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    PRA Finalizes Policy for Non-Performing Exposure Securitizations

    October 21, 2021

    The Prudential Regulation Authority (PRA) published the final Policy Statement PS24/21 that contains the new Non-Performing Exposures Securitization Part of the PRA Rulebook and an updated Supervisory Statement SS10/18 on the general requirements and capital framework with respect to securitizations. The rules set out the approach for the calculation of risk-weighted assets for non-performing exposure securitizations. PS24/21 also provides feedback to the responses to the consultation paper CP10/21 on the implementation of non-performing loan securitizations. The updated SS10/18 as well as the rules for calculating capital requirements on exposures to the non-performing exposure securitizations will take effect from January 01, 2022. These will take effect in conjunction with any consequential amendments to the Capital Requirements Regulation (CRR) by Her Majesty's Treasury.

    Post the consultation feedback, PRA has made one change to the draft rules in CP10/21. The definition for non-performing exposure securitization within the draft rules has been amended such that the words "or any other relevant reason" are excluded from the definition. The definition now reads "NPE securitization means a securitization backed by a pool of non-performing exposures the nominal value of which makes up not less than 90% of the entire pool’s nominal value at the time of origination and at any later time where assets are added to or removed from the underlying pool due to replenishment or restructuring." PRA considers that while amending the definition of NPE securitizations is a small deviation from the standards recommended by the Basel Committee, the amended definition is consistent with the relative standing of the UK and the competitiveness of the UK while also better supporting finance to the real economy. PRA considers that this change will reduce uncertainty, will not have a significant impact on firms and will not have a significantly different impact on mutuals than for other firms. 

    PRA has also made minor changes to SS10/18 to reflect the withdrawal of the United Kingdom from the European Union and to improve clarity of drafting. When making Capital Requirements Regulation (CRR) rules, PRA must consider, and publish an explanation of, the ways in which PRA has had regard to the additional matters and how the additional "have regards" have affected the proposed rules. In CP10/21, PRA had set out this explanation in Chapter 3 and in PS24/21 it has provided an updated explanation of the "have regards" to take into account the consultation responses. PRA will keep this policy under review and welcome additional submission of evidence from firms regarding the nonperforming exposure securitizations. PS24/21 is relevant to UK banks, building societies, PRA-designated investment firms, the UK financial holding companies, and the UK mixed financial holding companies of certain PRA-authorized firms. 

     

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    Effective Date: January 01, 2022

    Keywords: Europe, UK, Banking, Non-Performing Exposures, Securitization, SS 10/18, PRA Rulebook, NPLs, Regulatory Capital, Credit Risk, Basel, PRA

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