CP18/22: Handbook changes to reflect the application of the EU Securitisation Regulation and the amendment to the Capital Requirement Regulation

Consultation Paper
CP18/22
August 2018
Handbook changes to reflect the application of the EU Securitisation Regulation and the amendment to the Capital Requirement Regulation

CP18/22 Financial Conduct Authority
EU Securitisation Regulation application
We are asking for comments on this Consultation Paper (CP) by 1 October 2018. You can send them to us using the form on our website at:
www.fca.org.uk/cp18-22-response￾form.
Or in writing to:
Anne Wrobel
Markets Policy
Financial Conduct Authority
12 Endeavour Square
London E20 1JN
Telephone:
0207 066 8688
Email:
cp18-22@fca.org.uk
How to respond Contents
1 Summary 3
2 The wider context 6
3 Fees 8
4 Other changes to the Handbook 11
Annex 1
List of Questions 13
Annex 2
Cost benefit analysis 14
Annex 3
Compatibility statement 15
Annex 4
Abbreviations used in this document 18
Appendix 1
Draft Handbook text 20 returns you to the contents list takes you to helpful abbreviations How to navigate this document onscreen

CP18/22
Chapter 1
Financial Conduct Authority
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1 Summary
Why we are consulting
1.1 The Securitisation Regulation1
and related amendment to the Capital Requirements Regulation (CRR Amendment)2 entered into force on 18 January 2018. Most of their provisions will come into effect on 1 January 2019.
1.2 We are consulting on a number of changes to ensure that our Handbook is consistent
with the directly applicable EU Securitisation Regulation and CRR Amendment. Who this applies to
1.3 Who needs to read this whole document?

• entities which may wish to act as Third Party Verification agents
• firms that are involved in securitisation markets either as institutional investors or
  manufacturers (originator, sponsor and special purpose vehicle) of securitisations
  1.4 Who else is affected by this consultation?
• retail consumers who may be exposed to securitisations directly or indirectly
  through their pension funds or investment funds, but they do not need to read the detailed proposals about Handbook changes The wider context of this consultation
  1.5 The European Commission has passed legislation intended to make the European
  securitisation market work more effectively. Securitisation is an important part of the UK’s capital market. We want to ensure that financial market firms and businesses in the real economy have access to an appropriate range of funding tools. We also want to ensure that disclosure requirements are appropriate and enable investors to make well-informed decisions. 1 Regulation (EU) 2017/2402 of the European Parliament and of the Council of 12 December 2017 laying down a general framework for securitisation and creating a specific framework for simple, transparent and standardised securitisation, and amending Directives 2009/65/EC, 2009/138/EC and 2011/61/EU and Regulations (EC) No 1060/2009 and (EU) No 648/2012. 2 Regulation (EU) 2017/2401 of the European Parliament and of the Council of 12 December 2017 amending Regulation (EU) No 575/2013 on prudential requirements for credit institutions and investment firms.

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What we want to change
1.6 We need to change various parts of our Handbook so that it is consistent with the
Securitisation Regulation and the CRR Amendment. Mostly this involves amending or removing existing rules that are superseded by the Securitisation Regulation or CRR Amendment. Fees for Third Party Verification agents
1.7 We are proposing new application and periodic fees for the authorisation of Third Party
Verification Agents (TPVs) under the Securitisation Regulation. These proposals are based on the requirements of the draft European Regulatory Technical Standards and on our existing framework for setting fees. Other changes to the Handbook
1.8 We are proposing changes to various Handbook modules. These include changes to
the Investment Funds sourcebook (FUND) and the Collective Investment Schemes sourcebook (COLL) in relation to the obligations of Alternative Investment Fund Managers (AIFs) and Undertakings for Collective Investments in Transferable Securities (UCITs) investing in securitisations, and to parts of the Prudential sourcebook for Investment Firms (IFPRU) to reflect changes brought about by the CRR Amendment. Outcome we are seeking
1.9 We want our proposals to ensure that we can effectively supervise firms’ compliance
with its requirements when the Securitisation Regulation takes effect from 1 January 2019. We also want to ensure that firms can be authorised as TPVs in a straightforward and efficient way.
1.10 To implement the Securitisation Regulation and CRR Amendment in the UK
HM Treasury (the Treasury) will need to make a Statutory Instrument (SI) to give us the powers we need. We are basing our preparations for the application of the Securitisation Regulation, including the proposals in this CP, on our current understanding of the Treasury’s intentions. If the final SI differs from this then we may need to change our approach. In particular, we understand that the SI will make us the sole competent authority for TPVs. Measuring success
1.11 We expect to be able to assess the success of these amendments through identifying
or receiving feedback from market participants, including TPVs, that the framework for authorisation and the structure of fees for TPVs is proportionate and effective in allowing firms wishing to act as TPVs to do so and to meet their obligations under the Securitisation Regulation without facing undue burdens.

