PS7/24 – Securitisation: General requirements

1: Overview

1.1 This Prudential Regulation Authority (PRA) policy statement (PS) provides feedback to responses the PRA received to consultation paper (CP) 15/23 – Securitisation: General requirements. It also contains the PRA’s final policy, as follows:

• a new Securitisation Part of the PRA Rulebook (together with consequential amendments to the Liquidity Coverage Ratio (CRR) Part and the Non-Performing; Exposures Securitisation (CRR) Part of the PRA Rulebook) (Appendices 1 and 2); and
• an updated PRA supervisory statement (SS) 10/18 – Securitisation: General requirements and capital framework (Appendix 3).

1.2 This PS is relevant to all categories of PRA-authorised persons who are established in the UK, including CRR firms, Solvency II firms, non-CRR firms, and non-Solvency II firms. It is also relevant to qualifying parent undertakings, which for this purpose comprise financial holding companies and mixed financial holding companies, as well as credit institutions, investment firms, and financial institutions that are subsidiaries of these firms. It is not relevant to non-UK firms with branches in the UK.

Background

1.3 CP15/23 set out the PRA’s proposed rules to replace assimilated EU law requirements in:

• provisions of the Securitisation Regulation for which the PRA has supervisory responsibility;
• the related Risk Retention Technical Standards; and
• the related Disclosure Technical Standards.

1.4 The PRA’s proposed approach was to largely preserve the relevant requirements in the Securitisation Regulation, the Risk Retention Technical Standards, and the Disclosure Technical Standards when transferring them into PRA rules. However, the PRA also proposed the following targeted changes to these requirements to address known existing issues:

• clarification that all PRA-authorised manufacturers in securitisations which are established in the UK are subject to the relevant requirements, and a related adjustment to the scope of certain supervisory expectations in SS10/18;
• a more principles-based approach to due diligence obligations on PRA-authorised institutional investors in relation to what disclosures are made by manufacturers;
• clarification that in certain circumstances where an institutional investor instructs a managing party to fulfil any of its due diligence obligations, only the managing party and not the delegating party would be responsible for the failure to comply with the relevant obligation;
• changes to risk retention requirements in relation to non-performing exposures (NPE) securitisations and other smaller changes to risk retention requirements; and
• clarification of timelines for manufacturers making available certain information.

1.5 The PRA also consulted on a draft Statement of Policy (SoP) - Permission for resecuritisations, indicating that the PRA would usually envisage using section 138BA of the Financial Services and Markets Act 2000 (FSMA) to grant permissions for resecuritisations only in circumstances broadly similar to those in which the PRA could grant permissions for resecuritisations under the Securitisation Regulation.

1.6 CP15/23 also included a chapter addressing the PRA’s and the Financial Conduct Authority’s (FCA) ongoing review of the transparency requirements for securitisation. This sought views and evidence from respondents on the distinction between public and private securitisations and the associated disclosure templates, but did not put forward any policy proposals.

1.7 CP15/23 was published broadly in parallel with the FCA CP23/17 – Rules relating to Securitisation on replacing relevant firm-facing provisions in the Securitisation Regulation and related technical standards with FCA rules. Accordingly, this PS could be read alongside the FCA’s PS 24/4 – Rules Relating to Securitisation. The Securitisation Regulations 2024 and the (draft) Securitisation (Amendment) Regulations 2024 will restate some provisions of the Securitisation Regulation in legislation, while other provisions in the Securitisation Regulation will be repealed and replaced with PRA or FCA rules (or fall away). This PS could therefore also be read alongside the Securitisation Regulations 2024 and the (draft) Securitisation (Amendment) Regulations 2024.

1.8 In determining its policy, the PRA considers representations received in response to consultation, publishing an account of them and the PRA’s response (‘feedback’). Details of any significant changes are also published. In this PS, the ‘Summary of responses’ of this chapter contains a general account of the representations made in response to the CP and Chapter 2 on ‘Feedback to responses and related changes to the policy package’ contains the PRA’s feedback.

1.9 In carrying out its policy making functions, the PRA is required to have regard to various matters. In CP15/23 the PRA explained how it had regard to the most relevant of these matters in relation to the proposed policy. The ‘Changes to draft policy’ section of this chapter refers and adds to that explanation, taking into account consultation responses where relevant. Chapter 2 on ‘Feedback to responses and related changes to the policy package’ and Chapter 3 on ‘Other changes to the policy package’ provide further details.

Summary of responses

1.10 The PRA received seven responses^{footnote [1]} to CP15/23 before the consultation closed.^{footnote [2]} Four of them related to both CP15/23 and the FCA CP23/17, and the PRA’s focus was on those parts of the responses that were relevant to CP15/23.^{footnote [3]}

1.11 The responses were largely supportive of the policy changes proposed in CP15/23. However, respondents also requested a number of changes and clarifications relevant to the policy changes. These included, for example, requests for:

• a delay to the implementation date;
• transitional provisions in relation to securitisations subject to the Securitisation Regulation which were set up prior to the implementation of the proposed new rules (‘pre-transfer securitisations’);
• better alignment between FCA and PRA rules drafting;
• clarification of the status of recitals and EU non-legislative materials;
• clarification that it is possible for a UK institutional investor to delegate its due diligence to another investor, which is not an ‘institutional investor’ as defined for purposes of the Securitisation Part of the PRA Rulebook;
• clarification of the interaction between transparency requirements and requirements relating to confidentiality and processing of personal data; and
• fine-tuning of the new due diligence and transparency rules.

