Eligibility

Originators

Outside licensing considerations, are there any restrictions on which entities can be originators?

Other than licensing considerations and contractual restrictions that may limit assignability of assets, there are no restrictions on the entities that may act as originators in securitising assets.

Receivables

What types of receivables or other assets can be securitised?

For assets to be securitised, it is necessary that they are capable of being transferred to an SPV, or, in the case of synthetic securitisation, that the credit risk in respect of them may be transferred. The Securitisation (Amendment) (EU Exit) Regulations 2019 (the UK Securitisation Regulation) prohibits, with very limited exceptions, re-securitisations (ie, securitisations of assets that are themselves interests in securitisations). Apart from those limitations, there is no legal restriction on English assets that can be securitised.

Typically, only assets that have a defined or identifiable and stable cash flow are securitised. Examples of English assets that have been securitised include residential mortgage loans, commercial mortgage loans, leases and rental receivables, credit card receivables, consumer finance contracts, auto loans, corporate loans, trade receivables and public utility revenues.

Investors

Are there any limitations on the classes of investors that can participate in an offering in a securitisation transaction?

The UK Securitisation Regulation prohibits the sale of investments in securitisations to investors that are classified as retail clients unless certain conditions are satisfied, including that:

  • the seller has performed a suitability test on the retail client and is satisfied that the securitisation position is suitable for the retail client; and
  • the amount invested by the retail client in securitisation positions satisfies certain minimum and maximum amounts.

 

Chapter III of Commission Delegated Directive (EU) 2017/593 of 7 April 2016 provides for the implementation of product governance rules with which banks and investment firms must comply when manufacturing (ie, creating, developing, issuing or designing financial instruments) and distributing complex financial instruments. The UK has implemented these rules through the FCA Handbook’s Product Intervention and Product Governance Sourcebook. Securities issued as part of a securitisation are within the scope of the rules. Manufacturers of complex financial instruments are required to identify a target market for them based on suitability metrics that include knowledge, experience, risk appetite and ability to absorb losses.

Custodians/servicers

Who may act as custodian, account bank and portfolio administrator or servicer for the securitised assets and the securities?

The roles of account bank and custodian (where custodial assets include any transferable securities) performed in the UK involve regulated activities and may only be performed by a bank or investment firm authorised by the PRA or FCA to perform such activity.

The roles of portfolio administrator or servicer, if performed in respect of certain types of assets, such as residential mortgage loans or consumer finance contracts that have UK borrowers, may only be performed by a bank or investment firm authorised by the PRA or FCA to perform such activity. An authorisation is not required in the UK to perform portfolio administration or servicing for other types of UK-situate assets.

Public-sector involvement

Are there any special considerations for securitisations involving receivables with a public-sector element?

There are no specific requirements for securitisations involving public-sector receivables. A public-sector entity may be entitled to claim sovereign immunity or may be subject to statutory limitations on its capacity to contract, which may affect whether or not receivables owed by it are enforceable. Specific due diligence is advisable in respect of such issues. Securitisations of public-sector receivables are exempt from the risk retention requirement under the UK Securitisation Regulation.