On 31 October 2023, the Prudential Regulation Authority (PRA) published Discussion Paper DP3/23 – Securitisation: capital requirements (DP3/23).
DP23/2 is intended to prepare for the PRA’s planned consultation on draft rules to replace firm-facing requirements in Part Three, Title II, Chapter 5 (the ‘Securitisation Chapter’) of the Capital Requirements Regulation – subject to HM Treasury making the necessary legislation – by raising certain key issues for feedback from firms and collecting data in order to inform the PRA’s approach.
In Consultation Paper CP16/22 – Implementation of the Basel 3.1 standards, the PRA proposed to implement the Basel 3.1 output floor. The PRA has been engaging with industry feedback over the implications of the proposals relating to the output floor for firms with certain securitisation exposures, and it is considering a range of policy options while monitoring the impact of the proposals on the output floor. One option would be to go ahead with implementation of the Basel 3.1 output floor without any adjustment to the Pillar 1 framework for determining capital requirements for securitisation exposures. Another option would be a targeted and evidence-based adjustment to the Pillar 1 securitisation capital framework.
DP23/2 seeks further evidence from respondents to support the development of an appropriate policy response that advances the PRA’s objectives in light of feedback from industry.
Other topics addressed in DP23/2 include:
- The hierarchy of methods for determining securitisation capital requirements – the PRA draws attention to a divergence of the current hierarchy of methods in the Securitisation Chapter of the CRR from the Basel standards, and explores the possibility of better aligning those hierarchies.
- The scope of the UK framework for simple, transparent, and standardised securitisations – the UK framework is currently aligned with the Basel standards in that it covers traditional (funding) securitisations meeting the eligibility criteria, but not synthetic securitisations. The PRA sets out policy considerations that would on balance support maintaining this approach, and gives respondents an opportunity to comment and provide feedback.
Responses to DP3/23 should be submitted by 31 January 2024.