Preparing for a Liberalised UK Securitisation Framework

In February 2026, the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) published parallel consultation papers (FCA CP26/61 and PRA CP2/26) proposing substantial reforms to the UK Securitisation Framework. The proposals mark a clear shift from the prescriptive, verification‑heavy approach inherited from the EU towards proportionate, principles‑based regulation intended to liberalise the market without materially compromising safety standards.

The FCA and PRA rules are expected to be finalised later in 2026, with implementation anticipated in the second quarter of 2027. In parallel, HM Treasury (HMT) is considering targeted amendments to the UK Securitisation Regulations 2024, including potential removal of the securitisation repository regime and adjustments to the due diligence framework for pension schemes.

This article summarises the proposed reforms, highlights areas of potential concern or complexity, and identifies aspects of the regime that would remain unchanged. Buy-side participants (institutional investors) and sell-side parties (originators, sponsors, and securitisation special-purpose entities) will find practical guidance for preparing their operations ahead of implementation.

A Principles‑Based Turn — Assessment of the Proposals

If adopted, the reforms would effect a significant and largely welcome recalibration of the UK securitisation regime. Originators and sponsors would gain greater structuring flexibility, particularly in relation to risk retention modalities, disclosure mechanics, and information templates. For investors, the removal of “pseudo-supervisor” verification obligations and expanded access to certain non‑UK securitisations — notably US collateralised loan obligations (CLOs) — represent material improvements. The regulators, it seems, have accepted that institutional investors should not be conscripted as unpaid compliance officers.

The shift to principles‑based requirements, however, would require firms to develop internal methodologies and exercise more nuanced judgement. In the short term, this may lead to divergent market practice, particularly around investor reports, approaches to demonstrating “sufficient alignment of commercial interest”, and the implementation of new or revised templates (including a new CLO‑specific template). Market participants involved in cross-border deals may not necessarily benefit from added flexibility where they remain bound by EU requirements.

Important areas remain outside the scope of this reform package. Synthetic securitisations remain ineligible for Simple, Transparent and Standardised (STS) status — a designation that can potentially confer preferential regulatory capital treatment. CLOs remain fully in scope with no exemption from key conduct rules, and restrictions on the transfer of risk retention interests are not materially relaxed. Despite these limitations, the overall trajectory is towards a more competitive, less mechanistic UK framework.

In addition, the PRA securitisation rules would also undergo a structural and cosmetic overhaul to align more closely with the FCA Handbook — housekeeping that is overdue but welcome.

What Transaction Parties Can Expect — Key Reform Areas

Due diligence requirements

Under the current regime, institutional investors must verify that manufacturers — the sell-side parties responsible for structuring the securitisation — have complied with credit-granting, transparency, and risk retention rules, and must confirm STS compliance where relevant. A mandatory checklist of structural features must also be assessed. The proposals would remove these prescriptive verification obligations, replacing them with a principles-based standard requiring investors to be satisfied that at least one sell-side party has made, and will continue to make, sufficient information available to assess the risks involved. Investors would still need to achieve a “comprehensive and thorough understanding” of the relevant risks — including the securitisation position, underlying exposures, structural features, and (where relevant) credit granting standards of originators or original lenders other than for trade receivables.

For non-UK securitisations, the prescriptive risk retention verification model would be replaced by an obligation for investors to assess whether “sufficient alignment of commercial interest” exists between investor and manufacturer. Risk retention — requiring sell-side parties to retain a 5% net economic stake in the securitisation, to ensure their interests align with those of investors — has been a cornerstone of post-crisis regulation. The proposed guidance indicates that alignment may be demonstrated through traditional 5% retention or alternatives such as performance-linked management fees, opening the door to investment in certain overseas transactions, including US CLOs, that were effectively inaccessible under the existing regime.

Ongoing monitoring requirements would also be streamlined. Detailed rules specifying items to be monitored, mandatory stress testing, and granular internal reporting requirements would be removed or recast as non-binding guidance. These changes would relieve investors of supervisory-type checking of manufacturer compliance, but place greater emphasis on their own risk assessment frameworks. Firms that have grown comfortable with ticking boxes may find the transition to judgement-based assessment more demanding than anticipated, though investors are likely to welcome the flexibility to determine the appropriate level of diligence on a case-by-case basis.

Risk retention

The proposals introduce new flexibility in how sell-side parties may satisfy risk retention requirements, while leaving some longstanding constraints intact.

Most notably, a sixth retention modality would be introduced: the “L-shaped” option, permitting a combination of vertical (pro rata across all tranches) and first-loss (junior tranche) retention, provided the aggregate retained interest is at least 5%. This aligns the UK more closely with other jurisdictions and offers useful structuring flexibility. However, all originators opting for L-shaped retention would need to retain, on a pro rata basis, the same percentage of both the first-loss tranche and the nominal value of other tranches. Multi-seller structures may find this operationally complex — the arithmetic alone is likely to keep structurers occupied.

