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 markets. 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 legislation came into effect on 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.
We have consulted on 3 separate occasions on our proposed amendments and have now issued a policy statement outlining our approach to the implementation of the changes. A timeline of the process:
1 August 2018 – Consultation Paper (CP18/22)
12 October 2018 – Consultation Paper (CP18/30)
19 December 2018 – Policy Statement (PS18/25)
11 March 2019 - Consultation Paper (CP19/11)
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.
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 Verifier (TPV) to check whether a securitisation meets the STS criteria. See our Consultation Paper (CP18/22) for more information on how prospective TPVs can apply to be regulated.
The Securitisation Regulations 2018 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] for informing the FCA under Article 27(4) of the EU Securitisation Regulation when a securitisation no longer meets the STS requirements.
Submitting private data
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 United Kingdom must make information under Article 7(1)(a) to (g) of the EU Securitisation Regulation 2017 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”).
The FCA and PRA have now issued the following Direction. This direction may be amended by the FCA or the PRA by further direction.