On 1 January 2019 the EU Securitisation Regulation (Regulation (EU) 2017/2402) began to apply. The EU Securitisation Regulation:
- repealed the main securitisation provisions in sectoral legislation applicable to banks (the Capital Requirements Regulation, or "CRR"), insurers (Solvency II) and fund managers (the Alternative Investment Fund Managers Directive regime) and recast those provisions in a new, harmonised securitisation regime applicable to all institutional investors including UCITS and pension funds;
- as part of that harmonisation, makes risk retention and disclosure obligation applicable directly to sell side entities such as issuers (SSPEs), originators, sponsors and original lenders; and
- introduces a concept of "simple, transparent and standardised" (or "STS") securitisation into EU law and gives STS securitisations more favourable regulatory treatment compared to non-STS securitisations.
In addition to these high-level changes, the Securitisation Regulation legislative package introduced a number of other significant changes. These include a ban on resecuritisation, a ban on securitising self-certified residential mortgage loans originated after 21 March 2014 and formal restrictions on marketing securitisations to retail investors. It also introduces a much more punitive sanctions regime for non-compliance by originators, sponsors, original lenders and SSPEs than previously existed. Sanctions for non-compliance by institutional investors continue to be provided for under the sectoral prudential regimes applicable to them.
At the end of December 2020, the "UK Securitisation Regulation" or "UKSR", the onshored version of the EU Securitisation Regulation, began to take effect as part of domestic law of the United Kingdom. See the Current UK Regime: UK Securitisation Regulation section for more information.
In April 2021, the Capital Markets Recovery Package made amendments to the Securitisation Regulation to facilitate the securitisation of non-performing loans (NPLs) and to introduce STS for synthetic securitisations.
What's next?
EU: The EU Commission published its Article 46 report on the implementation of the Securitisation Regulation on 10 October 2022. See our client briefings EU Publishes Review of Securitisation Regulation (October 2022) and EU securitisation review: two months on (December 2022) for more information. On 18 October 2023, the risk retention regulatory technical standards (RTS) specifying in greater detail the risk retention requirements for originators, sponsors, original lenders, and servicers were published in the Official Journal and came into force on 7 November 2023. See our client briefing Changing times: Recent developments in the UK and EU securitisation regulatory frameworks for more information.
UK: The Securitisation Regulations 2024 (SI 2024/102) (the "SI") were made on 29 January 2024. The SI provides that upon the repeal of the current UK Securitisation Regulation pursuant to the Financial Services and Markets Act 2023 (FSMA 2023), the securitisation regulatory framework will be moved to a combination of the SI and the rulebooks of the regulators. Some provisions of the SI, such as those providing the regulators with rule- and policy-making powers under the new regime, came into force immediately, with the remainder coming into force on the "main commencement day" when the current UK Securitisation Regulation and related retained EU law is repealed and replaced by the new FCA and PRA rules. HM Treasury has indicated that one or more further statutory instruments will be laid to complete the framework. Notably absent from the SI (and therefore likely to be dealt with in one or more future statutory instruments) are provisions making due diligence rules for pension schemes, provisions relating to any consequential amendments and provisions dealing with waiver powers to be granted to the regulator(s) under s. 138BA of FSMA.
The PRA launched its consultation on implementing securitisation requirements in its rulebook on 27 July 2023, and the FCA launched its consultation on 7 August 2023. It is expected that the PRA and FCA will publish their final rules in March or April 2024, and that they will come into force between July and October 2024.
The Securitisation Regulations 2024 follow the enactment of the FSMA 2023, the key piece of legislation which implements the UK's post-Brexit regulatory framework for financial services, called the 'Smarter Regulatory Framework'. For more information on the FSMA 2023 generally, see the Financial Services and Markets Act 2023 Topic Guide. For more information on the draft version of the SI published in July 2023, see our client briefing Changing times: Recent developments in the UK and EU securitisation regulatory frameworks. For more information on the FCA and PRA consultations, see our client briefings UK FCA publishes securitisation consultation and PRA launches consultation on its proposals to replace retained EU Securitisation Regulation requirements. For more information on the FSMA 2023 generally, see the Financial Services and Markets Act 2023 Topic Guide.
NB see the 'UK Securitisation Regulation: legislation and official documentation' section below for legislation setting out the UK securitisation regime as it applies after Brexit.