UK Securitisation Framework | Final Rules

On 30 April 2024, the FCA and the PRA published their respective policy statements (PS24/4 by the FCA and PS7/24 by the PRA) in response to feedback received on their proposed draft rules on securitisations, which were presented in 2023 (CP23/17 and CP15/23).

The new UK securitisation framework repeals and replaces retained EU law in the UK, as part of the wider post-Brexit programme. Market participants now need to read the FCA and PRA rules together with the Securitisation Regulations 2024 (as amended), as these comprise the new UK securitisation framework.

Although the framework is new, the rules share many similarities with those of the EU Securitisation Regulation (2017/2402/EU) as currently adopted in the UK. Changes took effect from 1 November 2024.

Key Changes
The publication of PS24/4 by the FCA and PS7/24 by the PRA indicate the regulators’ broad acknowledgment and endorsement of feedback received in relation to CP23/17 and CP15/23. Some of the key changes introduced are the following:
•            Clarification regarding geographic scope: the rules apply to UK-established entities.
•            Clarification regarding ‘pricing’ and timing of disclosure/due diligence obligations: the regulators have addressed issues which were raised with respect to the timing of disclosure and due diligence obligations prior to ‘pricing’. The new framework has adjusted the disclosure and due diligence requirements so that they now need to occur before pricing or a “commitment to invest”, providing for a broader timeframe.
•            Delegation of due diligence requirements: the regulators have clarified the circumstances in which institutional investors can delegate their due diligence responsibilities; a key point being that a UK institutional investor that delegates their due diligence responsibilities remains responsible for any failure of the delegated entity, unless the delegated entity is a UK institutional investor regulated by the FCA or PRA.
•            Risk retention of an entity’s own debt: the regulators have clarified that the risk retention requirements are complied with in the context of a securitisation of an entity’s own debt.
•            Clarification of hedging prohibitions: the new rules permit hedging, prior to a securitisation, for purposes of risk management, provided that such hedging does create a difference (for the retainer’s benefit) between the exposures retained by it and the exposures transferred to investors.a