The simple, transparent and standardised (STS) regime under Regulation (EU) 2017/2402 of the European Parliament and of the Council of 12 December 2017 (EU Securitisation Regulation) has enabled a more risksensitive prudential regulatory treatment for certain European Union (EU) institutional investors investing in securitisation, including credit institutions and insurance companies.
As a result of Brexit, the EU Securitisation Regulation will be ‘onshored’ by The Securitisation (Amendment) (EU Exit) Regulations 2019 (Securitisation Onshoring Regulations), which seek to adapt the EU Securitisation Regulation to UK domestic law, creating a British version of the EU Securitisation Regulation (UK Securitisation Regulation) that is set to apply in the UK after 11pm on 31 December 2020, the time and date marking the end of the Brexit transition period (TP End Date).
Among the changes introduced by the Securitisation Onshoring Regulations is a separate UK STS regime, in relation to which the Financial Conduct Authority (FCA) has retained a role comparable to the role of the European Securities and Markets Authority (ESMA) in EU STS transactions, including as a recipient of notifications relating to the STS designation of transactions.
As the TP End Date approaches, the FCA has sought to implement measures to ensure that notifications may be submitted by market participants wishing to have their transactions designated as STS in the UK.
On 24 November 2020, the FCA published on its website information relating to the UK STS notification process.
- Until the TP End Date, UK firms should continue to comply with the EU STS rules on notifications (as set out in Article 27 of the EU Securitisation Regulation) by notifying ESMA (instead of the FCA) and simultaneously informing the FCA.1
- From the TP End Date, the FCA will maintain a list of securitisations duly notified to the FCA as meeting UK STS criteria (as set out in the UK Securitisation Regulation).
- The relevant parties to transactions wishing to benefit from the UK STS designation will need to register with the FCA ‘Connect’ portal and submit notifications to the FCA via this portal using the ‘onshored’ STS notification templates2 in relation to:
- new securitisations that meet the UK STS criteria under the UK Securitisation Regulation; and
- UK transactions previously notified to ESMA as EU STS that meet the UK STS criteria and intend to benefit from designation as UK STS.
- UK securitisations previously notified to the ESMA as EU STS transactions that meet the UK STS criteria and are intended to benefit from the UK STS designation, should be notified to the FCA before the TP End Date.
- Any EU securitisations notified to ESMA as meeting the EU STS criteria before and up to two years after the TP End Date, and that remain listed on the ESMA website as EU STS transactions will also qualify as UK STS for the life of the transaction.
This early notification of UK securitisations as UK STS, ahead of the UK Securitisation Regulation and the related UK STS regime coming into force, will allow the FCA to gauge the interest of UK market participants in the UK STS designation.
However, it raises the question as to whether the lack of action by UK market participants may cause them to be at a disadvantage when compared to their EU counterparts, who will benefit from lifelong UK STS recognition of their transactions without taking any active steps for these to be recognised as UK STS compliant.
As the TP End Date approaches, UK market participants should assess whether they intend for any of their existing EU STS transactions to be recognised as UK STS-compliant. If the UK STS designation is envisaged, such transactions should be notified to the FCA before the TP End Date. If you have any questions on the UK Securitisation Regulation or on how Brexit may affect you, please reach out to your usual Baker McKenzie contacts.
1. In accordance with Direction under regulation 26 of the Securitisation Regulations 2018 about Informing the FCA of STS notifications available here.
2. As set out in the FCA securitisation page.