PRA Amends Policy on Significant Risk Transfer for Securitizations
PRA published the policy statement PS17/20, which updates the supervisory statement SS9/13 on the significant risk transfer for securitization transactions. PS17/20 will take effect on its publication. Chapter 8 of the occasional consultation paper CP3/20, which was published in March 2020, covered proposal for the update of SS9/13; the proposal in this chapter had set out to clarify that non-sequential amortization features constitute complex features in the significant risk transfer transactions. PRA received no responses to this chapter of CP3/20 and has, therefore, not amended the draft policy. PS17/20 is relevant to the Capital Requirements Regulation firms.
SS9/13 supplements the rules in the Benchmarking of Internal Approaches and Credit Risk Part of the PRA Rulebook. According to the updated supervisory statement, PRA does not operate a pre-approval process for securitization transactions. Nevertheless, it expects a firm to discuss with its supervisor, at an early stage, the securitization transactions that are material or have complex features, including any non-sequential amortization. Where a firm claims a regulatory capital reduction from securitization transactions in its disclosures to the market, PRA expects such disclosures to include caveats making clear the risk of full or partial re-characterization where this risk is material in the light of the stated policy of PRA.
PRA also announced that it will publish the feedback and the final policy for Chapters 2 to 7 of CP3/20 at a later date, as responses received to the consultation are still being considered. Furthermore, the policy set out in PS17/20 has been designed in the context of withdrawal of UK from EU and entry into the transition period, during which time UK remains subject to European law. PRA will keep the policy under review to assess whether any changes would be required due to changes in the UK regulatory framework at the end of the transition period, including those arising once any new arrangements with EU take effect. PRA has assessed that the policy would not need to be amended under the EU (Withdrawal) Act 2018.
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Effective Date: July 22, 2020
Keywords: Europe, UK, Banking, CRR, Securitization, CP3/20, Significant Risk Transfer, PS17/20, SS9/13, Basel, PRA
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