1.12 We provide an overview of changes made in response to these comments in the section on ‘Changes to draft policy’ below.

1.13 The responses also included comments on the chapter of CP15/23 addressing the regulators’ ongoing review of the transparency requirements for securitisation. These comments will inform this review and potential future policy development.

1.14 The responses also included many other comments that did not specifically relate to the policy changes proposed in CP15/23. The vast majority of these comments would also be relevant to the original text of the relevant provisions of the Securitisation Regulation and related technical standards, which for the most part we proposed and have now decided to maintain. These responses may inform the PRA’s policy making in the future. (Please also refer to the section on ‘Implementation and next steps’ below).

1.15 Further details of the issues raised in the responses are set out in Chapter 2.

Changes to draft policy

1.16 In reaching its final policy, the PRA considers how the policy can best advance the PRA objectives and significant matters that the PRA has regard to.

1.17 The PRA considers it appropriate to make some adjustments to the policy package consulted on in CP15/23, of which the below are the most material:

• allowing for a 6-months period between publication of this PS and the implementation date for the new rules and revised SS10/18;
• adding transitional provisions for pre-transfer securitisations to largely preserve their treatment under the Securitisation Regulation and related technical standards;
• better aligning PRA and FCA rule drafting;
• clarifying the meaning of ‘before pricing’ in the due diligence and transparency requirements;
• adjustments to the due diligence requirements for secondary market investors in relation to what disclosures are made by manufacturers;
• clarifying that it is possible for a UK institutional investor to delegate its due diligence to another investor, which is not an ‘institutional investor’ as defined for purposes of the Securitisation Part of the PRA Rulebook, in which case the UK institutional investor retains the responsibility for compliance with the due diligence requirements;
• clarifying that firms may comply, as before, with the transparency requirements by disclosing data only in aggregated or anonymised form (or in relation to underlying documentation, as a summary) in circumstances where UK law relating to confidentiality and/or processing of personal data or any confidentiality obligation relating to customer, original lender or debtor information do not allow more ‘granular’ disclosures;
• clarifying the prohibition on hedging of the material net interest required to be retained under the risk retention requirements;
• clarifying that there is no need for risk retention in relation to securitisations of own liabilities (eg own issued covered bonds); and
• not proceeding with the draft SoP – Permission for resecuritisations.

1.18 These and other more minor changes are discussed in more detail either in Chapter 2 or Chapter 3 of this PS, depending on whether they have been made in light of the responses received or for other reasons.

1.19 Where the final rules differ from the draft in the CP in a way which is, in the opinion of the PRA, significant, FSMA^{footnote [4]} requires the PRA to publish:

• details of the differences together with an updated cost benefit analysis; and
• a statement setting out in the PRA’s opinion, whether or not the impact of the final rules on mutuals is significantly different to: the impact that the draft rule would have had on mutuals; or the impact that the final rule will have on other PRA-authorised firms.

1.20 The cost benefit analysis in CP15/23 noted that to the extent the proposed rules preserve relevant requirements in the Securitisation Regulation (and related technical standards), they would not result in additional benefits or costs. The cost benefit analysis also assessed the impacts of the targeted changes to these requirements consulted on in CP15/23. The adjustments to the policy package set out above have the following limited impact on this cost benefit analysis:

• The PRA considers that the transitional provisions for pre-transfer securitisations could save participants in pre-transfer securitisations adjustment costs associated with transitioning to the new rules. However, the transitional provisions could also result in a loss of the benefits of the policy changes proposed in CP15/23 in relation to pre-transfer securitisations. The PRA considers that these benefits are more limited in relation to pre-transfer securitisations than in relation to post-transfer securitisations. This is because there is limited scope for market participants in pre-transfer securitisations to benefit from changed requirements.
• The PRA considers that the other smaller changes are likely to reduce compliance costs for firms by giving them more time to adjust, clarifying the applicable requirements or providing for slightly more proportionate treatment.

1.21 The PRA does not consider that the impact of the final rules on mutuals would be significantly different to the impact on other authorised firms. The above considerations relating to the impact of the final rules relative to the impact of the draft rules are relevant also to mutuals.

1.22 When making rules, the PRA is required to comply with several legal obligations. At the consultation stage, in CP15/23, the PRA published an explanation of its reasons for believing that making the proposed rules is compatible with its objectives and with its duty to have regard to the regulatory principles.^{footnote [5]} The PRA considers that the responses provided and the changes to the policy package set out above do not materially affect the objectives or have regards analysis in CP15/23. This is because, consistent with CP15/23, the final rules largely preserve relevant requirements in the Securitisation Regulation and related technical standards. However, the PRA notes that:

• The transitional provisions for pre-transfer securitisations reduce the scope of securitisations to which the policy changes in CP15/23 and the related objectives and have regards analysis apply. The transitional provisions could, however, enhance the proportionality of the final rules as participants in pre-transfer securitisations would not need to incur costs to adjust to the new requirements. In reaching the decision to add the transitional provisions, the PRA also had regard to the approach to this issue taken in the FCA rules and the Securitisation Regulations 2024 (as due to be amended by the (draft) Securitisation (Amendment) Regulations 2024) and the coherence of the overall securitisation regulatory framework.
• The other, smaller changes could contribute to proportionality and help to avoid potential small negative impacts on international competitiveness.

