UK regulators propose major overhaul of securitisation rules for greater flexibility and reduced compliance costs

The UK’s principal financial regulators have proposed wide-ranging changes to the country’s securitisation rulebook that, if adopted, would loosen prescriptive requirements on investor due diligence and reporting and introduce new flexibility for retention and resecuritisation structures.

On 17 February 2026 the Financial Conduct Authority published Consultation Paper CP26/6 and the Prudential Regulation Authority set out a closely aligned paper, together seeking market feedback by 18 May 2026. According to the FCA, the reforms are intended to reduce compliance cost and operational complexity that, regulators say, have arisen since the 2024 transfer of most securitisation rules into the UK’s own rulebooks following the repeal of assimilated EU law.

A central shift is from detailed, checklist-style obligations towards a more principles-based regime for institutional investors. Under the proposals, investors would no longer be required to verify, as a matter of rule, specific credit‑granting criteria, formal compliance with risk retention prescriptions, the availability of particular documents in a fixed format, or compliance with STS designation before investing. Instead investors would be expected to form a proportionate view of credit‑granting standards, ensure that manufacturers provide sufficient information to assess risks, and confirm that originators or sponsors retain an ongoing, “sufficient and appropriate” commercial alignment with securitisation performance. The FCA said it will publish non‑exhaustive guidance on ways firms might demonstrate such alignment, including performance‑linked management fees.

The proposals also narrow and simplify initial and ongoing due diligence duties. Rather than prescribing a fixed list of items to be collected or monitored, the rules would require an investor’s assessment to cover the risk characteristics of the position and the structural features that could materially affect performance, while permitting tailoring of information frequency and format to the transaction’s risk profile. The PRA has indicated it will publish illustrative performance indicators firms might monitor.

Regulatory change would affect transparency and reporting practices. The FCA proposes deleting many prescribed underlying exposure templates and removing mandatory XML template production in favour of electronic, machine‑readable disclosures. For several asset classes, credit cards, commercial real estate, corporate loans and certain exotic exposures, manufacturers would be required only to provide a specified set of information rather than complete a rigid template. A simplified CLO template with materially fewer data fields is proposed, and ABCP reporting would move to aggregated monthly disclosures with detailed individual exposure data available on request to investors and specified authorities. The PRA plans to eliminate duplicate templates from its rulebook and allow manufacturers to choose a disclosure channel that gives equitable access to all investors, effectively removing the public/private reporting distinction.

On risk retention, regulators propose adding an “L‑shaped” option that splits the 5% retention between a vertical slice and a first‑loss position (for example, 2.5% of each). The change is pitched as a way for originators to manage capital and funding impacts more efficiently by combining the capital treatment advantages of a vertical slice with the investor alignment of a first loss piece. The FCA’s consultation also seeks views on whether risk retention requirements should be disapplied for some instruments, explicitly flagging CLOs and whole business securitisations as areas for feedback.

The PRA would also narrow the scope of the ban on resecuritisation by permitting, subject to safeguards, two categories of transactions: securitisations created by tranched credit protection on individual loans and resecuritisation of senior securitisation positions used for capital and liquidity management. Conditions proposed include limits on the number of tranching rounds, originator and risk‑retainer eligibility and homogeneity of the underlying assets. The PRA further proposes to exclude contiguous retranching from the definition of resecuritisation to clarify existing market practice.

Legal and market advisers welcomed the drift towards a lighter touch while noting divergence from EU proposals. According to commentary from DLA Piper and other law firms, the UK measures would make it easier for UK investors to access non‑UK product suites, notably US CLOs, by allowing reliance on demonstrated commercial alignment rather than strict compliance with UK‑style retention rules. Skadden and Mayer Brown emphasised the potential operational benefits for buy‑side firms and issuers from simplified reporting and fewer prescriptive monitoring obligations. Cadwalader described the plans as the most significant overhaul of the UK securitisation framework since Brexit, while Morgan Lewis noted new clarifications such as the proposed “sole purpose” test language and readability improvements to the PRA rulebook.

Regulators caution that the proposals would not remove the need for cross‑border diligence where deals are intended to meet EU investor requirements: dual‑compliant transactions would still need to satisfy the EU Securitisation Regulation’s more prescriptive standards, and the papers acknowledge that divergence between UK and EU approaches is likely to increase. Implementation would require both primary legislative change and amendments to the FCA and PRA rulebooks; the FCA expects to finalise rules in the second half of 2026 and the PRA is targeting implementation around the second quarter of 2027, subject to consultation outcomes.

Market participants and other interested parties must submit responses to the consultations by 18 May 2026. Regulators have said they will consider feedback on specific areas including the scope of the rules and the possible disapplication of retention for CLOs before finalising policy.