UK Financial Conduct Authority Consults on Securitization Rules

The U.K. Financial Conduct Authority is consulting on its proposed rules for securitization markets, which will replace many of the firm-facing requirements under the existing U.K. Securitization Regulation. The U.K. Prudential Regulation Authority is separately consulting on its own equivalent rules for PRA-authorized firms, which together with the FCA's rules will create a coherent regime for securitizations. The regulators are being handed the power to make these rules under HM Treasury's proposed reforms to the U.K. securitization regime, which will repeal the existing U.K. Securitization Regulation, keeping part of the regime in new legislation and the remainder in the regulators' rulebooks.

Under HM Treasury's proposed new regime, securitization activities will be designated under the new designated activities regime brought in by the Financial Services and Markets Act 2023 (discussed in our client note, "A Boost for UK Financial Services"). The FCA's consultation paper sets out its proposed firm-facing rules for these designated activities and proposes amendments and clarifications to other aspects of the securitization regime, e.g., the nature of information required to satisfy due diligence requirements for institutional investors, more proportionate risk retention requirements for non-performing exposure securitizations and greater clarity on the geographical scope of the rules.

Responses to the consultation should be submitted by October 30, 2023. The rules are expected to be implemented by Q2 2024, pending finalization of HM Treasury's draft statutory instrument.

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