4 minute read | February.23.2026
On 17 February, the FCA and PRA published consultation papers (the “Consultation Papers”) on reforming the UK Securitisation Framework (the “Framework”)[1]. The Consultation Papers follow the process of transferring assimilated EU Securitisation Regulation rules into UK domestic law (through the FCA Handbook and PRA Sourcebook) completed in November 2024.
The papers can be found here:
Overall, we consider the direction of travel set out in the Consultation Papers to be very positive for both the buy and sell sides.
Buy-Side Perspective
On the buy-side, UK investors would stand to benefit from a move to a fully “principles-based” approach to their due diligence requirements, with no obligation to ensure that sell-side parties comply with the Framework’s rules relating to credit-granting, risk retention or disclosure. Imposing such “indirect” obligations on sell-side entities—whether located in the UK or not—through investor due diligence requirements has been the longstanding approach under both UK and EU rules.
Sell-Side Perspective
On the sell-side, UK sponsors and originators would also benefit from a greatly reduced reporting burden—with the requirement to report using prescribed templates either proposed to be removed entirely or, in the case of CLOs, replaced by a much-simplified CLO-specific template.
The Consultation Papers also include significant reform proposals to the Framework’s resecuritisation and risk retention rules (although less useful for CLOs and other typical leveraged loan securitisations), as well as a request for feedback on the possibility of excluding CLOs (and certain other asset classes) entirely from the Framework’s conduct rules.
That said, from a sell-side perspective, the interaction with corresponding EU rules will continue to be key due to the prevalence of EU investors in UK transactions (as well as in many non-UK transactions, alongside UK investors) and the continued “indirect” application of those rules to sell-side entities located outside the EU. The EU transparency rules will also apply directly whenever the securitisation issuer is EU-established. In this regard, we note that the EU rules are themselves being reformed, with many of the reform proposals differing materially from the proposals contained in the Consultation Papers (see our briefing on those proposals here).
The Consultation Papers propose removing the requirement to use prescribed templates for investor reporting (including ad hoc reporting in relation to inside information and significant events). Quarterly investor reports would still need to be prepared however, but the rules would only prescribe (minimum) content, rather than requirements as to form.
Similarly, the Consultation Papers propose removing the requirement to use prescribed templates for quarterly collateral reporting entirely for many asset classes—including for corporate loans but not CLOs. A new but greatly simplified (relative to the existing corporate asset class template) CLO-specific template has been proposed for CLO collateral reporting.[2]
Significantly, the Consultation Papers do not define what a “CLO” actually is and as a result, whether a CLO reporting template would be required under the proposals, for example, for a transaction where leverage is provided (in securitisation format) to a loan fund, or for a CLO warehousing facility, is unclear. Since the rationale provided for prescribing the CLO template is to assist investors with making comparisons across “standardised” transactions, we would suggest that transactions with a more bespoke structure, or where the collateral is less homogenous, should instead be considered “corporate loan” securitisations for reporting purposes and a CLO template would therefore not be required. We would however welcome further guidance on this point.
While the Consultation Papers do propose some recognition of EU templates as “equivalent” for the purposes of the UK template requirements (to the extent such requirements would remain under the proposals), no such recognition is proposed for CLOs. Accordingly, CLO templates would need to be prepared in addition to any templates required under the EU rules.[3]
A. Risk Retention
Significantly, the Consultation Papers propose removing the requirement for UK investors to verify sell-side entities are compliant with risk retention (as well as credit-granting) rules under the Framework. The requirement to verify compliance by sell-side entities with the Framework’s disclosure rules was previously removed.
Non-UK sponsors and originators (not being subject to UK risk retention rules themselves) would therefore no longer have, in effect, an “indirect” obligation imposed upon them under the Framework to retain risk for the benefit of UK investors. UK investors would instead have an obligation under the proposals simply to ensure that an alignment of interest is maintained, including “through alternative means, such as management fees…linked to performance.”
As mentioned above, removing the “indirect” obligation to retain risk would represent a significant change in approach under the Framework, and a major point of divergence from the EU rules, which currently impose such an obligation on sell-side entities—not only in relation to risk retention but also with respect to credit-granting and disclosure rules.
This change would mean that, for example, US transactions (assuming US risk retention rules don’t apply to them) and European transactions such as CLO warehouse facilities taken out by US collateral managers—in each case involving UK and not EU investors—would not need to comply with EU, UK or US risk retention rules. As mentioned above however, the presence of EU investors or the need to contemplate their potential future investment in a transaction would nevertheless necessitate compliance with EU risk retention rules, materially limiting the practical significance of this change.