Implementation and next steps

1.23 The changes resulting from this PS will come into force on 1 November 2024, subject to the revocation of the Securitisation Regulation and related technical standards. The changes include the new Securitisation Part of the PRA Rulebook (and consequential amendments to the Liquidity Coverage Ratio (CRR) Part and the Non-Performing Exposures Securitisation (CRR) Part of the PRA Rulebook) and the updates to SS10/18.

1.24 The commencement order has not been made to revoke the Securitisation Regulation and related technical standards. HMT anticipates making this commencement order later this year once the draft Securitisation (Amendment) Regulations 2024 have been approved by Parliament. The PRA will delay or revoke these rules if the commencement order is not made.

1.25 As stated in the Regulatory Initiatives Grid, the FCA and PRA expect to consult on further changes to their securitisation rules in Q4 2024/Q1 2025, although timings are potentially subject to change.

1.26 References related to the UK’s membership of the EU in the SS10/18 covered by the policy in this PS have been updated as part of this PS to reflect the UK’s withdrawal from the EU. Unless otherwise stated, any remaining references to EU or EU-derived legislation refer to the version of that legislation which forms part of assimilated law.^{footnote [6]}

2: Feedback to responses and related changes to the policy package

2.1 Before making any proposed rules, the PRA is required by FSMA to have regard to any representations made to it in response to the consultation, and to publish an account, in general terms, of those representations and its feedback to them.^{footnote [7]}

2.2 The PRA has considered the representations received in response to the CP. This chapter sets out the PRA’s feedback to those responses, and its final decisions.

2.3 In light of the feedback received, the sections below have been structured thematically as follows:

• general considerations;
• due diligence requirements;
• risk retention requirements;
• transparency requirements;
• credit granting standards; and
• restrictions on resecuritisation.

General considerations

General approach

2.4 The PRA’s proposed approach to the replacement of relevant firm-facing provisions in the Securitisation Regulation and related technical standards with PRA rules in CP15/23 was to largely preserve current requirements, with only a limited number of policy adjustments. This was to prioritise a speedy transfer and minimise adjustment costs for firms.

2.5 One respondent supported this approach. Another respondent noted the opportunities presented by the Financial Services and Markets Act 2023 to adapt the UK securitisation regulatory framework to the FSMA model of regulation.

2.6 The PRA’s final rules are broadly consistent with the general approach set out in CP15/23. The PRA also notes that it may consult on further changes to these rules at a later stage.

Scope of application

2.7 In CP15/23, the PRA proposed to clarify the scope of the proposed rules replacing Articles 6-9 of the Securitisation Regulation and related technical standards, so that it is clear that they capture one-off securitisations for PRA-authorised non-CRR firms and non-Solvency II firms. The PRA also proposed to extend the scope of certain supervisory expectations in SS10/18 to PRA-authorised non-CRR firms and non-Solvency II firms.

2.8 One respondent supported the clarification of the scope of application to ensure that all PRA-authorised manufacturers in securitisations who are established in the UK are subject to the relevant requirements. The respondent also agreed that the requirements should apply to one-off transactions.

2.9 The final rules and SS10/18 reflect the proposals on the scope of application consulted on in CP15/23.

Implementation date

2.10 In CP15/23, the PRA proposed an implementation date in 2024 Q2, subject to progress with relevant legislation.

2.11 Two respondents requested the implementation date to be set six months after publication of the final rules. They noted that firms would need time to familiarise themselves with, and adapt to, the changes. One respondent noted that the costs involved should not be underestimated.

2.12 Having considered the responses and discussed timelines with the FCA, the PRA decided on an implementation date of 1 November 2024, 6 months after publication of this PS. The PRA considers that the revised implementation date contributes to the proportionality of the final policy package.

Regulatory treatment of pre-transfer securitisations

2.13 The PRA did not propose any new transitional provisions for pre-transfer securitisations in CP15/23.^{footnote [8]} This was because the proposed PRA rules would largely mirror current requirements in the Securitisation Regulation and related technical standards.

2.14 Three respondents noted that even the limited changes proposed could pose difficulties for some participants in some pre-transfer securitisations. One respondent requested either transitional provisions with (different possible forms of) optionality for market participants (ie a choice between pre- or post-transfer requirements) or a pragmatic approach to the enforcement of the new rules in relation to pre-transfer securitisations. Another respondent requested transitional provisions without optionality for manufacturers and with a measure of optionality for institutional investors in pre-transfer securitisations. A further respondent requested transitional provisions ideally with optionality in relation to pre-transfer securitisations.

2.15 Having considered this feedback, the PRA has decided to add transitional provisions for pre-transfer securitisations without any optionality to the final rules. The PRA notes that these transitional provisions are drafted so as not to preserve the position regarding transfer of responsibilities under Article 5(5) of the Securitisation Regulation in relation to circumstances where PRA-authorised institutional investors delegate due diligence to alternative investment fund managers (AIFMs) who are not authorised in the UK. This reflects changes in the Securitisation Regulations 2024 in relation to the categories of AIFMs included in the scope of the definition of ‘institutional investor’.^{footnote [9]}

2.16 The PRA notes that legal certainty matters to market participants that could find it difficult and costly to change the papering and structuring of securitisation transactions once set up. While CP15/23 proposed only limited changes to relevant requirements, the PRA considers that transitional provisions allow market participants in pre-transfer securitisations to avoid certain adjustment costs and enhance the proportionality of the proposed rules.

2.17 The PRA considers that not adding optionality between pre- and post-transfer requirements to the transitional provisions could reduce their complexity and facilitate supervision. It also helps to ensure the transitional provisions work where requirements for different firms interact with each other.

