Prudential Regulation Authority Rulebook

1.1

This Part applies to every firm that is a UK undertaking.

1.2

Unless otherwise stated, this Part applies to:

1. (1) securitisations the securities of which are issued; and
2. (2) in the case of securitisations which do not involve the issuance of securities, securitisations the initial or new securitisation positions of which are created,

on or after 1 January 2019.

1.3

In this Part, unless the context otherwise provides, the following definitions shall apply:

ABCP programme

means a programme of securitisations the securities issued by which predominantly take the form of asset-backed commercial paper with an original maturity of one year or less.

ABCP transaction

means a securitisation within an ABCP programme.

active underlying exposure

means an underlying exposure which, at the data cut-off date, may be expected to generate cash inflows or outflows in the future.

contingent form of retention

means retention of a material net economic interest through the use of guarantees, letters of credit and other similar forms of credit support ensuring an immediate enforcement of the retention.

data cut-off date

means the reference date of the information being reported in accordance with this Part.

debt service coverage ratio

means the annual rental income generated by commercial real estate that is wholly or partially financed by debt, net of taxes and net of any operational expenses to maintain the property’s value, relative to the annual combined interest and principal repayment on a borrower’s total debt over a given period on the loan secured by the property.

established in the UK

means constituted under the law of a part of the United Kingdom:

1. (a) with a registered office in any part of the United Kingdom; or
2. (b) if the person does not have a registered office, with a head office in any part of the United Kingdom.

first loss tranche

means the most subordinated tranche in a securitisation that is the first tranche to bear losses incurred on the securitised exposures and thereby provides protection to the second loss and, where relevant, higher ranking tranches.

fully supported ABCP programme

means an ABCP programme that its sponsor directly and fully supports by providing to the SSPE one or more liquidity facilities covering at least all of the following:

1. (1) all liquidity and credit risks of the ABCP programme;
2. (2) any material dilution risks of the exposures being securitised; and
3. (3) any other ABCP transaction-level and ABCP programme-level costs if necessary to guarantee to the investor the full payment of any amount under the asset-backed commercial paper.

fully supported ABCP transaction

means an ABCP transaction supported by a liquidity facility, at transaction level or at ABCP programme level, that covers at least all of the following:

1. (1) all liquidity and credit risks of the ABCP transaction;
2. (2) any material dilution risks of the exposures being securitised in the ABCP transaction; and
3. (3) any other ABCP transaction-level and ABCP programme-level costs if necessary to guarantee to the investor the full payment of any amount under the asset-backed commercial paper.

inactive underlying exposure

means an underlying exposure that has defaulted with no further recoveries expected or that has been redeemed, prepaid, cancelled, repurchased or substituted.

institutional investor

means an investor which is one of the following:

1. (1) an insurance undertaking as defined in section 417(1) of FSMA;
2. (2) a reinsurance undertaking as defined in section 417(1) of FSMA;
3. (3) the trustees or managers of an occupational pension scheme;
4. (4) a fund manager of an occupational pension scheme appointed under section 34(2) of the Pensions Act 1995 that, in respect of activity undertaken pursuant to that appointment, is authorised for the purposes of section 31 of FSMA;
5. (5) an AIFM (as defined in regulation 4(1) of the Alternative Investment Fund Managers Regulations 2013 (2013/1797)):
6. 1. (a) with permission under Part 4A of FSMA in respect of the activity specified by article 51ZC of the Regulated Activities Order (managing an AIF); and
   2. (b) which markets or manages an AIF (as defined in regulation 3 of the Alternative Investment Fund Managers Regulations 2013) in the UK,
   3. and for the purposes of (b), an AIFM markets an AIF when the AIFM makes a direct or indirect offering or placement of units or shares of an AIF managed by it to or with an investor domiciled or with a registered office in the UK, or when another person makes such an offering or placement at the initiative of, or on behalf of, the AIFM;
7. (6) a small registered UK AIFM as defined in Regulation 2(1) of the Alternative Investment Fund Managers Regulations 2013;
8. (7) a management company as defined in section 237(2) of FSMA;
9. (8) a UCITS as defined by section 236A of FSMA, which is an authorised open-ended investment company as defined in section 237(3) of FSMA;
10. (9) a CRR firm as defined by Article 4(1)(2A) of CRR; or
11. (10) an FCA investment firm as defined by Article 4(1)(2AB) of CRR.

interest coverage ratio

means the gross annual rental income, before operational expenses and taxes, accruing from a buy-to-let property or the net annual rental income accruing from commercial real estate relative to the annual interest cost of the loan secured by the property.

investor

means a person holding a securitisation position.

liquidity facility

means the securitisation position arising from a contractual agreement to provide funding to ensure timeliness of cash flows to investors.

non-performing exposure or NPE

means an exposure that meets any of the conditions set out in Article 47a(3) of CRR.

non-refundable purchase price discount

means the difference between the outstanding balance of the exposures in the underlying pool and the price at which those exposures are sold by the originator to the SSPE, where neither the originator nor the original lender are reimbursed for that difference.