B. Transparency
It is already the case under the Framework that UK investors do not need to verify compliance by sell-side entities with UK disclosure obligations and instead need simply to ensure that sufficient information is made available to enable them to make an adequate risk assessment. The Consultation Papers go further and propose removing the list of minimum information required to be provided to enable such a determination to be made.
Instead, the approach would become fully “principles-based,” leaving it up to investors to determine whether the information that is to be made available will be sufficient for their risk assessment. A sample list of content that “may” be included in any sell-side reporting is also proposed. There is no longer any requirement as to the frequency of sell-side reporting (under the due diligence rules) either.
This change in approach reflects the reality that investment in securitisation is the domain of sophisticated investors and is to be welcomed, in marked contrast to the position under the EU rules which currently require EU investors to fully verify template compliance by the sell-side (whether or not sell-side entities are located in the EU). Whilst the EU rules are currently the subject of significant reform proposals, the “indirect” obligation on sell-side entities appears likely at this point to remain in some form—even if it were to become a softer obligation to provide “comparable information” to that set out in the relevant disclosure requirements, for example.
The Consultation Papers have also proposed a new “L-shaped” retention option. Such option is effectively a combination of the current “horizontal” and “vertical” retention options and would involve the risk retainer holding a combination of first loss and each more senior tranche in the transaction’s capital structure such that the aggregate holding is at least equal to 5% of the notional securitised portfolio (i.e. the same denominator as for “horizontal” retention).
The proposal also appears to permit such composite holding in any combination, including a scenario where the first loss tranche was thinly held (for example below the 5% required for vertical retention) with the difference being made up by a thicker hold in the more senior tranches. This could provide useful flexibility for CLO collateral managers who are able to obtain external financing for their holding of (rated) tranches above the first loss tranche, for example. As mentioned above however, the practical necessity of catering for EU investors is likely to limit the significance of this proposal.
The Consultation Papers also propose to permit resecuritisation transactions which are otherwise generally prohibited, as long as the underlying securitisation positions are senior, i.e., first-pay tranches. The originator would also need to be PRA-authorised and be the originator and risk retainer of the underlying securitisations.[4] This change therefore appears directed at UK banks securitising their own loan portfolios, retaining the first loss risk and then using the resulting senior securitisation positions as collateral for funding by further securitisation (as opposed to “third party” securitisations such as CLOs and other typical leveraged loan securitisations for example).[5]
The Consultation Papers also clarify that securitisations with “contiguous tranches” do not constitute resecuritisations. Although already the case under the current rules, this clarification is useful as it shows support for structures that simply involve a re-tranching of one or more securitisation tranches by the securitisation’s originator (such as a credit fund that has taken leverage in securitisation format splitting the “equity tranche” in order to facilitate upstream investment) rather than to prohibit such activities or penalise them from a regulatory capital perspective.[6]
As an aside, the Consultation Papers also include a request for feedback on whether CLOs (and certain other transactions) should be excluded entirely from the applicable conduct rules under the Framework (including the risk retention rules). Whilst no rule changes in this regard have been proposed, it appears that the characterisation of CLOs as “leveraged credit funds” rather than securitisations in a traditional sense is being considered as a potential basis for such an exclusion, recognising that a CLO is managed by a regulated asset manager, benefits from a fee structure that ensures an alignment of interests, and—in the case of CLOs of broadly syndicated loans—collateral that has been originated by banks that are themselves subject to strict credit-granting standards. We welcome the tabling of this topic for further consideration.
The consultation period ends on 18 May and the current expectation is that final rules will be published during the second half of this year.
[1] The UK Securitisation Framework is substantively comprised of the Securitisation Regulations 2024 (SI 2024/102), the Securitisation Sourcebook (SECN) of the FCA Handbook, and the Securitisation Part of the PRA Rulebook.
[2] Underlying exposure templates are also proposed to be retained for residential real estate, automobile, consumer and leasing transactions.
[3] Although less important for CLOs (and other securitisations of leveraged loans), the Consultation Papers also propose removing the requirement to report to securitisation repositories.
[4] The associated capital treatment will also not give credit to the seniority of the underlying securitisation positions.
[5] The current rule permitting retention to be held only at the level of the underlying securitisations would likely apply here too.
[6] Where the securitisation’s originator is not involved in such re-tranching this carve-out will continue to be unavailable.