2.18 These advantages need to be set against losing the benefits, in terms of the PRA’s objectives and matters the PRA has regard to, of the policy changes proposed in CP15/23 in relation to pre-transfer securitisations. However, the PRA considers these are more limited in relation to pre-transfer securitisations than in relation to post-transfer securitisations. This is because there is limited scope for market participants in pre-transfer securitisations to benefit from the changed requirements. Manufacturers have already set them up with a view to complying with pre-transfer requirements (eg on risk retention), and existing institutional investors have already discharged their initial due diligence requirements. The PRA also took into consideration the new ‘have regard’ on the coherence of the overall securitisation regulatory framework and the wording of the FCA rules and the Securitisation Regulation 2024 (as amended by the (draft) Securitisation (Amendment) Regulations 2024).

Status of recitals

2.19 The PRA’s approach in CP15/23 was generally not to preserve wording in recitals in the Securitisation Regulation, or related technical standards in PRA rules, or other materials except where (i) in practice they were relied upon as if they were operating provisions, or (ii) they were essential to the interpretation of operating provisions. Consistent with this approach, CP15/23 consulted on converting into rules some of the wording currently contained in recital (11) and (14) of the Securitisation Regulation which the PRA considered was formulated and relied on by market participants like operating provisions.

2.20 Two respondents requested clarification regarding the status of other recitals, noting their interpretational value or market participants’ reliance on them and providing, or offering to provide, examples of such recitals. Another respondent highlighted the importance of taking into account certain provisions set out in the recitals which in practice function like operative provisions of the legislation.

2.21 The PRA has considered this feedback. The PRA’s approach to recitals is cross-cutting and reflects differences in how EU legislation is drafted and how PRA rules are drafted. However, the PRA has identified additional wording included in recitals in either the historical Risk Retention Technical Standards^{footnote [10]} or the 2023 EU Risk Retention Technical Standards^{footnote [11]} that the PRA considers function like operating provisions. In keeping with its general approach, the PRA has therefore decided to also reflect this additional wording in the final rules in an appropriate manner. The precise changes are discussed in the section on ‘Risk retention’ below. The PRA also notes that the historical recitals to the Securitisation Regulation and related technical standards can be looked up in the Official Journal of the European Union.

Status of EU non-legislative materials and UK guidance

2.22 CP15/23 stated, in paragraph 1.19, that it did not include updates to the SoP – Interpretation of EU Guidelines and Recommendations: Bank of England and PRA approach after the UK’s withdrawal from the EU.

2.23 Three respondents requested clarification in relation to the status of EU non-legislative materials issued by the UK regulators following the transfer of the Securitisation Regulation into regulators’ rules and legislation.

2.24 The PRA confirms that this PS also does not include updates to the SoP – Interpretation of EU Guidelines and Recommendations: Bank of England and PRA approach after the UK’s withdrawal from the EU. The PRA encourages the respondents to continue to refer to this SoP.

Alignment of the drafting of relevant FCA and PRA rules and statutory requirements

2.25 Provisions in the Securitisation Regulation will be replaced with PRA and FCA rules as well as in some cases provisions in the Securitisation Regulations 2024 (as amended by the (draft) Securitisation (Amendment) Regulations 2024). The PRA and FCA generally sought to align the substance of their rules in shared areas. However, the PRA largely maintained the wording of the Securitisation Regulation and related technical standards in its draft rules whereas the FCA sought to make amendments to reflect the FCA Rulebook style. The draft HMT legislative drafting of the due diligence provisions for trustees and managers of occupational pension schemes also differed stylistically from the regulators’ drafting of their rules.

2.26 Three respondents requested greater harmonisation in drafting and offered specific suggestions in this regard. One respondent also asked for the rules to be set up in the same order as in the Securitisation Regulation.

2.27 Having considered this feedback, the PRA worked with the FCA to more closely align the final PRA and FCA rules in shared areas. As before, the PRA rules follow the order of the provisions in the Securitisation Regulation. The PRA and the FCA also worked with HMT to reduce discrepancies in the drafting between PRA and FCA due diligence rules for PRA- and FCA-authorised institutional investors and statutory due diligence requirements for trustees and managers of occupational pension schemes.

2.28 The PRA notes that two respondents suggested that PRA rules should cross-refer to definitions in the Securitisation Regulations 2024. The PRA generally decided against this approach, as providing the full definitions in the PRA Rulebook is considered more accessible and clearer than using references to the Securitisation Regulations 2024, as it ensures more of the regime is located in one place and is therefore easier for firms to navigate. The PRA intends to monitor any changes to the Securitisation Regulations 2024 and update its definitions where appropriate.

Other cross-cutting comments

2.29 The PRA received a number of other comments on definitions and matters that cut across different provisions of the Securitisation Regulation and related technical standards. These were not addressed in the final policy package as they did not focus on the specific policy changes proposed in CP/15/23. However, these comments may inform future policy development. The PRA therefore briefly summarises these comments below without providing further specific feedback:

• One respondent commented on the drafting of the specialised lending carve-out from the definition of ‘securitisation’ in the Securitisation Regulations 2024, which was also reflected in the PRA rules.
• Two respondents sought clarification that certain requirements apply to manufacturers of securitisations only if they are involved in a securitisation.
• Two respondents sought clarification, or a policy change, regarding the requirements that apply in relation to correlation trading. One of these respondents also mentioned tranched index transactions in this context.
• One respondent suggested reviewing the definition of an ‘SSPE’ and checking whether references to an SSPE in the rules (including for example in relation to the restrictions on cherry-picking) work in the context of a synthetic securitisation. That respondent also requested clarification of the treatment of securitisations which according to the respondent (i) neither meet the definition of a ‘synthetic securitisation’ nor the definition of a ‘traditional securitisations’ or (ii) combine features of both ‘synthetic securitisations’ and ‘traditional securitisations.
• Four respondents requested the recognition in the UK of requirements in other jurisdictions that are equivalent to certain rules replacing provisions of the Securitisation Regulation.
• One respondent requested clarification^{footnote [12]} that residential mortgages provided under private mortgage insurance schemes with similar contractual features to the Mortgage Guarantee Scheme are not within the scope of the securitisation requirements.