A question arises for synthetic significant risk transfer securitisations: whether synthetic excess spread (SES) could count towards the first-loss element of L-shaped retention. While the EU does not permit L-shaped retention, it explicitly allows SES to count towards first-loss retention. The FCA and PRA have appeared to be open to clarifying in the new rules that SES could count towards the first-loss retention and, by extension, to the horizontal piece of an L-shaped retention. This would promote harmonisation with EU rules and broaden the appeal of this new UK option.

Transparency and reporting

The transparency framework would be simplified and re‑oriented towards principles‑based disclosure. The detailed list of specified documents that must be provided to investors, potential investors, and supervisors would be replaced by a general requirement to provide “all documents necessary for understanding the transaction” alongside the offering circular, prospectus, or term sheet. Private securitisations would no longer need a standalone transaction summary, and the deadline for final documentation and STS notifications post-closing would be extended from 15 to 30 days. For sell-side parties, this would represent a meaningful reduction in prescriptive requirements, though it would demand careful attention to which information is genuinely “necessary for understanding the transaction”.

The obligation to report to registered securitisation repositories would fall away entirely (subject to HMT putting forward an enabling Statutory Instrument), though repositories may continue to exist on an unregulated, commercial basis.

The current FCA/PRA direction governing private securitisation notifications would be replaced by FCA Handbook rules, and the PRA proposes that manufacturers submit all such notifications to the FCA only, with aggregated data shared with the PRA — a sensible rationalisation. The operational mechanics (email submission) would remain unchanged. For most transparency requirements, regulators would not distinguish between public and private securitisations; the same underlying exposure templates would apply where relevant to the asset class, though a private securitisation notification to the FCA would still be required.

The FCA and PRA propose significant rationalisation of underlying exposure and investor reporting templates, coupled with targeted additions. The PRA would delete all disclosure templates from its Rulebook and require PRA-authorised firms to use FCA templates, streamlining duplication and promoting standardisation.

Underlying exposure templates for commercial real estate, corporate (non‑CLO), credit card, esoteric, and asset-backed commercial paper (ABCP) asset classes would be deleted, along with associated investor report and inside information/significant event templates. Principles-based rules would specify the types of information to be disclosed, while leaving format choices to manufacturers. The quid pro quo for this flexibility is that manufacturers must design and document methodologies to meet the new disclosure expectations.

Templates for residential mortgages, auto loans, leases, and consumer loans would be retained in simplified form, with fewer fields in most cases (residential real estate, for example, would decrease from 107 to 96 fields). The lease template is a notable exception, with a modest increase in field count. These retained templates would be brought broadly into line with Bank of England (BoE) loan-level templates, facilitating dual use for regulatory and collateral purposes. Full alignment will not be achieved, so reporting entities may still need to add fields beyond BoE requirements, though new FCA guidance would allow reporting via the BoE template plus any required “top-up” data. Whilst this effort to reduce duplicative reporting is a welcome step, it falls short of genuine simplification, since firms would still need to maintain parallel reporting infrastructure and translate existing BoE or FCA data into the new template format.

In a pragmatic nod to cross-border realities, compliance with EU transparency rules would be deemed to satisfy UK requirements for most asset classes (other than CLOs), reducing the burden for manufacturers operating in both markets. The current “ND1–ND5” scheme for missing data would be replaced with a straightforward “Mandatory/Optional” distinction, and the obligation to provide information in XML format would fall away — any electronic, machine-readable format would be acceptable. Single-exposure securitisations, including those under the Mortgage Guarantee Scheme (MGS), would be exempted from underlying exposure templates.

A new, simplified CLO‑specific template would be introduced, with approximately 43% fewer data fields than the current corporate template. At first glance, this suggests a meaningful reduction in the compliance burden for CLO managers. However, CLOs contemplating dual compliance with EU and UK transparency requirements would need to continue preparing EU reporting data while also redesigning systems for the new UK format. Helpfully, the FCA is also considering exempting the warehouse phase from the CLO template requirement — a pragmatic acknowledgement of the operational realities of CLO ramp-up.

The distinction between ABCP and non‑ABCP securitisations would remain, with ABCP reporting shifting towards aggregated stratification data for underlying exposures. However, the proposed rules would still require originators of ABCP programmes or transactions to make available “upon request” loan‑level data to sponsors, investors, and the FCA — meaning systems must remain capable of producing granular data even where aggregated reporting is the norm.

While templates are being pared back, the principles‑based regime would still require provision of specific data points for deleted asset classes. Sell-side firms could expect more flexibility in presenting information to investors, though this may lead to initial variability in reporting styles until the market settles on a common approach. Manufacturers should be able to supplement the templates with additional data where appropriate, such as augmenting them with ESG and sustainability data or satisfying rating agency criteria — further guidance from the FCA confirming this would be helpful. If investors require data beyond the standard templates (including data previously provided under legacy formats), this should be addressed in the transaction documentation.

The net effect would be a lighter but not insubstantial compliance burden. Sell-side parties would need to invest in documentation and systems to meet new expectations — especially CLO issuers, which would need to adjust to the new CLO template and prepare for dual-reporting cross-border transactions with EU templates. The current proposal does not contemplate an extended transition period, so reporting parties should track closely as the Q2 2027 deadline approaches.