NPE securitisations

means a securitisation backed by a pool of non-performing exposures the nominal value of which makes up not less than 90% of the entire pool’s nominal value at the time of origination and at any later time where assets are added to or removed from the underlying pool due to replenishment or restructuring.

occupational pension scheme

means a scheme within the meaning set out in section 1(1) of the Pension Schemes Act 1993 that also has its main administration in the UK.

original lender

means an entity which, itself or through related entities, directly or indirectly, concluded the original agreement which created the obligations or potential obligations of the debtor or potential debtor giving rise to the exposures being securitised.

originator

means an entity which:

1. (1) itself or through related entities, directly or indirectly, was involved in the original agreement which created the obligations or potential obligations of the debtor or potential debtor giving rise to the exposures being securitised; or
2. (2) purchases a third party’s exposures on its own account and then securitises them.

reporting entity

means the entity designated in accordance with the first subparagraph of Article 7(2) of Chapter 2.

resecuritisation

means securitisation where at least one of the underlying exposures is a securitisation position.

revolving exposure

means an exposure whereby borrowers’ outstanding balances are permitted to fluctuate based on their decisions to borrow and repay, up to an agreed limit.

revolving securitisation

means a securitisation where the securitisation structure itself revolves by exposures being added to or removed from the pool of exposures irrespective of whether the exposures revolve or not.

securitisation

means a transaction or scheme, whereby the credit risk associated with an exposure or a pool of exposures is tranched, having all of the following characteristics:

1. (1) payments in the transaction or scheme are dependent upon the performance of the exposure or pool of exposures;
2. (2) the subordination of tranches determines the distribution of losses during the ongoing life of the transaction or scheme; and
3. (3) the transaction or scheme does not create exposures which possess all of the following characteristics:
   1. (a) the exposure is to an entity which was created specifically to finance or operate physical assets or is an economically comparable exposure;
   2. (b) the contractual arrangements give the lender a substantial degree of control over the assets and the income that they generate; and
   3. (c) the primary source of repayment of the obligation is the income generated by the assets being financed, rather than the independent capacity of a broader commercial enterprise.

securitisation position

means an exposure to a securitisation.

Securitisation Regulations

means the Securitisation Regulations 2024 (SI 2024/102).

securitisation repository

means a body corporate that centrally collects and maintains the records of securitisations.

servicer

means an entity that manages a pool of purchased receivables or the underlying credit exposures on a day-to-day basis.

sponsor

means a credit institution as defined in point (1) of Article 4(1) of CRR or an investment firm as defined in paragraph 1A of Article 2 of MiFIR, whether located in the UK or in a country or territory outside the UK, which:

1. (1) is not an originator; and
2. (2) either:
   1. (a) establishes and manages an ABCP programme or other securitisation that purchases exposures from third party entities; or
   2. (b) establishes an ABCP programme or other securitisation that purchases exposures from third party entities and delegates the day-to-day active portfolio management involved in that securitisation to an entity which is authorised to manage assets belonging to another person in accordance with the law of the country or territory in which the entity is established.

SSPE or securitisation special purpose entity

means a corporation, trust or other entity, other than an originator or sponsor, established for the purpose of carrying out one or more securitisations, the activities of which are limited to those appropriate to accomplishing that objective, the structure of which is intended to isolate the obligations of the entity from those of the originator.

STS securitisation

has the meaning given in regulation 9 of the Securitisation Regulations.

synthetic form of retention

means retention of a material net economic interest through the use of derivative instruments.

synthetic securitisation

means a securitisation where the transfer of risk is achieved by the use of credit derivatives or guarantees, and the exposures being securitised remain exposures of the originator.

territory

includes the EU and any other international organisation or authority comprising countries or territories.

traditional securitisation

means a securitisation involving the transfer of the economic interest in the exposures being securitised through the transfer of ownership of those exposures from the originator to an SSPE or through sub-participation by an SSPE, where the securities issued do not represent payment obligations of the originator.

tranche

means a contractually established segment of the credit risk associated with an exposure or a pool of exposures, where a position in the segment entails a risk of credit loss greater than or less than a position of the same amount in another segment, without taking account of credit protection provided by third parties directly to the holders of positions in the segment or in other segments.