Due diligence requirements

Due diligence in relation to manufacturers’ disclosures

2.30 In CP15/23, the PRA proposed a more principles-based approach to due diligence obligations on PRA-authorised institutional investors in relation to disclosures by manufacturers.

2.31 Four respondents broadly supported the proposed change. However, two of these respondents requested that secondary market investors should not have to verify that certain information has been provided before pricing, but that that information has been provided before their committing to the investment. One of these respondents also requested clarification of what ‘before pricing’ means in relation to certain private securitisations. That respondent also noted a difference in the drafting of the relevant due diligence requirements and the transparency requirements in relation to asset-backed commercial paper (ABCP) programmes and ABCP transactions.

2.32 Having considered this feedback, the PRA has decided to make adjustments to the proposed rules on due diligence in relation to disclosures by manufacturers. The final rules differentiate between primary and secondary market investments. In relation to secondary market investment, the formulation ‘before a commitment to invest’ is used instead of the formulation ‘before pricing’ in appropriate places. In relation to primary market investments, the final rules do not refer only to information provided ‘before pricing’ but to information provided ‘before pricing or a commitment to invest' in appropriate places. The revised wording is intended to fit both public and private securitisations. The PRA considers that these adjustments enhance the clarity and / or proportionality of the final rules.

2.33 The PRA has decided not to further align the wording of the relevant due diligence requirements with the transparency requirements in relation to ABCP programmes and ABCP transactions. The PRA notes that the due diligence requirements are framed differently, and specified with lesser detail than, the transparency requirements.

Delegation of due diligence to a managing party

2.34 In CP15/23, the PRA proposed to clarify in the proposed rules replacing Article 5(5) that if a delegating party instructs a managing party to fulfil any of its due diligence obligations in these circumstances, the delegating party would not be responsible for failure to comply with the relevant obligations. This is provided that the managing party is subject to the equivalent due diligence obligations under the proposed PRA rules or FCA rules.

2.35 Three respondents broadly supported the clarification. However, one respondent noted that AIFMs who are not authorised in the UK will be excluded from the institutional investor’ definition. Therefore, it will not be possible to delegate due diligence to the relevant AIFMs in a way that results in a shift in responsibility for compliance. The respondent indicated that this could have implications for existing delegation arrangements. The respondent also requested clarification that a UK institutional investor may (while remaining responsible itself for any non-compliance) delegate its due diligence to another investor, such as an AIFM who is not authorised in the UK, which does not meet the revised definition of ‘institutional investor’.

2.36 Having considered this feedback, the PRA has decided to make the clarification to the rules on delegation of due diligence consulted on in CP15/23.

2.37 The PRA also agrees that the final rules do not prohibit delegation of due diligence by a delegating party to an investor that is not an ‘institutional investor’. However, the responsibility for compliance then remains with the delegating party. The drafting of the final rules has been adjusted to make it clearer that they do not deal with such circumstances.

2.38 In line with CP15/23, the PRA rules on delegation of due diligence with a shift in responsibility for compliance are limited to circumstances where the managing party is a PRA-authorised or FCA-supervised ‘institutional investor’. The PRA agrees that AIFMs who are not authorised in the UK will no longer fall within the definition of an ‘institutional investor’. This is a change made by the Securitisation Regulations 2024 and reflected in the proposed PRA (and FCA) definition of an ‘institutional investor’. The PRA recognises that this may have implications for some existing delegation arrangements. It is possible that some delegating parties have to either find a new managing party or accept that responsibility for compliance does not shift to the current managing party where it is not a PRA-authorised or FCA-supervised institutional investor. The PRA lacks data on how many PRA-authorised delegating parties may be affected or to what extent. The PRA notes that the delay to the implementation date provides additional time for any affected firms to make any necessary changes.

Other comments on due diligence

2.39 The PRA received a number of other comments on due diligence. These were not addressed in the final policy package as they did not focus on the specific policy changes proposed in CP/15/23. However, these comments may inform future policy development. The PRA therefore briefly summarises these comments below without providing further specific feedback:

• The PRA rules consulted on in CP15/23, like the Securitisation Regulation, state that due diligence requirements apply prior to ‘holding a securitisation position’. Two respondents requested confirmation that the due diligence requirements apply only where a person takes on credit risk of a securitisation position.
• One respondent asked for Article 5(2) of the Securitisation Regulation to be broadened when it is replaced with regulators’ rules, so that it refers not only to rules replacing Article 5(1)(a) but also to rules replacing Article 5(1)(b) of the Securitisation Regulation.
• Two respondents asked for an institutional investor to be required to perform due diligence on whether a securitisation is simple, transparent and standardised (STS) only if that institutional investor intends to derive a benefit from the securitisation being STS. One respondent also considered that institutional investors should be permitted to rely on the services of a third-party verifier for this purpose, without having to do their own due diligence.
• One respondent suggested that the due diligence rules replacing Article 5(1) of the Securitisation Regulation should be lighter touch for secondary trades in securitisations where manufacturers are subject to certain direct obligations.
• One respondent suggested removing due diligence rules for investment managers.
• One respondent commented on changes made to the ‘institutional investor’ definition in the Securitisation Regulations 2024 and reflected in PRA rules, and how it could be further improved.

