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    FCA Publishes Near Final Rules Implementing Securitization Regulation

    June 06, 2019

    FCA published a policy statement (PS19/15) that outlines the near final rules applying FCA’s existing supervisory and enforcement processes to securitization repositories when UK leaves EU. It also sets out the final rules in respect of additional enforcement powers under the Securitization Regulations 2018. PS19/15 follows the consultation paper CP19/11, in addition to an earlier consultation paper (CP18/30) and policy statement (PS18/25) on securitization. CP19/11 had proposed changes to the Decision Procedure and Penalties Manual (DEPP) and the Enforcement Guide (EG) that reflect new responsibilities of FCA over securitization repositories.

  • The information to be provided by a third party seeking authorization to assess the compliance of securitizations with the STS criteria provided for in Securitization Regulation should enable a competent authority to evaluate whether and, to what extent, the applicant meets the conditions of Article 28(1) of the Securitization Regulation. An authorized third party will be able to provide STS assessment services across EU. The application for authorization should, therefore, comprehensively identify that third party, any group to which this third party belongs, and the scope of its activities. With regard to the STS assessment services to be provided, the application should include the envisaged scope of the services to be provided as well as their geographical scope, particularly the following:

    • To facilitate effective use of the authorization resources of a competent authority, each application for authorization should include a table clearly identifying each submitted document and its relevance to the conditions that must be met for authorization.
    • To enable the competent authority to assess whether the fees charged by the third party are non-discriminatory and are sufficient and appropriate to cover the costs for the provision of the STS assessment services, as required by Article 28(1)(a) of Securitization Regulation, the third party should provide comprehensive information on pricing policies, pricing criteria, fee structures, and fee schedules.
    • To enable the competent authority to assess whether the third party is able to ensure the integrity and independence of the STS assessment process, that third party should provide information on the structure of those internal controls. Furthermore, the third party should provide comprehensive information on the composition of the management body and on the qualifications and repute of each of its members.
    • To enable the competent authority to assess whether the third party has sufficient operational safeguards and internal processes to assess STS compliance, the third party should provide information on its procedures relating to the required qualification of its staff. The third party should also demonstrate that its STS assessment methodology is sensitive to the type of securitization and that specifies separate procedures and safeguards for asset-backed commercial paper (ABCP) transactions/programs and non-ABCP securitizations.

    The use of outsourcing arrangements and a reliance on the use of external experts can raise concerns about the robustness of operational safeguards and internal processes. The application should, therefore, contain specific information about the nature and scope of any such outsourcing arrangements or use of external experts as well as the third party's governance over those arrangements. Regulation (EU) 2019/885 is based on the draft regulatory technical standards submitted by ESMA to EC.

     

    Related Links

    Effective Date: June 18, 2019

    Press Release
  • Proposed Rule 1
  • Proposed Rule 2
  • Proposed Rule 3
  • Presentation on Regulatory Framework (PDF)
  • Presentation on Resolution Plan Rules (PDF)
  • ESMA regulates the securitization repositories in EU. However, post Brexit, the Treasury intends to transfer responsibility for regulating securitization repositories to FCA. To this end, the Treasury has laid, before Parliament, the Securitization (Amendment) (EU Exit) Regulations 2019 (Exit Statutory Instrument or Exit SI). FCA has published these near final rules to implement the Exit SI. These rules will be made final when the Exit SI comes into force once UK leaves EU. FCA has also published final rules in respect of minor amendments to DEPP and EG resulting from new enforcement powers granted to FCA under the Securitization Regulations 2018 (2018 Regulations). This follows CP18/30 and PS18/25, wherein FCA consulted on and laid out rules in respect of the draft Statutory Instrument. The final rules resulting from new enforcement powers granted under the 2018 Regulations will come into force immediately.

    FCA received one formal response to CP19/11 and the respondent supported the overall approach. As a result, the final and near-final rules are the same as those consulted on in consultation papers, except for some minor amendments to clarify decision-making procedures and update references to the legal instruments. The legal instrument and draft legal instrument accompanying PS19/15 contain the final and near-final rules, including:

    • Changes arising from the Exit SI—FCA is making changes to DEPP and EG to enable it to apply existing enforcement processes in its new role as regulator of securitization repositories. FCA will apply its existing enforcement processes in the exercise of disciplinary and investigatory powers. FCA will apply a decision-making procedure for registering or withdrawing the registration of securitization repositories.
    • Changes arising from the 2018 Regulations—FCA is creating decision-making procedures for imposing a suspension, condition or limitation on an individual for a breach of a requirement imposed by or under the 2018 Regulations. FCA is also creating decision-making procedures for imposing a suspension, limitation or other restrictions on an authorized person for a breach of a requirement imposed by or under the 2018 Regulations.

     

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    Keywords: Europe, EU, UK, Banking, Securities, Securitization Regulation, Securitization Repositories, CP19/11, Brexit, PS19/15, FCA, ESMA

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