Countdown to Change: UK's New Securitisation Regime Effective from 1 November 2024

The HM Treasury on April 22, 2024, published the draft Securitisation (Amendment) Regulations 2024 (the “Draft SI Amendment”) as part of the continued process of replacing the retained EU Securitisation Regulation (which was onshored in the UK following the end of the Brexit transition period) with a regulatory regime tailored to the UK. Once in force, the Draft SI Amendment will amend the UK Securitisation Regulations (S.I. 2024/102) that were made on January 29, 2024 (the “SI”).

As a recap, the SI empowers the Financial Conduct Authority (the “FCA”) and Prudential Regulation Authority (the “PRA”) to develop rules covering a wide range of the current regulatory regime for securitisations. Drafts of the PRA and FCA rules were published last year (please see our related OnPoint here), and final versions were published on April 30, 2024. The combination of the SI (as amended), the PRA rules and the FCA rules will replace the retained EU Securitisation Regulation.

The key takeaway from the Draft SI Amendment is that the new UK regulatory regime for securitisations will come into force on November 1, 2024, subject to the existing regime being revoked. The other main points to note are:

1. The retained EU Securitisation Regulation provides that securitisation special purpose entities (“SSPE”) are not to be established in countries classed as high risk by the Financial Action Task Force, but no party is obligated to ensure this does not occur. The Draft SI Amendment places a direct obligation on originators and sponsors to ensure that SSPEs are not established in an FATF high-risk jurisdiction. The Draft SI Amendment also prohibits institutional investors from investing in securitisations where the SSPE is established in a FATF high-risk jurisdiction (the only jurisdictions currently on the FATF list are North Korea, Iran and Myanmar).
2. The Draft SI Amendment includes due diligence requirements for Occupational Pension Schemes because, unlike the PRA and FCA, The Pensions Regulator (who supervises Occupational Pension Schemes) does not have statutory authority to make rules.
3. The retained EU Securitisation Regulation prohibits the establishment of SSPEs in countries that had not signed an agreement stating they were fully compliant with the tax treaties set out by the Organisation for Economic Cooperation and Development. The Draft SI Amendment does not include this prohibition.