Risk retention requirements

Risk retention requirements for non-performing exposures (NPE) securitisations

2.40 CP15/23 consulted on allowing PRA-authorised manufacturers to calculate the risk retention using the net value of NPE for NPE securitisations where appropriate.

2.41 Two respondents supported this proposal.

2.42 Having considered the feedback, the PRA has decided to reflect the proposed treatment of NPE securitisations for risk retention purposes in the final rules.

Other changes to risk retention requirements

2.43 CP15/23 covered a number of other smaller changes to risk retention requirements.

Change in retainer

2.44 In CP15/23 the PRA consulted on permitting a change of the retainer (and a transfer of the retention) in the event of the retainer’s insolvency. This was in addition to proposing to preserve an existing provision relating to a change in the retainer in certain circumstances relating to risk retention on a consolidated basis.

2.45 Two respondents welcomed this proposal. These respondents also suggested that the PRA’s rules, like the 2023 EU Risk Retention Technical Standards, should provide for a change in the retainer ‘where the retainer, for legal reasons beyond its control and beyond the control of its shareholders, is unable to continue acting as a retainer’. According to one of these respondents, if that was not possible, industry would need guidance on how the regulators might use their supervisory powers to address this issue. The two respondents also requested a further expansion of the circumstances in which a change in retainer is permitted, including in connection with certain corporate transactions or reorganisations. One of these respondents also noted that divergences in risk retention requirements between the EU and the UK affect the circumstances in which retention on a consolidated basis is possible and the practical relevance of the provision relating to a change in the retainer in that context. The other of these respondents requested clarification in relation to the interaction between the rules on a change of the retainer and other rules.

2.46 Having considered this feedback, the PRA has decided not to change the proposals in CP15/23 relating to a change in the retainer. The PRA also draws attention to its CP3/24 – The Prudential Regulation Authority’s approach to rule permissions and waivers. Other comments relating to the circumstances in which a change of retainer is permitted were not addressed in the final policy package as they did not focus on the specific policy changes proposed in CP/15/23. However, they may inform future policy development.

Specification of the ‘sole purpose’ test

2.47 In CP15/23 the PRA consulted on criteria to assess whether an entity retaining the risk in a securitisation has not been established and is not operating for the ‘sole purpose’ of securitising exposures.

2.48 Two respondents supported the substance of this further specification of the ‘sole purpose’ test (though suggesting better alignment of drafting between the FCA and the PRA rules in this regard).

2.49 Having considered this feedback, the PRA has decided to include the proposed specification of the ‘sole purpose’ test in the final rules.

Exemption from cash collateralisation requirement for synthetic/contingent retention

2.50 CP15/23 consulted on permitting, beyond credit institutions, all CRR and Solvency II firms to retain risk in synthetic/contingent form without fully collateralising it in cash and holding it on a segregated basis as clients’ money.

2.51 One respondent welcomed this change, but expressed concern about the limited geographical scope of the definitions of the terms ‘CRR firm’ and ‘UK Solvency II Firm’ used for these purposes and potential implications for cross-border transactions.

2.52 Having considered this feedback, the PRA has decided to not make a change and therefore reflect the proposed changes to the exemption from the cash collateralisation requirements for synthetic / contingent retention in the final rules. The PRA notes that the geographical scope of the definitions of the terms ‘CRR firm’ and ‘UK Solvency II Firm’ for these purposes is in keeping with its approach to other risk retention rules.

Risk retention for resecuritisations

2.53 In CP15/23, the PRA consulted on a specification of how risk retention requirements apply in relation to those resecuritisations that are not prohibited.

2.54 One respondent requested clarification that there is no need for two levels of risk retention in relation to certain ABCP programmes referred to in Article 8(4) of the Securitisation Regulation.

2.55 The PRA notes that Article 16(3) of Chapter 3 of the PRA draft rules (now Article 17(3) of Chapter 4 of the PRA final rules) already provides that: ‘A fully supported ABCP programme which meets the requirements of Article 8(4) of Chapter 2 shall not be deemed a resecuritisation for the purposes of this Article’. The PRA has therefore decided to include the proposed specifications on risk retention for resecuritisations in the final rules without further changes.

Comparability of assets held on the balance sheet of the originator with assets transferred to the SSPE

2.56 In CP15/23, the PRA consulted on a specification of how the comparability between the securitised assets remaining on an originator’s balance sheet and the ones transferred to an SSPE should be assessed.

2.57 One respondent confirmed that they agreed with the proposal and had no comment on it. Another respondent drew attention to other market practices in the context of certain transactions that mitigate the risk of ‘cherry-picking’ of the weakest assets for inclusion in securitisations by originators.

2.58 Having considered this feedback, the PRA has decided to include the proposed specification in the final rules.

Hedging of the retained interest

2.59 The 2023 EU Risk Retention Technical Standards^{footnote [13]} included recital wording clarifying the prohibition on hedging of the material net interest retained under the risk retention requirements. This states that such hedging is not prohibited where it is undertaken prior to the securitisation as a legitimate and prudent element of credit granting or risk management, and does not create a differentiation for the retainer’s benefit between the credit risk of the retained securitisation positions or exposures and the securitisation positions or exposures transferred to investors.

