BOE outlines holistic securitisation policy for growth
The Bank of England's Prudential Regulation Authority (PRA) outlines its holistic approach to securitisation policy. The aim is to balance financial stability with competitiveness and economic growth, learning from past regulatory experiences.
Navigating the regulatory fairway
Securitisation policy has historically swung between underregulation pre-Global Financial Crisis (GFC) and overregulation since, leading to missed benefits for banks like reduced funding and risk transfer.
The Prudential Regulation Authority (PRA) seeks a balanced 'fairway' approach, avoiding two extremes.
An overly lax framework risks a return to poor underwriting and undermined market confidence.
An overly strict approach, viewing securitisation as uniquely risky, would forgo growth benefits and limit credit.
The PRA's strategy is guided by its primary safety and soundness objective and a secondary competitiveness and growth objective.
This holistic view ensures regulation promotes efficient resource allocation and improves the UK's attractiveness for financial services, fostering both stability and growth.
Prudential rules and red tape
The PRA adjusts Basel's Standardised Approach (SA) for securitisations, finding its international calibration too conservative; a balanced, risk-sensitive calibration now ensures higher capital for riskier positions, supporting competition and growth.
For conduct and compliance, the PRA moves away from prescriptive post-GFC rules, proposing reforms via CP2/26 to make the UK securitisation regime more efficient, flexible, and accessible by removing unnecessary barriers and costly obligations.
These changes, focusing on core principles, aim to support safety and soundness by improving liquidity access and risk transfer.