The Prudential Regulation Authority and Financial Conduct Authority thrilled the UK securitization market on Tuesday when they launched a joint consultation on significant reforms to UK Securitization Regulations.
The proposals would make it easier for UK investors to buy foreign securitizations by lightening their due diligence requirements.
They would also help UK issuers by simplifying templates for transparency and reporting requirements and giving more flexibility on setting up risk retention.
The UK setting its own regulations, slashing European codes which many in the market have long argued are too burdensome, seems like the paradise Brexiteers promised.
However, as many argued at the time of the 2016 referendum, the reality may be more complicated.
While many sections of the UK's public ABS market, like prime residential mortgage-backed securities, are supported almost exclusively by UK investors, the European buyer base is too big to ignore.
Liquidity in UK bonds will eventually dry up if issuers do not accommodate European investors, allowing them to buy the bonds in the secondary market.
This means UK issuers will have to provide the longer and more complicated European disclosure templates, so that European investors can do their mandatory due diligence.
UK issuers will also have to set up risk retention to comply with European standards.
Borrowers in the UK could try branching out into the US Rule 144A market, but the products are not easily transferable. UK and European investors prefer floating rate ABS, for example, while US funds prefer fixed rate.
This is not a major blow for the UK market; it just means UK issuers should keep one eye on where Europe is heading with its regulatory reforms.