Since the UK’s exit from the European Union on 31 December 2020, the UK has “onshored” EU legislation in the UK through the EU Withdrawal Act (EUWA), as amended, including making certain amendments to relevant requirements so that they work in a UK context, resulting in some changes in obligations for firms. HM Treasury gave the UK financial regulators powers to make transitional provisions to financial services legislation for a temporary period post-Brexit, which is known as the Temporary Transitional Power (TTP).

The TTP gave firms time to adapt to the new post-Brexit requirements.  However, this is now ending on Thursday 31 March 2022 so firms need to ensure that they are complying with all relevant EU onshored legislation by 31 March 2022. The TTP applied very broadly, to changes made to onshored EU regulations, the new domestic legislation and the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) rules and Binding Technical Standards. There were certain exceptions to the TTP, including the contractual recognition of bail-in rules and contractual stays.

For more information please see the links to the relevant FCA and Bank of England pages.

What are the main changes for securitisation transactions?

For securitisation transactions, the particular areas you should be aware of that will be affected by the end of the TTP are set out below.

• Retention on a consolidated basis: for legacy EU deals, an originator might have relied on retention on a consolidated basis with its parent in the UK. Consequently, a UK investor might no longer be able to tick the Article 5 box because there is no UK originator retaining on a consolidated basis in the UK. Unless it is possible to get there by another route, then UK entities will not be able to recognise consolidated basis retention if consolidation is with EU entities. EU originators have not been able to do this since the end of 2020. 

• Disclosure templates: Under Article 7(1)(g) of the UK Securitisation Regulation, originators, sponsors and SSPEs established in the UK must report any “public” securitisations within the scope of the UK Securitisation Regulation via a UK securitisation repository using the UK-formatted template forms for loan level data, investors and significant event reporting published by the FCA. Although reporting to a UK Securitisation Repository commenced from 17 January 2022, under the TTP, originators, sponsors and SSPEs are not required to use the new FCA forms until after the end of the transitional period. Some securitisation transactions may require dual reporting and parties might continue the practice of reporting private STS transactions as public. For more information please see our recent client alert: The wait is over as reporting to a UK securitisation repository commences and UK templates are published.

What is not affected by the end of the TTP?

Although the TTP was very broad, certain areas were outside of scope. In the event of relevant equivalence decisions or other recognition regimes, for instance, the TTP would not apply in order to avoid duplicating requirements. For example, the Bank of England introduced a temporary recognition regime that allows EEA CCPs that apply for recognition to continue to clear over-the-counter (OTC) derivatives transactions for a limited period. 

Final thoughts

If you have been relying on the TTP since 31 December 2020, you should check that you have put processes in place in order to meet any new requirements as from 31 March 2022 firms should be in full compliance of all the UK obligations that were previously covered by the TTP.

Going forward, market participants who are operating in both the EU and UK debt capital markets will need to continue to stay abreast of regulatory developments in both the EU and UK and monitor any divergence.

This note is for guidance only and should not be relied on as legal advice in relation to a particular transaction or situation. Please contact your normal contact at Hogan Lovells if you require assistance or advice in connection with any of the above.

Authored by Isobel Wright and Jane Griffiths.