Global Regulatory Brief: Trading and markets, September edition | Insights | Bloomberg Professional Services

UK FCA consults on securitization rules

The UK FCA has set out its proposed rules for the UK securitization markets as part of the repeal and replace process when it comes to retained EU law. 

Intended outcomes: Through its proposed changes, the UK is looking to make its securitization rules more proportionate, to remove barriers to the issuance of and investment in securitization, to maintain appropriate protections for investors, and provide a clearer framework within which the market can operate. 

Background context: Securitization is the process of bundling together loans and other debt instruments such as residential mortgages or auto loans and distributing the risk associated with these loans and debt instruments using a variety of investments that offer different tranches of exposures to investors. 

• As such, securitization is an important tool for UK banks and non-bank lenders to help fund and mitigate the credit risks of lending to companies and households.

The big picture: The EU Securitization Regulation (EU SR) came into effect in January 2019 and was replaced, in the UK, by the UK SR at the end of the Brexit transition period on December 31, 2020. 

• The EU SR and UK SR aim to address harms identified following the Global Financial Crisis such as inadequate disclosure and misalignment of interests between manufacturers and investors. 
• The UK has identified three main areas for policy change, the disclosure regime, due diligence obligations, and risk retention requirements. 

Next steps: The consultation runs until October 30, 2023. The FCA does not expect the need for a long implementation period because the proposals do not involve any changes to reporting templates (which would in turn involve systems changes) and transparency requirements more generally. As such, the implementation date is expected to be in Q2 2024.