The UK left the EU single market at 11:00 pm (London time) on 31 December 2020. The Trade and Cooperation Agreement between the UK and the EU that has applied since then does not deal with the regulatory detail of cross-border financing transactions. In our briefing we explain how market participants are navigating the different EU and UK regimes for securitisations. The key points are:
- Since the end of the Brexit implementation period, the EU Securitisation Regulation and the UK Securitisation Regulation have been two parallel, but distinct regimes. They closely resemble each other, but they are not exact mirror images.
- An entity’s direct regulatory obligations depend upon where it is established, so any given entity will only have direct regulatory obligations under either the EU Securitisation Regulation or the UK Securitisation Regulation, but not both (although a structure with both EU and UK entities would be subject to both regimes).
- For new issuances, the most complex question may be whether and how to facilitate compliance by both EU and UK regulated investors with their due diligence obligations. There is a range of potential approaches to this question of dual compliance.
- For existing issuances, there is a question over how to interpret contractual references to EU regulatory provisions in the context of Brexit. The application of the common law principles of contractual construction and contractual interpretation provisions may require careful analysis in some scenarios.
- The EU and the UK are now regulating separately, with changes expected in Q1 2021 in the EU regime to deal with non-performing exposures and ‘STS’ balance-sheet synthetic transactions, and with both the EU and the UK due to review their securitisation regimes later this year. This raises the possibility of further regulatory divergence and the navigation of these regimes may become a more complex exercise. There is also an opportunity for market participants and regulators to consider reforms, with a view to facilitating legitimate transactions undertaken on a cross-border basis.