Resecuritisation

The regulators intend to preserve the general prohibition on resecuritisation, but with exemptions for certain structures manufactured by PRA‑authorised firms. Two categories would qualify: securitisations of securitisation positions consisting of a single exposure and its related credit protection (for example, MGS-guaranteed loans), and securitisations of senior-most securitisation positions. Institutional investors subject to FCA rules would be able to invest in these exempt resecuritisations without an FCA waiver, and the PRA proposes more benign capital treatment for CRR firms’ exposures to such structures. The exemptions are narrow and restricted to PRA‑authorised originators and homogeneous underlying exposures.

For ease of reference, the draft rules would relocate the clarification that retranching contiguous tranches into one or fewer tranches does not create a resecuritisation to the risk retention section (SECN 7) in the FCA Handbook.

Credit granting criteria

Underwriting standards for securitised exposures would be relaxed modestly. The requirement that underwriting criteria for securitised assets be “the same” as those for comparable assets retained on balance sheet would be replaced with a “no less stringent than” test. References to “non-securitised exposures” would be replaced with “comparable assets remaining on the balance sheet, if any”, better reflecting commercial practice where originators may securitise entire portfolios. This should give originators practical flexibility while maintaining broadly comparable credit discipline.

What Is Not Changing

Despite the breadth of the proposals, several important elements of the existing framework would remain untouched. Market participants hoping for more radical change in certain areas may be disappointed.

CLOs remain fully within the scope of the securitisation framework, with no exemption from key conduct rules. The FCA considered arguments that CLOs share characteristics with asset management structures and that current risk retention requirements may be misaligned with CLO managers’ economic incentives (including management fees, performance fees, and equity holdings). However, the FCA has not, at this stage, found the case compelling and proposes no exemption — though it expressed an openness to further data‑driven submissions in its consultation, which ended in May.

The delegation framework for institutional investor due diligence, recently updated as part of the UK Securitisation Regulation repeal and replacement, is not being revisited — which may be good news. Currently, if a UK institutional investor instructs another UK-regulated institutional investor to carry out its due diligence activities, that managing party is responsible for compliance with the due diligence rules. This contrasts with less permissive EU proposals that would hold EU institutional investors liable for the shortfalls of those investing on their behalf.

The sole purpose test, which determines whether an entity can act as risk retainer, also remains substantively unchanged; the UK rules continue to be framed somewhat less prescriptively than the EU equivalent, but no further relaxation is proposed.

The FCA and PRA have not proposed adopting the EU approach that allows transfers of retained interests in specified circumstances beyond the retainer’s control. The UK regulators’ waiver powers may ease individual cases, but this remains an area where the UK framework is notably less accommodating than its European counterpart. Similarly, there is no move to allow servicers of non-performing loans to act as risk retainers, in contrast with EU rules.

We also would have hoped for further flexibility to allow risk retention on a cross-border, consolidated basis (either within a prudential consolidated group or in accordance with accounting rules and procedures).

The substantive STS criteria for both ABCP and non‑ABCP securitisations are unchanged. Synthetic securitisations — where credit risk is transferred via derivatives or guarantees rather than true sale — remain ineligible for STS status, notwithstanding EU developments extending STS treatment to certain on-balance-sheet synthetic securitisations. The regime governing sales of securitisation positions to retail clients is also unchanged. The continued exclusion of synthetic securitisations from STS eligibility is a missed opportunity, given their growing acceptance elsewhere and utility for bank balance sheet management.

Looking Ahead to Implementation

While these proposals are not yet finalised, they give a strong indication of the regulators’ intended trajectory. Unlike EU legislation (which must navigate inter-institutional compromises among the Commission, Parliament, and Council) FCA and PRA rules can be developed with relative agility. The regulators have signalled they are “in listening mode”, and while the consultation process may refine details, wholesale departures from the proposed direction seem unlikely.

If adopted, the reforms would require meaningful preparatory work from both buy‑side and sell‑side participants. Investors would need to re-map internal policies, procedures, and checklists to the new principles-based requirements, and develop robust frameworks for assessing “sufficient alignment of commercial interest” in non-UK transactions — a task requiring careful legal and commercial judgement rather than mechanical box-ticking. In the absence of grandfathering or transitional provisions, sell-side parties should review reporting processes and adjust systems for revised, deleted, and new templates in advance of the expected Q2 2027 deadline — particularly for the new CLO template and “top-up” reporting against BoE formats. 

The Securitisation Part of the PRA Rulebook would also be reorganised, grouping related provisions into coherent chapters. This is presented as a housekeeping exercise with no substantive policy change, but should make the rules more navigable. Were the proposals adopted, market participants should bear this in mind when drafting transaction and disclosure documents, as individual rule references would require updating.

Both sides of the market should prepare for a period of market-driven standard-setting in areas where prescriptive templates and lists would fall away. Structuring will increasingly need to be tailored for cross-border transactions involving a US or EU nexus. Early engagement with industry associations, legal counsel, and peer networks would be valuable in shaping emerging best practice.