Securitisation: updated legislation for 1 January 2019

The European Commission has passed legislation which is intended to make the European securitisation market work more effectively. Securitisation is an important part of the UK’s capital market. We want to ensure that financial market firms and businesses in the real economy have access to an appropriate range of funding tools and that disclosure to investors is adequate.

The new legislation will apply from 1 January 2019.

As part of the Capital Markets Union action plan, the Commission proposed 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 – European Banking Authority (EBA) and European Securities and Markets Authority (ESMA) – are currently developing technical standards to allow implementation of this legislation.

See our Consultation Paper (CP18/30) on how we propose to amend the Decision Procedures and Penalties Manual (DEPP) and Enforcement Guide (EG) to reflect the changes introduced by the EU Securitisation Regulation and by HMT intending to lay an implementing SI before Parliament.

Simple, Transparent and Standardised (STS) Securitisations

The Securitisation Regulation aims at making the securitisation market work more effectively. 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 from 1 January 2019.

For more information, visit the European Commission webpage.

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 Verification agent (TPV) to check whether a securitisation meets the STS criteria. See our Consultation Paper (CP18/22) on TPVs for more information on them and how they apply to be regulated.