2.60 The PRA has decided to broadly reflect this wording in the final rules. The PRA considers that this is consistent with advancing the safety and soundness of PRA-authorised investors as hedging in these particular circumstances envisaged would not compromise the incentive alignment effects of risk retention. The additional wording clarifies what type of hedging is permitted, avoiding potential small negative impacts on international competitiveness. The PRA does not consider that it will have material adverse effects on competition.

Risk retention and securitisations of own liabilities

2.61 The historical Risk Retention Technical Standards clarified in a recital that there is no need for risk retention in relation to securitisations of own liabilities. The 2023 EU risk retention technical standards elevated this to an operating provision.

2.62 Please refer to the section ‘Status of recitals’ above for a discussion of the approach taken to recitals in the Securitisation Regulation and related technical standards. In keeping with this approach, the PRA has decided to reflect the wording on securitisations of own liabilities in the 2023 EU risk retention technical standards in the final rules. The PRA considers that this is consistent with advancing the safety and soundness of PRA-authorised investors as securitisations of own liabilities do not pose the same incentive issues as securitisations of assets. The additional wording could facilitate securitisations of liabilities by UK manufacturers, to the extent relevant in the UK, and investment by UK investors in EU securitisations of liabilities, thus avoiding potential small negative impacts on international competitiveness. The PRA does not consider that it will have material adverse competition effects.

Other comments on risk retention

2.63 The PRA received a number of other comments on risk retention. These were not addressed in the final policy package as they did not focus on the specific policy changes proposed in CP/15/23. However, these comments may inform future policy development. The PRA therefore briefly summarises these comments below without providing further specific feedback:

• One respondent requested that servicers be allowed to act as retainers in NPE securitisations (and that a transfer of the retention to replacement servicers be permitted).
• One respondent suggested adding the specification of the time of origination that was included in the 2023 EU risk retention technical standards. Another respondent suggested it may be helpful to provide non-exhaustive examples of the time of origination in different contexts. That respondent also expressed reservations about the exhaustive specification provided in the 2023 EU risk retention technical standards.
• Two respondents sought further clarity on the interpretation of the ‘nominal value’ of a securitised exposure for purposes of the risk retention requirements in certain contexts.
• Two respondents sought further clarity on the circumstances in which a randomly selected portfolio of exposures needs to be replenished for purposes of risk retention in accordance with rules replacing Article 5(3)(c) of the Securitisation Regulation.
• One respondent asked for additional provisions allowing the synthetic excess spread to count towards the risk retention requirement.
• One respondent asked for additional provisions allowing L-shaped risk retention.
• One respondent indicated that a risk retention of 5% may be too low in a particular context.

Transparency requirements

Timelines for manufacturers making available certain information

2.64 CP15/23 consulted on clarifying when manufacturers need to make available certain information in draft and final form.

2.65 One respondent welcomed this clarification while other respondents did not specifically comment on it.

2.66 Having considered the feedback, the PRA has decided to reflect the clarification proposed in CP15/23 in the final rules. In line with feedback received on the wording ‘before pricing’ in connection with due diligence requirements (see section on ‘Due diligence in relation to manufacturers’ disclosures’), we replaced it with the wording ‘before pricing or original commitment to invest’.

Interaction between transparency requirements and requirements relating to confidentiality and processing of personal data

2.67 Three respondents commented that the draft PRA rules consulted on in CP15/23 did not expressly allow firms to comply, as under Article 7(1) of the Securitisation Regulation, with the transparency requirements by disclosing data only in aggregated or anonymised form (or in relation to underlying documentation, as a summary) in circumstances where UK law relating to confidentiality and/or processing of personal data or any confidentiality obligation relating to customer, original lender or debtor information do not allow more ‘granular’ disclosures. Two of these respondents requested not only that the PRA reinstates current wording in Article 7(1) the Securitisation Regulation in this regard but also asked it to be clarified or broadened to cover non-UK law on confidentiality / processing of personal data and/or contract law. One respondent asked for clarification on the interaction between transparency requirements and requirements relating to confidentiality and processing of personal data in general terms.

2.68 Having considered this feedback, the PRA has added express provision on this point to the final rules that track the current scope of corresponding wording in Article 7(2) of the Securitisation Regulation. This additional wording would enhance the clarity and/or proportionality of the transparency requirements.

2.69 The wider comments on this provision may inform future policy development.

Review of transparency requirements

2.70 CP15/23 included a chapter relating to the regulators’ ongoing review of transparency requirements. This gave an overview of, and invited feedback on, the following issues:

• The distinction made in the transparency requirements between ‛public securitisations’ (for which an approved prospectus is required under UK law) and ‛private securitisations’ (for which an approved prospectus is not required under UK law); and
• The appropriateness of the disclosure templates.

2.71 CP15/23 did not make any policy proposals in relation to these issues. However, the PRA (and FCA) may consult on proposals in this area in a future Consultation Paper.

2.72 Three respondents expressed support for a future consultation on changes to the transparency requirements. Five respondents provided feedback on the issues covered in the discussion chapter of CP15/23. These also indicated market participants’ interest in these issues. The PRA is grateful for this feedback and will consider it further as the review of the transparency requirements progresses.

