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- repealed the main securitisation provisions in sectoral legislation applicable to banks (the Capital Requirements Regulation, or "CRR"), insurers (Solvency II) and fund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.
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 7 July 2023, the European Commission adopted the final draft of the risk retention regulatory technical standards (RTS) specifying in greater detail the risk retention requirements for originators, sponsors, original lenders, and servicers, almost five years after the European Banking Authority (EBA) first published a final draft of the RTS in July 2018. The draft RTS is now subject to an objection period following which, the 2023 RTS are expected to be published in the Official Journal in Q4 2023 or Q1 2024 and will come into force on the 20th day following its publication. See our client briefing Changing times: Recent developments in the UK and EU securitisation regulatory frameworks for more information.
UK: On 11 July 2023, HM Treasury published a Securitisation Regulations 2023 Policy Note and near-final draft SI, which is expected to be enacted by end-2023. The draft SI provides for the repeal of the current UK securitisation framework, moving much of the detailed rules from primary legislation to the rulebooks of the regulators. 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. The implementation date for the new rules is expected to be Q2 2024, subject to the progress of the draft Securitisation Regulations 2023. HM Treasury may lay a further statutory instrument for any consequential amendments which need to be made.
The draft SI follows the enactment of the Financial Services and Markets Act 2023 (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 draft SI, 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.
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.
