UK securitisation rules set for major reforms to boost market attractiveness

On 17 February 2026 the Prudential Regulation Authority set out a wide-ranging package of changes to the UK’s securitisation rules aimed at easing operational burdens and making the market more attractive to both domestic and international participants. According to the PRA’s consultation paper, the measures respond to industry concerns and the regulator’s own supervisory experience that the current framework, much of which was tightened after the global financial crisis, has become excessively detailed and costly to apply.

The proposals, published alongside a parallel consultation by the Financial Conduct Authority, would affect originators, sponsors, original lenders, securitisation special purpose entities and institutional investors that are “established in the UK.” Both consultations run to 18 May 2026 and, the PRA says, final rules are expected later in 2026 with a target implementation in the second quarter of 2027.

Risk retention and resecuritisation
A central feature of the reforms is a change to the ways manufacturers can demonstrate “skin in the game.” The PRA proposes adding a new “L-shaped” risk retention option to the existing set of modalities. Under the design set out by the PRA, total retained risk would still need to be at least 5% of the nominal exposure, but the split between first-loss and vertical retention would be calculated in sequence and, where there are multiple retainers, applied pro rata.

The regulator says the new option is intended to help align UK securitisations with structures favoured by US and other international investors and to support cross-border issuance. At the same time the PRA would retain the fundamental requirement that manufacturers maintain meaningful exposure to securitised assets.

The consultation also proposes targeted carve-outs to the existing near‑ban on resecuritisations. Two narrow exemptions are described: resecuritisations limited to positions created solely by tranched credit protection (for example certain mortgage guarantee arrangements) and resecuritisations composed only of senior securitisation positions. Each exemption would be conditional on safeguards such as PRA authorisation of the originator, a single round of resecuritisation, homogeneity of the asset class and inclusion of all positions in the underlying deal. The PRA proposes corresponding capital treatments for UK banks under the UK Capital Requirements Regulations for both forms of permitted resecuritisation.

Credit‑granting and underwriting
Although the consultation relaxes many prescriptive elements of the rulebook, the PRA signals a stricter stance on underwriting standards. The paper would clarify that firms must apply sound, clearly defined credit‑granting criteria to exposures intended for securitisation, and it replaces references to “non‑securitised exposures” with a requirement to compare standards against any directly comparable assets remaining on the firm’s balance sheet. The PRA expressly prohibits applying looser standards to assets destined for securitisation than to comparable on‑balance‑sheet assets, a change the consultation says is intended to guard against a lowering of origination quality.

Transparency and reporting
To reduce compliance costs, the PRA and FCA propose simplifying documentation and reporting obligations. Manufacturers would be able to rely on a single comprehensive offering document, prospectus or term sheet together with transaction documents, rather than meeting a prescriptive list of disclosure items. The consultation would remove several mandatory templates from the PRA rulebook and transfer redesigned templates into the FCA Handbook, while leaving firms free to determine the form of investor reporting so long as required information is provided. For certain asset classes, credit cards, commercial real estate, corporate debt and niche insurance‑linked or “esoteric” ABS, the PRA proposes an asset‑class‑specific, proportionate approach that may allow more aggregated disclosures where markets prefer them.

Investor due diligence and ongoing monitoring
Buy‑side obligations would move from detailed, prescriptive checks to a more principles‑based, proportional approach. The PRA proposes removing investors’ obligations to verify manufacturers’ compliance with specific credit‑granting, risk‑retention or STS criteria and to confirm the availability of particular information before investing. Instead, investors would be expected to form a thorough understanding of a securitisation’s risk characteristics and structural features, and to monitor performance in a manner proportionate to the exposure. Explicit requirements for written monitoring procedures, mandated stress testing of cash flows and collateral values, and mandated internal reporting would be replaced by general supervisory guidance and illustrative examples.

Practical effects and unresolved points
Market participants can expect materially less operational complexity if the package is adopted as drafted. Manufacturers gain greater structuring flexibility and potentially lower transaction costs; investors face lighter prescriptive duties but must rely more heavily on internal risk assessment. The PRA argues that the changes should support renewed UK issuance and greater participation by domestic banks, in part through proposed adjustments to capital treatment under the UK CRR, including a more risk‑sensitive internal‑ratings‑based approach for single‑loan mortgage securitisations.

However, the consultation does not alter the treatment of securitisation positions under the UK Solvency regime, a gap noted in the paper. By contrast, the EU has already moved to relax Solvency II calibration for STS securitisations: a Commission Delegated Regulation published on 18 February 2026 will, when it enters into force on 30 January 2027, require only one eligible credit rating for certain STS positions and permit lower risk factors for senior tranches more closely aligned with corporate or covered bonds. The lead article suggests UK insurers could be put at a disadvantage unless Solvency UK follows suit or regulators address the discrepancy in a future exercise.

Wider reform context
The securitisation consultation sits within a broader UK regulatory review agenda. HM Treasury’s recent consultations have signalled an appetite to reduce compliance burdens across the financial sector: in July 2025 the government consulted on reforming the Senior Managers & Certification Regime to ease friction when appointing executives; in September 2025 it proposed incorporating the Payment Systems Regulator into the FCA to streamline oversight of payment systems; and in December 2025 HM Treasury and the FCA sought views on a revised regime for benchmarks and benchmark administrators. Earlier reform measures such as the Overseas Funds Regime, introduced in May 2024, show a continuing policy emphasis on widening investor choice and encouraging market competition.

Next steps
Both the PRA and FCA are seeking industry responses by 18 May 2026. The regulators say they will publish final rules later in 2026 and aim to bring the reforms into force in Q2 2027. Market participants should assess operational and governance frameworks against the proposals and consider replies to the consultations ahead of the deadline. The ultimate effect on UK‑originated securitisation volumes will depend on the final rule design, the interaction with Solvency UK, and whether complementary measures are taken to align UK prudential regimes with international developments.