EU legislation relating to securitisation is intended to make the European securitisation market work more effectively. Securitisation is an important part of the UK’s capital markets. We want to ensure that firms operating in the financial markets, and businesses in the real economy, have access to an appropriate range of funding tools and that disclosure to investors is adequate.
EU securitisation legislation came into effect on 1 January 2019.
As part of the Capital Markets Union action plan, the EU agreed 2 legislative measures. These are:
- a Securitisation Regulation which outlines general requirements for all securitisations (in the European Union) as well as the criteria and process for designating certain securitisations as Simple, Transparent and Standardised (STS)
- an amendment to the Capital Requirements Regulation (CRR) to make the capital treatment of securitisations for banks and investment firms more risk-sensitive. This includes new methods to calculate risk weights, and preferential treatment for STS securitisations meeting the criteria listed in the CRR amendment Article 243
For more information visit the European Commission webpage.
The relevant European Supervisory Authorities – the European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) – have developed technical standards to implement the detail of the legislation. These implementing technical standards (ITS) and regulatory technical standards (RTS) are at varying stages of adoption and entry into force.
On 31 January 2020, the UK exited the EU with a Withdrawal Agreement. The UK has now entered a transition period, which is due to last until 31 December 2020 under the terms of the Withdrawal Agreement. During the transition period, EU legislation, including securitisation legislation, will continue to apply in the UK.
Implementation of the EU regulation
We have consulted on and issued rules designed to implement the EU Securitisation Regulation, including certain changes necessary to take account of the UK’s exit from the EU:
- 1 August 2018 – Consultation Paper (CP18/22)
- 12 October 2018 – Consultation Paper (CP18/30)
- 19 December 2018 – Policy Statement (PS18/25)
- 6 June 2019 – Policy Statement (PS19/15)
Simple, Transparent and Standardised (STS) Securitisations
The framework for STS securitisations is designed to make it easier for investors to understand and assess the risks of a securitisation investment. It also affords preferential capital treatment for firms subject to CRR which are exposed to STS securitisations. Subject to meeting specified criteria under the Securitisation Regulation, securitising parties will be able to designate their securitisations as STS.
Although sponsors, originators and securitisation vehicles remain liable for their obligations under the Securitisation Regulation, they may – but are not obliged to – use the service of a Third Party Verifier (TPV) to assess compliance of a securitisation with the STS criteria. Our consultation paper (CP18/22) has more information on how prospective TPVs can apply to be regulated.
During the transition period, UK firms should continue to notify ESMA where a securitisation meets the STS requirements.
The Securitisation Regulations 2018 (SI 2018/1288) grant the FCA the power to direct the manner in which an originator or sponsor of a securitisation established in the United Kingdom must inform the FCA of an STS notification. The FCA has issued the following Direction.
Originators and sponsors are requested to use the email address [email protected] to inform the FCA under Article 27(4) of the Securitisation Regulation when a securitisation no longer meets the STS requirements.
Reporting private securitisations
The Securitisation Regulations 2018 grant the PRA and FCA powers to direct the manner in which the originator, sponsor or securitisation special purpose entity (SSPE) of a private securitisation established in the UK must make information under Article 7(1)(a) to (g) of the Securitisation Regulation available to them. A private securitisation is a securitisation where no prospectus has to be drawn up in compliance with Directive 2003/71/EC ('the Prospectus Directive').
On 31 January 2019, the FCA and PRA issued a final Direction. This Direction may be amended by the FCA or the PRA by further direction. The annex to this Direction includes the templates to be used for notifying the FCA and PRA.
Securitisation Repositories (SR)
During the transition period, EU securitisation legislation continues to apply in the UK, and originators, sponsors or SSPEs will be required to report their public securitisations to an SR registered by ESMA, once ESMA has registered an SR.
At the end of the transition period, the UK Securitisation Regulation (the EU Securitisation Regulation as amended by The Securitisation (Amendment) (EU Exit) Regulations 2019) will transfer the powers to register and supervise UK SRs from ESMA to the FCA. From that point onwards, public securitisations within the scope of the Regulation must be reported to a UK SR, once a UK SR is available. In order to become a UK SR, firms will need to submit an application for registration to us.
To ensure a smooth transition in the reporting of public securitisations, we will shortly be publishing a draft application form which can be used by prospective UK SRs to submit a draft application for registration to the FCA before the end of the transition period. This should facilitate prospective UK SRs being registered by us and operational as soon as possible after the end of the transition period, provided they meet the conditions for registration under the UK Securitisation Regulation.