Response to HM Treasury Review of the securitisation regulation: Call for evidence

Abstract

We believe that the Securitisation Regulation that came into effect in the UK on 1 January 2019 has had very positive effects on improving the functioning of the securitisation market, enhancing investor protection and financial stability, and paving the way for securitisation to further contribute to the real economy. We think that providing public support for SMEs securitisation and enabling the securitisation of market-based lending to SMEs can further enhance the role of securitisation in supporting SMEs. We also think that despite the various benefits of the STS framework, standardisation of transactions can increase the commonality among bank returns from securitisation activities and reduce the diversity of the securitised loan portfolios leading to increased interconnectedness among financial institutions in the UK. Therefore, we believe that further macroprudential measures, for both the primary lending market and the secondary securitisation market, should be introduced to guard against the threats that securitisation activities could pose to financial stability in the UK.

Another area where the Securitisation Regulation can see improvements is providing further support to ESG investing and green finance. We think that increasing environmental disclosure requirements for Commercial Mortgage-Backed Securitisation (CMBS) and Collateralised Loan Obligations (CLOs) can support the mainstreaming of ESG. We further believe that to support the government’s aims for green finance in the near future, the Securitisation Regulation can extend the scope of environmental disclosure and implement mandatory environmental disclosure for certain types of securitisations. We also see the need for developing a green securitisation standard that may be integrated with the Securitisation Regulation or introduced separately.

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Identifiers

ORCID for Mohamed Bakoush: orcid.org/0000-0001-9624-9828

ORCID for Simon Wolfe: orcid.org/0000-0001-9815-9535

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