The UK Treasury has published a near final draft of the statutory instrument that will, in due course, fully replace the European Union Securitisation Regulation for the UK market. This draft updates the December 2022 draft on which we commented back then. It comes with a handy and helpful policy note.
This new draft does not substantially alter the December version. To summarise the key points:
The approach, in line with other changes to the legal and regulatory landscape of UK finance, is to remove large parts of the rules from primary law making and the UK Parliament to vest them in the regulatory authorities. As an example, the draft retains the STS category. But, in contrast to the EU Securitisation Regulation, has no STS criteria - leaving those to the FCA to draft at a later stage.
Maybe a relief to UK market participants but the potential huge fines provided for under the EU rules (eg 10% of worldwide turnover) have been replaced by fines to be set by the FCA, subject to FCA policy to be published later.
The SI carves out a set of due diligence rules specifically for small UK alternative fund managers. These rules are, once more, yet to be written by the FCA. But the direction of travel - lightening the due diligence burden on small investors - seems clear.
On STS, the new proposed rules confirms that the special purpose vehicle of an STS securitisation need not be in the UK, although the originator and sponsor still do.
Potentially more interesting for overseas issuers, the draft provides the UK Treasury with the power to designate other jurisdictions as "equivalent" to the UK when it comes to STS. Once designated, securitisations meeting the STS rules from those jurisdictions will be able to be treated as STS by UK investors. The text deliberately uses the expression "simple, transparent and comparable" derived from the Basel rules so one assumes that equivalence may be available to those countries that have adopted STC. How this will work in practice is another issue.
The Treasury has indicated that it intends to bring this statutory instrument into law by year end and that this is a very much a final draft. They will entertain comments until 21st August though.
Overall, this seems a decent attempt at onshoring the European rules but, with so much rule making now delegated to the FCA and the PRA, the final state of the post Brexit UK securitisation landscape remains very much to be defined.