Shearman & Sterling LLP | Financial Regulatory Developments Focus | UK Prudential Regulator Finalizes Supervisory Approach for New EU Securitization Framework
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  • UK Prudential Regulator Finalizes Supervisory Approach for New EU Securitization Framework
    11/15/2018
    The U.K. Prudential Regulation Authority has published a Policy Statement setting out its approach to supervision under the new EU securitization framework that will take effect from January 1, 2019. The PRA consulted on its proposals in May 2018. The incoming EU framework consists of: (i) the Securitization Regulation, which imposes general requirements for all EU securitization activity and outlines the criteria and process for designating certain securitizations as "Simple, Transparent and Standardised"; and (ii) revisions to the banking securitization capital framework within the Capital Requirements Regulation. Respondents to the PRA's consultation on its approach were largely supportive. The PRA has made some changes (outlined in the Policy Statement) to its consultation text in line with comments received.

    The PRA will proceed with the policy approach summarized below.
    1. A new Supervisory Statement, "Securitisation: general requirements and capital framework," is introduced. This sets out the PRA's approach and expectations relating to: (a) the provisions within the Securitization Regulation that are applicable to all securitizations; (b) firms that intend to sponsor STS Asset Backed Commercial Paper programmes; and (c) incoming securitization capital framework introduced via amendments to CRR. The new Supervisory Statement will take effect on January 1, 2019.
    2. The existing Supervisory Statement "Securitisation," is amended by changing its title to "Securitisation: Significant Risk Transfer" and by textual changes to reflect the PRA's approach and expectations in relation to SRT securitization, including the role of firms' senior management and prudential treatment of excess spread. The amendments also cover aspects of the PRA's assessment of the commensurate transfer of risk to third parties that is required whenever a reduction in capital requirements is achieved through a securitization via SRT. This supervisory statement takes effect immediately.
    3. The existing Supervisory Statement, "The Internal Capital Adequacy Assessment Process (ICAAP) and the Supervisory Review and Evaluation Process (SREP)" is amended to clarify how firms should assess the appropriateness of different methods in measuring securitization risk and to specify minimum information which should be included in a firm's ICAAP document. This amended supervisory statement will take effect on January 1, 2019.

    View the Policy Statement (PRA PS 29/18).

    View the new supervisory statement, "Securitisation: General requirements and capital framework" (SS10/18).

    View the updated and renamed supervisory statement, "Securitisation: Significant Risk Transfer" (SS9/13).

    View the updated supervisory statement, "The Internal Capital Adequacy Assessment Process (ICAAP) and the Supervisory Review and Evaluation process (SREP)" (SS31/15).

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