Reporting of securitization after Brexit

Brexit and the Temporary Transitional Power

On January 31, 2020, the UK ceased to be a member of the EU. After a transition period, EU law ceased to apply in the UK as of 31 December 2020 at 11 p.m. this date. This onshore financial services legislation has undergone changes reflecting, among other things, the changing relationship between the UK and the EU, the replacement of EU authorities and regulators by their UK equivalents and different regulatory priorities in the EU and the UK.

In order to give licensed UK businesses sufficient time to adjust to this partial overhaul of the regulatory system, the UK government has empowered the Financial Conduct Authority (“CIF”) and the Prudential Regulation Authority (“ARP”) to make transitional arrangements regarding onshore legislation for a transitional period. This “temporary transition power” (the “PTT”) allowed UK regulators to delay the application of regulatory obligations of regulated companies, or otherwise modify them, when they changed as a result of changes to legislation made through the relocation process .

Using these powers, the PRA and FCA have elected to provide broad transitional relief, with key exceptions, from December 31, 2020 to March 31, 2022 (the “TTP period”). This means that, subject to certain limited exceptions, during the TTP period, UK companies were not required to comply with their obligations under the amended legislation on land, but could instead meet their obligations under complying with previously applicable EU regulations.

The UK Securitization Regulation and the TTP Period

Section 7 of the UK Securitization Regulations requires the originator, sponsor and special purpose vehicle of a securitization to make certain prescribed information relating to the securitization available to investors, competent authorities and, demand, potential investors. The designated reporting entity must make certain prescribed information available to holders of securitization positions, relevant competent authorities and, upon request, potential investors. This information must be made according to the models provided for in the regulatory technical standards. The EU regulatory technical standards (the “EU Transparency RTS”) applied in the UK and EU from 23 September 2020. The UK onshore version of these technical standards (the “United Kingdom Transparency RTS”) have applied in the UK since 31 December 2020.

During the TTP period, UK banks and investment firms subject to the UK Securitization Regulations were allowed to meet their obligations under section 7 of the UK Securitization Regulations using the templates set out in the EU Transparency RTS. From the end of the TTP period, where such firms are subject to the Article 7 obligation under the UK Securitization Regulations, they will be required to use the relevant UK Transparency RTS templates. Although the templates have essentially the same content, there are small technical differences (eg the industry code field for debtor).

The reporting obligation under both diets can occur in certain scenarios, such as:

  • where a transaction such as a CLO has a UK manager and an EU securitization special purpose vehicle (“SSPE”), the UK manager will have a regulatory obligation to complement the UK templates and the EU SSPE will have a regulatory obligation to complement the EU templates; Where

  • where there is a UK entity that is an originator, sponsor or original lender (whether or not acting as retention holder) and there is an EU SSPE, the UK entity will have the regulatory obligation to fulfill the UK models and the EU models The SSPE will have the regulatory obligation to fulfill the EU models.

With regard to the due diligence requirements imposed on UK investors under the UK Securitization Regulation and on EU investors under the EU Securitization Regulation, it is unclear whether EU investors can satisfy their due diligence requirements under Article 5 by receiving the UK models. UK investors, however, should be able to meet their due diligence obligations under Article 5 of the UK Securitization Regulations by receiving the EU templates, as the UK Securitization Regulations allow them to rely on receipt of transparency information which is “substantially the same” as that contained in the UK Transparency RTS. For example, there should be no need to complete the UK templates in respect of securitisations with EU SSPEs where there is no UK originator, sponsor or original lender.

Claire Puddicombe, David Quirolo, Nick Shiren and Daniel Tobias contributed to this article.

© Copyright 2022 Cadwalader, Wickersham & Taft LLPNational Law Review, Volume XII, Number 41

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