Prudential Regulation Authority Rulebook

2.1

This chapter is relevant to PRA-authorised CRR firms and PRA-authorised Solvency II firms to which the Securitisation Regulation applies.

2.2

The PRA expects firms which act as originators, original lenders, and/or sponsors in a securitisation that are subject to the requirements of the Securitisation Regulation to be able to demonstrate to the PRA, on request, that they have in place adequate arrangements, processes and mechanisms in order to comply with Articles 6, 7, 8 and 9 of the Securitisation Regulation.

2.3

A firm should inform its supervisor if it anticipates material change in its securitisation activity as an originator or sponsor. That includes, engaging in securitisation issuance for the first time, securitising an asset class for the first time, or significantly increasing the amount of issuance.

2.4

Where a firm acts as an originator, original lender, and/or sponsor in a transaction subject to the requirements of the Securitisation Regulation, the PRA expects the firm’s internal audit function to provide assurance that the firm’s involvement in the securitisation is compliant with the requirements in Articles 6, 7, 8 and 9 of the Securitisation Regulation.

2.5

The PRA expects that relevant individuals performing Senior Management Functions (SMFs), such as the individual to whom Prescribed Responsibility (PR) 7 has been allocated, exercise effective oversight of securitisation issuance, including with regard to the requirements in Article 6(2) on adverse selection. Where appropriate, the PRA expects SMFs to escalate issues related to oversight of securitisation issuance to the board or a relevant sub-committee.

2.5A

Where a CRR firm acts as an originator, original lender, and/or sponsor in a non-performing exposure (NPE) securitisation subject to the requirements of the Securitisation Regulation, the PRA expects that the firm’s SMF 16 (Compliance Oversight) should satisfy themselves that performing exposures are not being included in an NPE securitisation with the purpose of reducing the capital charge on such performing exposures in the underlying relative to the 100% risk weight on the senior exposure of qualifying NPE securitisation.

2.6

The PRA considers that insurance, reinsurance firms or ISPVs can be originators within the meaning of Article 2(3) of the Securitisation Regulation. Articles 2(12)(a) and (b) of this regulation makes clear that insurance or reinsurance undertakings can also be ‘institutional investors’ in securitisation. The PRA expects insurance and reinsurance firms, and ISPVs, to consider whether any transactions, such as those that aim to refinance loans, exposures or receivables by transforming them into tranched securities and including any internal restructurings, may be considered securitisations as defined in Article 2(1) of this regulation. The Securitisation Regulation imposes a set of requirements on investors, originators, sponsors, and securitisation special purpose entities (SSPEs) with which they are required to comply.

2.7

Insurance or reinsurance firms can be both originators and investors in the same securitisation transaction, such as an internal restructuring of exposures or receivables for capital efficiency or matching adjustment (MA) eligibility purpose. In such cases the insurance or reinsurance firm must comply with Articles 6, 7, 8 and 9 of the Securitisation Regulation as applicable. Where an insurance firm, reinsurance firm, or ISPV identifies itself as the originator of a securitisation, it should inform its supervisor without undue delay.

2.8

Where the originator is also the sole investor in the transaction, the PRA expects that the firm may consider the information specified in Article 7(1)(a) and (e) as ‘made available’ to investors through internal reporting to appropriate committees or the management board, provided the reporting contains the required information.

2.9

The PRA expects institutional investors that invest in securitisation to be able to demonstrate on request that they have in place adequate due diligence arrangements, processes, and mechanisms to ensure compliance with Article 5 of the Securitisation Regulation. The level and nature of investor due diligence prior to holding a securitisation position may be proportionate to the risks of the securitisation position, provided they comply with the requirements of Article 5.

2.10

A firm that has delegated the authority to manage its investments to another institutional investor may instead evidence that it has instructed the managing party to fulfil the due diligence requirements on its behalf.