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Next steps
Responding to the proposals for Handbook changes
1.12 We want to know what you think of our proposals. Please send us your comments on
our proposed changes by 1 October 2018. You can use the online response form on our website or write to us at the address on page 2.
1.13 We will consider your feedback and plan to publish our rules in a Policy Statement
in December.

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2 The wider context
The harm we are trying to reduce
2.1 The Securitisation Regulation and CRR Amendment seek to make the securitisation
market work more effectively. They aim to address some of the harms to investors identified in these markets following the financial crisis, including the lack of adequate disclosure, and the misalignment between issuers’ and investors‘ interests.
2.2 The new framework consolidates existing requirements and strengthens the
legislation on securitisation. The Securitisation Regulation promotes transparency and appropriate due diligence by investors for securitisation investments. It creates a framework for simple, transparent and standardised (STS) securitisations. This will help to reduce the harm from investors making badly-informed decisions because they fail to understand and appropriately analyse the risks in their securitisation investments. By assessing compliance with STS criteria, TPVs can help promote the understanding of STS securitisations. How it links to our objectives Market Integrity
2.3 Our proposals are designed to make the Handbook consistent with the directly
applicable Securitisation Regulation and CRR Amendment, which aim to create a framework to strengthen the integrity of the securitisation market. Consumer Protection
2.4 By improving transparency and imposing direct requirements on originators, sponsors,
original lenders and securitisation special purpose vehicles which are involved in the creation of a securitisation, the Securitisation Regulation seeks to protect investors investing in securitisations. What we are doing
2.5 As explained in the Summary, we plan to publish a Policy Statement in December.
2.6 The remainder of the CP sets out:

• our proposals on fees with respect to TPVs
• an explanation of the proposed changes to the Handbook
  2.7 The Annexes include a summary of the list of questions.
  2.8 The Appendix presents the draft legal instrument that would amend the Handbook.

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Equality and diversity considerations
2.9 We have considered the equality and diversity issues that may arise from the proposals
in this CP.
Overall, we do not consider that the proposals materially impact any of the groups with protected characteristics under the Equality Act 2010. But we will continue to consider the equality and diversity implications of the proposals during the consultation period, and will revisit them when making the final rules. In the meantime, we welcome your input to this consultation on this.

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3 Fees
3.1 In this chapter we set out our proposals for recovering the costs of our supervision of
the Securitisation Regulation, introducing fees to authorise TPVs and subsequently to monitor their compliance with the authorisation conditions.
3.2 We are funded entirely by the firms we regulate and receive no subsidies from other
sources. Our fees are intended to distribute costs between fee-payers as fairly and efficiently as possible. They are not intended to influence firms’ behaviour. We have a standard cycle of fees consultation, which firms should monitor in case there are proposals which affect them. This cycle consists of two consultations, one on fee policy proposals and one on fee rates. Each October or November, we consult on our fees policy proposals for the coming year. We then provide feedback through a Handbook Notice or Policy Statement in February or March so that changes can take effect from 1 April. In March or April, we consult on fee rates for the coming year under that policy and confirm them through a Policy Statement in June so that we can issue invoices from July. Firms whose FCA fees were £50,000 or more in any year are charged an amount equivalent to half the previous year’s fee in April, with the balance payable in September.
3.3 The new regime applies both to firms which are already authorised by us and paying
annual fees and to businesses which are not authorised by us. We will have oversight of the non-authorised businesses as required under the Securitisation Regulation but will not feasibly be able to recover our costs from them. We will have to recover our set-up costs and the annual costs of regulation from FCA fee-payers through the existing fees structure from 2019/20 onwards. However, since the costs will be shared between a large number of fee-payers, we do not expect the impact to be significant. We will consult on FCA fee-rates for 2019/20 in April 2019.
3.4 The Securitisation Regulation also creates a new category of entities, TPVs, to check
the compliance of securitisations with the STS criteria. It requires each Member State to appoint a National Competent Authority (NCA) to authorise and supervise firms wishing to act as TPVs. The Treasury has confirmed its intention to designate us by a Statutory Instrument (SI) as the UK’s NCA to authorise and supervise TPVs3 .
3.5 The Securitisation Regulation requires that the originator and sponsor of
a securitisation must jointly notify the European Securities Market Authority (ESMA) where a securitisation meets the STS criteria. It also specifies that the originator, sponsor or SSPE may voluntarily use the services of a TPV to check whether a securitisation meets the STS criteria. However, the use of a TPV does not, under any circumstances, affect the liability of either the originator, sponsor or SSPE or of the institutional investors in respect of their individual obligations under the Securitisation Regulation.
3.6 A TPV cannot be a credit institution, an insurance undertaking, an investment firm
or a credit rating agency. The Securitisation Regulation also requires TPVs to ensure that the performance of any of their other activities does not compromise the independence of their assessment of a securitisation’s compliance with the STS 3 www.gov.uk/government/publications/eu-securitisation-regulation-letter-from-economic-secretary-of-the-treasury-to-andrew-bailey

