UK auto ABS is back! There had been only one deal so far this year, but since the FCA set out its redress scheme for the discretionary commission scandal, some supply is emerging. BMW priced a trade last week, and Oodle is set to follow this week.
In CLOs, Barings achieved another middle market breakthrough by becoming the first to pool euro and sterling loans together. It dealt with the thorny issue of FX risk, convincingly enough to earn triple-A ratings from S&P and KBRA at 44% subordination, by issuing pari passu sterling and euro senior tranches.
It has been easy to miss amid all the primary action, but regulatory reform has been rumbling on.
Last week, the PRA set out its near-final bank capital rules for securitization positions, and the changes mean more EU-UK divergence.
Rules split
Capital rules matter to the overall demand in the market and to the relative competitiveness of EU and UK banks, but from an issuer’s perspective, diverging rules in securitization regulations could be more important. Different investors facing different capital rules is not as inconvenient as having to undertake two separate sets of disclosure, for instance.
Comparing the PRA's new rules to the proposed EU rules, two big areas of divergence are STS for synthetics, which the EU allows and the UK does not, and risk weight floors, which the EU is planning to base on the risks of individual securitized portfolios, while the PRA will keep fixed.
The PRA says it “acknowledges that lowering the current fixed risk weight floor could further support risk-sensitivity”, but it “maintains that an increase in risk-sensitivity would best be considered at an international level”.
The problem with that is, other countries don’t seem to agree.
Indeed, the EU is continuing to press ahead with its reforms.
The European Commission’s Solvency II consultation has now closed, and last week it put its final proposal forward — in which the securitization section was not changed from the pre-consultation draft — for consideration by the European Parliament and European Council, who can accept or reject the Commission’s proposal, but not amend it. The proposed rules will apply from January 2027 if adopted.
Regulations debate
Meanwhile, the Parliament’s Econ Committee has begun debating the level one proposals on the Securitization Regulation and the Capital Requirements Regulation that the Commission put forward in June.
As level one changes are subject to amendment by both the Parliament and the Council, it will take longer for them to become law than the Solvency II proposals.
The Econ Committee held a hearing on October 13, during which representatives of True Sale International, Finance Watch, AFME, and the European Systemic Risk Board each gave presentations.
According to a note published by Norton Rose Fulbright, “rapporteur, Ralf Seekatz, is planning to publish a draft report containing proposed amendments in December 2025 or January 2026”.
“The draft report will then be discussed in the Econ Committee, and shadow rapporteurs and other Econ Committee members will be able to propose their own amendments. Thereafter, the Econ Committee is expected to vote on the European Parliament’s position in the beginning of May 2026,” the note added.