Other comments on transparency

2.73 The PRA received a number of other comments on transparency. These were not addressed in the final policy package as they did not focus on the specific policy changes proposed in CP/15/23. However, these comments may inform future policy development. The PRA therefore briefly summarises these comments below without providing further specific feedback:

• One respondent asked for a recalibration of the transparency requirements where the investor base is off-shore and either does not require information in a prescribed format, or requires information in a format different to that which is required by UK investors. (Please additionally refer to the summary of comments on equivalence measures in the section on ‘Other cross-cutting comments’ above.)
• Two respondents sought further clarification on the time when certain information first has to be made available.
• One respondent requested certain amendments to the transparency requirements for ABCP.
• One respondent suggested removing the requirement on manufacturers, applicable in certain circumstances, to make available a transaction summary.

Restrictions on resecuritisations

Comments on restrictions on resecuritisations

2.74 The PRA received a number of comments on restrictions on resecuritisations. These were not addressed in the final policy package as they did not focus on the specific policy changes proposed in CP/15/23. However, these comments may inform future policy development. The PRA therefore briefly summarises these comments below without providing further specific feedback:

• One respondent asked for clarification that mere sub-tranching of existing securitisation tranches would not amount to a resecuritisation for the purposes of the restrictions on resecuritisations.
• One respondent sought further clarity around the principles and criteria which the regulators would take into account when granting a permission or direction for the underlying exposures to include securitisation positions.

2.75 The PRA’s discussion in Chapter 3 of its decision to remove the SoP – Permissions for resecuritisations from the final policy package may however be relevant to the last of these comments.

Credit granting standards

Comments on credit granting standards

2.76 In CP15/23, the PRA did not propose to make any policy changes to credit granting standards in the Securitisation Regulation when replacing them with PRA rules.

2.77 However, the PRA received a number of comments on credit granting standards. These were not addressed in the final policy package as they did not focus on the specific policy changes proposed in CP/15/23. However, these comments may inform future policy development. The PRA therefore briefly summarises these comments below without providing further specific feedback:

• Two respondents consider that the reference to ‘sponsor’ in the credit granting rules replacing Article 9(1) should be removed.
• One respondent would like the credit granting standards (and related due diligence requirements) to be amended in relation to NPE securitisations to facilitate NPE securitisations in the UK as well as investment by UK investors in EU NPE.

3: Other changes to the policy package

3.1 This section gives a brief overview of changes to the policy package that were not (primarily) driven by feedback to CP15/23. These include:

• removal of the proposed SoP – Permissions for resecuritisation;
• tidying up changes to the draft rules consulted on in CP15/23; and
• consequential amendments to other PRA rules.

Removal of the proposed SoP – Permissions for resecuritisation

3.2 CP15/23 consulted on a draft SoP – Permissions for resecuritisaton. The proposed SoP indicated that the PRA would usually envisage using the power in section 138BA of FSMA 138BA (Disapplication or modification of rules in individual cases) to permit a resecuritisation only in circumstances broadly similar to those in which the PRA could currently grant permission for a resecuritisation under Article 8(2) and (3) of the Securitisation Regulation.

3.3 The PRA has decided not to include this proposed SoP in the final policy package. No permissions for resecuritisation have ever been granted by the PRA under Article 8(2) and (3) of the Securitisation Regulation, raising questions about the practical relevance of the specification of the circumstances in Article 8(3). The PRA also notes that under section 138A (Modification or waiver of rules) of FSMA, the PRA has a general power to modify or waive its rules where it is satisfied that the following criteria are met: (a) compliance with the rules or rules as unmodified would be unduly burdensome or would not achieve their intended purpose and (b) modifying or waiving the rules would not adversely affect any of its objectives. The PRA encourages firms wishing to apply for a modification or waiver of the rules restricting resecuritisations to apply under the PRA’s general waiver and modification power in section 138A of FSMA. The PRA recently consulted on a draft SoP – The PRAs approach to rule permissions and waivers in CP3/24 – The Prudential Regulation Authority’s approach to rule permissions and waivers, and firms may want to refer to the PS to CP3/24 when it becomes available.

3.4 The PRA also notes that the FCA did not consult, in its CP23/17, on an FCA SoP corresponding to the PRA’s draft SoP – Permissions for resecuritisation. The PRA’s not including this draft SoP in the final policy package is therefore also broadly in keeping with some respondents’ stated preference for consistency between PRA and FCA drafting (see Chapter 2, section on ‘General considerations’).

Minor changes to the draft rules consulted on in CP15/23

3.5 The PRA has made minor changes when finalising the draft rules consulted on in CP15/23. As mentioned in Chapter 2, this includes, for example, better aligning them with the final version of the Securitisation Regulations 2024 and the (draft) Securitisation (Amendment) Regulations 2024 as well as with FCA rules in shared areas. The PRA has also taken into consideration the final wording of the 2023 EU risk retention technical standards when finalising rules on risk retention.

3.6 The PRA considers that the various minor changes made when finalising the draft rules improve their clarity. In making these changes, the PRA has also had regard to the coherence of the overall framework for the regulation of securitisation.

Consequential amendments to other PRA rules

3.7 For completeness, the final policy package includes consequential amendments to the Liquidity Coverage Ratio (CRR) Part and the Non-Performing Exposures Securitisation (CRR) Part of the PRA Rulebook. They consist of replacing cross-references to the Securitisation Regulation and related technical standards with references to the replacement rules.

3.8 The PRA may update any potentially remaining cross-references in other PRA publications in due course.