Changes to Securitisation Regulations explained

Although the rules applicable pre-November remain largely intact, there are changes that need to be considered, both legal and practical, such as:

• The rules are now laid out in the FCA and PRA handbook which although will lead to duplication may be easier to digest and understand than the variety of primary and secondary legislation that the old rules relied upon. There will be some divergence between the FCA and PRA rules however, so differing interpretations may result.
• Due diligence requirements have been clarified, such that UK investors are now no longer required to verify that the originator, sponsor or SSPE are producing the necessary reporting requirements on the provided templates. A further changes means that it is no longer the obligation for investors to check that overseas originators, sponsors and SSPEs will use UK specified templates, as long as they have made and are committed to make certain information available at the specified frequencies.
• The sole purpose test is slightly different to the EU’s version, with each limb being a factor to take into account rather than a mandatory requirement to comply with. How the originator meets this test must also be communicated in the transaction prospectus or summary.
• The obligation to provide documentation must be made available “before pricing or original commitment to invest in draft or initial form”, addressing the lack of pricing in a private securitisation.
• The STS criteria will be set out in the FCA handbook only and is possible to attain even if only the originator or sponsor are established in the UK. This differs from the EU, which requires that the originator, sponsor and SSPE are established in the EU.

Following the imposition of the new rules, the FCA and PRA intend to consult in respect of additional amendments to the rules in the later quarter of 2024 and first quarter of 2025. The above is a brief outline of the changes, but in no way replaces seeking specific legal advice. The Banking team at Blake Morgan can assist with your queries.