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Following publication of HM Treasury’s near final statutory instrument and consultations by the PRA and FCA, all aiming to adapt the inherited EU Securitisation Regulation for a post-Brexit UK, the PRA has now issued a Discussion Paper on the Capital Requirements for Securitisation.
The paper focuses on the consequences for the capital requirements of securitisations of the Basel 3 output floor, the hierarchy of methods for determining these capital requirements and a possible STS for on-balance-sheet (synthetic) securitisations.
The initial suggestions of the PRA in all 3 areas deviate from the current trends in EU regulation and are not altogether cheerful: no halving of the p-factor for the purpose of the output floor calculation, a return to the Basel hierarchy of methods and no synthetic STS. However, the PRA did express strong support for a revisiting of the whole capital requirements calibration of securitisations, so some light at the end of the long tunnel might be discerned by optimists.