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    HM Treasury Issues Update on Review of Securitization Regulation

    December 13, 2021

    Her Majesty's (HM) Treasury published a report on responses to the call for evidence that was intended to inform the review of the Securitization Regulation in UK. Responses to the call for evidence were considered in the review, on which a report has been laid before UK Parliament ahead of a statutory deadline of January 01, 022. HM Treasury, working with the financial services regulators—the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA)—will take forward the work on a number of areas within the Securitization Regulation to deliver the aims of the review.

    The overarching aims of the review of the Securitization Regulation are to bolster securitization standards in the UK and to support and develop securitization markets in the UK, including through the increased issuance of simple, transparent, and standardized (STS) securitizationsThe government had sought views on how the securitization market in UK is performing and how the Securitization Regulation can be tailored to the UK. The consolation consultation ran for 10 weeks, from June 24, 2021 to September 02, 2021. The report notes that it is challenging to definitively draw conclusions on the effect of the Securitization Regulation on the functioning of the UK securitization market. The Securitization Regulation has only applied in the UK since 2019. During this time, unique external factors, like the COVID-19 pandemic, have disrupted financial markets and made it difficult to assess the effects of the Securitization Regulation. Nevertheless, there are signs that the Securitization Regulation has increased the transparency and robustness of the UK securitization market, which were key aims of the Regulation. However, there are indications that the Securitization Regulation has not boosted securitization issuance or broadened the investor base as much as it could have. Overall, HM Treasury continues to support the Securitization Regulation, in particular noting the importance of preserving confidence in the STS framework. Although there are some areas of the Regulation that may benefit from targeted and appropriate refinement. HM Treasury and the financial services regulators will continue to monitor the market.

    The report outlines specific areas of the Securitization Regulation that HM Treasury considers may be usefully re-visited to ensure it best delivers for the UK securitization market. It notes the issues and suggestions related to disclosure requirements raised by respondents to the call for evidence. HM Treasury recognizes that work is needed on the disclosure requirements, especially to assess the distinction between different types of securitizations (that is, whether they are public or private) and to consider whether the disclosure requirements for certain private securitizations are appropriate. HM Treasury will also consider amending or clarifying some of the jurisdictional scope matters related to the Securitization Regulation that were raised. This includes scoping out certain unauthorized, non-UK Alternative Investment Fund Managers (AIFMs) from the Regulation’s definition of institutional investor and clarifying due diligence requirements for investors when they invest in non-UK securitizations. HM Treasury also agrees with respondents that an STS equivalence framework, under which future equivalence determinations could be made, should be introduced. Further areas. where HM Treasury, working with the regulators, will consider whether changes are appropriate include revisions to risk retention requirements and exploring expanding disclosure templates to require more information about a securitization's environmental, social, and governance impact.

    The report concludes that no changes are currently needed to the Securitization Regulation relating to Third Party Verifiers (TPVs) or Securitization Special Purpose Entities (SSPEs) because neither of these elements of the regime raised major concerns. Finally, the report covers the prudential treatment of securitization (that is, capital and liquidity requirements) within regulatory regimes for banks, building societies, and insurance firms. This is not directly in scope of the review because the requirements sit outside the Securitization Regulation. However, considering the high interest in this topic from respondents to the call for evidence, HM Treasury and PRA will consider certain points related to the prudential treatment of securitizations in due course.

     

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    Keywords: Europe, UK, Banking, Insurance, Securities, Securitization Regulation, STS Securitization, Securitization, AIFMs, PRA, FCA, HM Treasury

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