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EU Securitisation Regulation application criteria. We expect that the business of a TPV will not be very complex. The confirmation of compliance that a TPV will give is not an opinion of the risks of any transaction, but a factual assessment of whether it meets the STS requirements.
3.7 The Regulatory Technical Standards to the Securitisation Regulation specify the information
the TPVs must give to the competent authority when applying for authorisation.
3.8 We are consulting on two sets of fees for TPVs:

• one-off application fees
• annual periodic fees
  Application Fees
  3.9 When firms apply to be authorised by us, they pay a fee to contribute to the costs of processing
  their applications. We recover the balance from existing firms through ongoing fees. When we set the level of fees, we look at the complexity of the authorisation process and the amount of work these authorisations will require. We also take broader considerations into account in assessing the impact that setting a given level of fees might have on the market.
  3.10 To authorise non-credit-related regulated activities we charge fees based on three levels
  of complexity.
• straightforward application – £1,500
• moderately complex application – £5,000
• complex application – £25,000
  3.11 On the basis of our current understanding of TPVs’ profile and business model, we expect
  that the work involved in processing a TPV application would be comparable to determining a straightforward application. So we propose to charge the straightforward fee of £1,500. We think that this represents a reasonable contribution towards the cost of authorising TPVs. Points of clarification on applications Opening the gateway
  3.12 The SI is likely to enter into force at around the same time that the Securitisation Regulation
  will come into effect, on 1 January 2019. We intend to make it possible for firms applying to be TPVs to submit a draft application from September 2018 so that we can start to consider them. However, FEES 3.2.5G states that an application is not treated as an application until the fee is paid. When we are given the legal power to set the fees, applicants will be able to formalise their applications by paying the fee. Variations of permissions
  3.13 When a firm which is already regulated by us applies to vary its permission to undertake a new
  activity, we usually discount the fee to reflect the fact that we already have a lot of information about its business and have established its compliance with the Threshold Conditions.

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However, TPVs will be assessed on specific criteria specified in the Regulatory Technical Standards implementing the Securitisation Regulation. So much of the information we collect from authorised firms will not be relevant. Consequently, we do not propose to allow Variation of Permission (VoP) discounts if authorised firms apply to become TPVs. A firm must pay the full fee regardless of any other permissions it holds from us when it applies to be a TPV. Periodic fees
3.14 We charge periodic ongoing fees to recover our annual supervisory costs. We expect
TPVs to represent a low regulatory risk, and we anticipate a small number of applications. Since we do not currently expect them to require significant supervisory resources, we propose a flat-rate annual fee of £250. We will keep the position under review and reserve the right to consult on raising the fee in the future in the light of our experience of supervising TPVs. Q1: Do you agree with our proposals for application and periodic fees for TPVs?

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Chapter 4
Financial Conduct Authority
EU Securitisation Regulation application
4 Other changes to the Handbook
4.1 The Securitisation Regulation and CRR Amendment are directly applicable and
supersede some rules that are in the Handbook. Our overall aim is to bring the Handbook and associated material into line with the changes brought about by the implementation of the Securitisation Regulation and the CRR Amendment. In this
chapter, we set out our proposals for these mainly consequential changes, including
proposed changes to the Glossary of Definitions. Appendix 1 contains draft changes to the Handbook (including the fee proposals set out in chapter 3 above). FUND sourcebook
4.2 The Securitisation Regulation replaces article 17 of the Alternative Investment Fund
Managers Directive (AIFMD) with an amended provision recasting article 54 of the AIFMD level 2 Regulation. This involves the corrective action an AIFM should take when exposed to a securitisation that does not meet the requirements provided by the Securitisation Regulation. Proposed FUND 3.5.4R and 3.5.5R transpose article 17 of the AIFMD, as amended.
4.3 The replacement of article 17 of the AIFMD means that section 5 of the AIFMD
level 2 Regulation will no longer apply from January 2019, subject to transitional provisions for certain securitisations issued during periods before that date. