Monday saw two important announcements from European regulators.
First, the UK Financial Conduct Authority went live with its new STS notification platform. As of 11 pm on 31st December, UK securitisations will no longer be STS in the hands of UK investors unless they appear in a new publicly available list hosted by the FCA and replacing the ESMA list to which all securitisations were previously notified. To avoid a problematic interregnum between the time the new rules come into force at the end of the year and the time it takes for UK transactions previously notified to ESMA to be published on the new FCA website, the FCA very wisely and helpfully launched their new UK STS platform this Monday. This will allow UK originators and sponsors to “pre-populate” the STS list in anticipation of January 1st. Please note, though, that it is the responsibility of originators and sponsors to re-notify their transactions. There will be no automatic transcription of the ESMA notifications on to the FCA site. Instructions on how to access the FCA site (called Connect) and the new templates can be found here
One of the developments of recent years has been the beginning of a return by securitisation to its roots as a capital management tool for banks. The new legislative proposal on STS for synthetics, currently in trilogue in Brussels, is one part of this. But another necessary component of a regulatory scheme that allows proper capital management by financial institutions is a workable set of rules for significant risk transfer or SRT. These are the rules which must be followed before prudential regulators accept that the risk associated with securitised assets has been transferred to the securitisation investors and the bank can therefore reduce the capital allocated against those assets. The EBA’s report sets out their proposals for the future of these rules. It is essential, if STS synthetic securitisation is to be of any use, that the new SRT rules mesh with the proposed STS requirements to allow safe but sensible capital management. The report is fairly long and will be examined with great care by market participants (including PCS).