On August 7, the Financial Conduct Authority (FCA) released a consultation paper (CP) outlining proposed amendments to the UK Securitisation Regulation (UK SR). The proposals reflect the mandate given to the FCA within the HM Treasury (HMT) draft Statutory Instrument (SI) to create new rules for due diligence, retention, reporting and other key elements to improve the UK securitisation market. Key proposals include:

Due diligence requirements for institutional investors

• A principles-based and proportionate approach on verifying disclosure by UK manufacturers and disclosure by overseas manufacturers whereby UK institutional investors would instead need to verify:
  • The sufficiency of the information a manufacturer has made available to enable them to assess the risk of holding the securitisation position;
  • They have received at least the information listed in the rules; and
  • There is a commitment from the manufacturers to make further information continually available, as appropriate.

Non-performing exposure (NPE) securitisations and risk retention

• The CP proposes changing the risk retention requirement for NPE securitisations by calculating the requirement based on the net value of the defaulted portfolio at the securitisation date. This would involve using a non-refundable purchase price discount (NRPPD) for NPEs in the calculation.

Defining public and private securitisations

• The CP indicates that the FCA is considering more proportionate reporting requirements for private securitisations suggests different ways to distinguish between public and private securitisations:
  1. Expand the definition of public securitisations to encompass all securitisations that are publicly distributed to investors.
  2. Define "truly" private securitisations and consider all other securitisations as public. "Truly" private transactions could be characterised as arrangements where investors have direct and exclusive access to information from the manufacturers, including intragroup and bilateral transactions.
  3. Introduce three categories - public securitisations, truly private securitisations, and others (similar to the current private securitisation category). Disclosure/reporting requirements could be tailored to the specific characteristics of each transaction.

STS notification and homogeneity

• The proposals seek to clarify that a securitisation meeting all STS criteria only requires notification to the regulator at the originator / sponsor’s request.
• To avoid limiting the use of the STS label, the proposals aim to clarify the condition for homogeneity in the UK SR by allowing loans to be serviced either by the SSPE or the originator.

Comments are requested by 30 October 2023.  Please contact Nicholas Smith ([email protected]) if you have any questions.