On 15 November 2018, the PRA published Policy Statement 29/18: Securitisation – the new EU framework and Significant Risk Transfer (PS29/18). In PS29/18 the PRA sets out its final policy approach to the EU Securitisation Regulation and certain aspects of the revised Capital Requirements Regulation banking securitisation capital framework. PS29/18 follows an earlier PRA consultation, Consultation Paper 12/18: Securitisation – the new EU framework and Significant Risk Transfer (CP12/18).

The PRA’s final policy covers a new Supervisory Statement (Supervisory Statement 10/18 ‘Securitisation: General requirements and capital framework’ (Appendix 1) (SS10/18)) and two updated Supervisory Statements:

  • Supervisory Statement 9/13: Securitisation: Significant Risk Transfer (Appendix 2) (SS9/13); and
  • Supervisory Statement 31/15: The Internal Capital Adequacy Assessment Process (ICAAP) and the Supervisory Review and Evaluation Process (SREP) (Appendix 3) (SS31/15)

The PRA reports that in light of the feedback it received to CP12/18 it has made the following changes to its final policy:

  • SS10/18 now makes clear that firms may apply due diligence processes, arrangements and mechanisms proportionate to the risk of the securitisation provision, provided the overall approach is still compliant with Article 5 of the Securitisation Regulation;
  • clarifications have been made to the text on the PRA’s approach to exercising the hierarchy discretions and expectations for firms’ assessment of securitisation risk weighted exposure amounts (RWEAs) in the ICAAP;
  • the timeline for ad hoc information requests regarding securitisation RWEAs has been extended to 30 business days unless a longer period is agreed; and
  • minor clarifications have been inserted regarding the illustrative mapping of external credit assessment institutions’ structured finance credit assessments to credit quality steps.

Changes have also been made to SS9/13, including:

  • when measuring the risk retained in certain transactions by including a traditional securitisation feature, the PRA has made a minor change to clarify that firms may use methods other than comparing to a retained first loss tranche to measure prudently the retained risk from such a feature;
  • clarifying that for traditional securitisations, the PRA is primarily concerned about cases in which assets have not achieved accounting de-recognition and are sold to the Securitisation Special Purpose Entity (SSPE) below their market value; and
  • pending further international regulatory guidance, clarifying the loss given default value which firms should use for calculating securitisation risk weights under the Securitisation Internal Ratings Based Approach in Article 259 of the Amended Capital Requirements Regulation (EU/2017/2401), for portfolios of income-producing real estate exposures under the slotting approach.

Chapter 2 of PS29/18 contains the PRA’s full feedback to the responses to CP12/18.

The date of application for the new securitisation legislative framework is 1 January 2019, amendments to SS10/18 and SS31/15 are effective from that date. The updated policies amending SS9/13 applied from the publication of PS29/18.