Regulatory reform is back on the menu in securitization after last week's Global ABS was headlined by Conservative peer, Jonathan Hill calling for further deregulation of the market. But participants desperate for change need to start making their case to the UK Labour party, rather than the government.
Since the publication of the Edinburgh Reforms by the UK government back in December, there has been a semblance of hope that the country could quickly usher in radical reforms to its securitization market.
However, the foundations to that optimism are shaky.
Firstly, what has so far been published on the reforms is very light on detail. As one lawyer told GlobalCapital in December, "it doesn't really say a lot".
Then, there's the political situation. The next UK General Election must happen by January 2025, but there are expectations of an autumn 2024 poll.
The Labour party, led by Sir Keir Starmer, are essentially a government-in-waiting. Since the LDI crisis, Labour have consistently been more than 10% ahead in the polls, while the governing Conservative party continue to career from one crisis to another.
Behind the scenes at Westminster, various lobbyists, think-tanks and journalists are already shifting their focus in preparation for a Labour government.
It feels like a question of how big the Labour majority will be, rather than if they'll get one. Indeed, data from pollster Electoral Calculus' poll of polls predicts Labour could have a near 200 seat majority with 420 seats of their own. That is hovering around 1997 Tony Blair levels, when his Labour party won a landslide 179 seat majority.
Therefore, any excitement over the Edinburgh Reforms becomes rather pointless if Labour don't want to pick up that specific deregulatory baton. And the indication so far is that they do not.
When GlobalCapital first reported on the Edinburgh Reforms, shadow city minister Tulip Siddiq was not particularly impressed.
“Introducing more risk and potentially more financial instability because you can’t control your backbenchers is this Tory [Conservative] government all over," she emailed back in December. "That this comes after the Tories crashed our economy is beyond misguided."
You could argue that a classic Labour opinion would be that more financial regulation is good, and less regulation is bad, but as the party prepares for government, they are far from complacent.
GlobalCapital understands that Starmer's office are on a mission to widen the party's appeal, focusing inevitably on big business and finance as election day draws ever closer. Yet, like any decent opposition, there isn’t a great deal of detail on Labour's plans for financial services reform, let alone securitization specifically.
If an election win is getting more and more likely by the day, Labour will be acutely aware that a follow up victory four or five years later will depend largely on one issue: the economy. On Monday, Starmer said he wanted to "cut bills, create jobs and provide energy security", alongside plans to base a publicly owned green energy company in Scotland.
And what better tool from the capital markets than securitization, market participants must ask.
Through securitization, government support schemes in the US have made installing residential solar panels an affordable reality for consumers and the market continues to grow with nearly $5bn of solar ABS issuance in 2022. Europe, including the UK, is yet to register a single public solar ABS.
Better regulation could also ease pressure on mortgage lenders, and by extension the UK housing market, particularly as rate rises begin to bite UK households. If it becomes easier to issue RMBS, the UK market should become more liquid and keep margins tighter for issuers.
Finally, in times of crisis — as the UK saw after Liz Truss' mini-budget — securitization was able to act as a resilient safe-haven asset class.
There's plenty of benefit for Labour but the market must begin the task of further convincing them. The likes of Afme will be surely be crucial in those educational efforts.
The UK securitization market is clearly hoping that things can only get better. The next question is do Labour?