Never has regulatory release been so unanimously well received within the securitization market as the consultation published by the FCA and PRA a week ago.
“It all just makes total sense,” one analyst enthused.
Making sense might not seem like a lofty bar, but this was high praise from a market that participants feel has been shunned ever since 2008.
There’s no doubt that the UK regulators have been bold in making use of their authority to set the rules. Their proposals are a welcome and sharp turn away from the practice of layering quick fix upon quick fix.
Moving away from strict and specific rules to a new era of principles-based guidance will require a proactive approach from both the regulators and the market.
If there is uncertainty on regulation, deals will die, and market practice will tend towards caution. Most investors, particularly in Europe, prefer to make their money by judging credit risk, not regulatory risk.
But it seems like the regulators are keen to make the new regime work. Those in the market speak highly of the UK regulators. There is a sense that they are keen to keep up with market developments and make regulations that are conducive to protecting financial stability and consumers, while allowing the market to function efficiently.
The interplay with the EU is also interesting. As Tom Hall highlights here, whether the UK will just end up having to follow the EU rules anyway is the elephant in the room.
Before the service providers start licking their lips at the prospect of all the dual compliance work, the UK regulators are clearly aware of what the EU is doing. They have made a provision that, in most cases, EU compliance only is acceptable.
It remains an open question how much more the two regimes will influence each other. Clearly, the UK and EU are on different paths now. The FCA and PRA have done what they felt was right, while the EU is probably too far along in making its own set of new rules to copy the UK. Not that it would want to be seen doing that.
On bank capital requirements, it gets interesting. The EU has had a radical rethink, while the UK is largely sticking to the line that the issue needs to be dealt with on the international level. How long can that position hold when others are breaking ranks?
