HMT Consults on Securitization Rule, Replies to IFPR and CRR Proposals

Article 46 of the Securitization Regulation places a legal obligation on HM Treasury to review functioning of the Securitization Regulation and lay a report in Parliament by January 01, 2022. This call for evidence covers the following key areas that HM Treasury must assess in this review obligation:

• Effects of the Securitization Regulation. HM Treasury seeks responses on the effects of Securitization Regulation on the functioning of the securitization market, the contribution of securitization to the real economy (in particular on access to credit for Small and Medium-sized Enterprises and investments), and the interconnectedness between financial institutions and stability of the financial sector.
• Risk retention modalities. HM Treasury invites responses on certain questions to support it in ascertaining whether the risk retention modalities remain appropriate and related to the ongoing PRA consultation on the securitization of nonperforming loans.
• Disclosures related to private securitizations. HM Treasury would like to understand the drivers for increase in private securitizations, including the UK transactions listed outside the UK, and the consequences for the access by, and level of information disclosed to, investors.
• STS equivalence regime. HM Treasury seeks to understand views on the merits and risks of introducing an STS equivalence regime in the UK, on the potential considerations that HM Treasury must assess before making any equivalence determination, and on the features of any potential adaptation periods.
• ESG disclosures. HM Treasury would like to understand what underlying exposures the disclosure requirements for STS securitizations could usefully be expanded to and with what information and invites respondents’ views on broader ESG disclosures. HM Treasury also invites responses on how the Securitization Regulation can support the green finance objectives of the government in the near-term.
• The third-party verification regime. HM Treasury is required to assess the appropriateness of the third-party verification regime, whether the authorization regime for third parties fosters sufficient competition among third parties, and whether changes in the supervisory framework need to be introduced to ensure financial stability.
• Limited licensed banks. In this regard, HM Treasury is required to assess whether there is a need to complement the framework on securitization set out in Securitization Regulation by establishing a system of limited licensed banks, performing the functions of the Securitization Special Purpose Entity or SSPE, and having the exclusive right to purchase exposures from originators and sell claims backed by the purchased exposures to investors

The aim of the review of the Securitization Regulation includes supporting and developing securitization markets in the UK, including through the increased issuance of STS securitizations. This review is separate from the other securitization initiatives, including an ongoing PRA consultation on the securitization of nonperforming loans.

HM Treasury has also published responses to consultation on implementation of the Investment Firms Prudential Regime, or IFPR, and Basel III standards. The government received 12 responses to the consultation, which took place from February 04, 2021 to April 01, 2021. The government is changing its approach to implementation of some areas of Basel III standards, as explained in the response to consultation document. The UK government, FCA, and PRA announced their intention to target an implementation date of January 01, 2022 for the new Investment Firms Prudential Regime and the outstanding Basel III standards. The government intends to set out the relevant implementing secondary legislation on a timeline that provides institutions with adequate time to prepare ahead of the January 01, 2022 implementation date. 

Related Links

• Notification on Call for Evidence
• Call for Evidence (PDF)
• Notification on Response to Consultation
• Responses to Consultation (PDF)

Comment Due Date: September 02, 2021

Keywords: Europe, UK, Banking, Securities, Securitization Framework, ESG, Disclosures, Equivalence Regime, Investment Firms, IFPR, Basel, NPLs, Responses to Consultation, PRA, FCA, HM Treasury