UK Government Consults on Revised Securitization Regime

HM Treasury has published a near-final draft statutory instrument and related Policy Note setting out its proposed reforms to the U.K. securitization regime. Comments on the draft S.I. can be submitted until August 21, 2023. The final S.I. will be laid before Parliament before the end of 2023.

The PRA is separately consulting on proposed rules to replace its retained EU law securitization requirements for PRA-authorized firms. Responses to the PRA's consultation should be submitted by October 30, 2023. The FCA will publish a consultation on its securitization rules on August 7, 2023.

HM Treasury's near-final draft S.I. builds on the indicative S.I. published as part of the U.K. government's Edinburgh Reforms announced in December 2022 (discussed in our client note, "UK Government Publishes Edinburgh Reforms for Financial Services"). The near-final regime is designed to strengthen the U.K.'s securitization standards, with a view to enhancing investor protection and improving market transparency, and to support the development of securitization markets in the U.K. The proposed changes will, amongst other things: (i) designate certain securitization activities under the incoming designated activities regime, including acting as originator, sponsor, original lender etc.; (ii) repeal detailed legislative firm-facing requirements and reinstate them in regulator rulebooks; (iii) introduce a new definition of "institutional investor", removing non-U.K. Alternative Investment Fund Managers that market or manage AIFs in the U.K. from due diligence requirements; and (iv) clarify the scope of the prohibition on setting up securitization special purpose entities in high-risk jurisdictions (as designated by the Financial Action Task Force).

Once the new U.K. regime is finalized, the retained EU Securitization Regulation will be repealed under the revocation framework established by the U.K. Financial Services and Markets Act 2023 (which we discuss in our client note, "A Boost for UK Financial Services"). The FSM Act will, in the meantime, amend the existing U.K. Securitization Regulation to introduce, as of August 29, 2023, an equivalence regime for recognizing non-U.K. securitizations as "simple, transparent and standardized". This will give U.K. investors in non-U.K. securitizations the ability to benefit from preferential capital treatment.

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