficult to justify the costs for manufacturers to report to repositories when the information does not seem to be widely used by investors.
• Allow manufacturers to use corresponding EU templates to satisfy UK requirements.

STS notifications

• Provide originators and sponsors with flexibility to decide whether the full details or anonymised version of STS notifications should be published for private securitisations.

Resecuritisation ban

• PRA and FCA propose to exempt the following resecuritisations from the ban:
  • The securitisation of the senior most securitisation positions.
  • The securitisation of securitisation positions which are constituted by one exposure and its related credit protection.

Risk retention

• Permit the use of L-shaped risk retention. The FCA noted that permitting L-shaped risk retention could provide manufacturers with additional flexibility by making it easier to issue in overseas markets where the investors are more likely to be familiar with this modality of risk retention.

Scope of the rules

The FCA notes that there may be value in further exemptions/differentiated treatment for certain types of securitisation, and has asked for views on each of these areas:

• • CLOs
  • Whole Business Securitisations (WBS)
  • Correlation Trading Portfolios (CTO)

In parallel, the Prudential Regulation Authority (PRA) has also published a consultation with similar proposals that would affect firms authorised by the PRA. The FCA noted that they have sought to ensure coherence with the PRA’s rules. 

The deadline for responses is 18 May and final rules are expected in H2 2026.