The Prudential Regulation Authority (PRA) issued a statement of policy setting out how it will exercise its powers under section 55M of the Financial Services and Markets Act 2000 (FSMA) and section 192C of FSMA in relation to Articles 244(3)(b), 245(3)(b), 254(4) and 258(2) of the Securitisation (CRR) Part of the PRA Rulebook. The policy applies to all firms within scope of the Securitisation (CRR) Part and is effective from 1 January 2027. In the context of Articles 244 and 245, the PRA expects to use these powers to preclude an originator from recognising significant credit risk transfer (SRT) where the reduction in risk weighted assets (RWA) is not justified by a commensurate transfer of credit risk throughout the life of the transaction, taking a substance-over-form approach and considering transaction features that undermine effective risk transfer. For Articles 254 and 258, the statement explains how the PRA may use the same powers to prohibit use of the Securitisation Standardised Approach (SEC-SA) or preclude use of the Securitisation Internal Ratings Based Approach (SEC-IRBA), including where the Securitisation External Ratings Based Approach (SEC-ERBA) may better reflect risk; the assessment may consider non-credit risks and structural features not captured in SEC-SA or SEC-IRBA, the appropriateness of underlying portfolio risk weights, and the aggregate impact on a firm’s overall capital requirements. The policy also notes that action could be taken to mitigate financial stability risks identified with the Financial Policy Committee or on the PRA’s own initiative, may apply to a single position or a defined group of positions, and could result in a 1,250% risk weight for certain unrated securitisation positions where a rating may not be inferred; it is not intended to limit the PRA’s statutory discretion to use these powers.

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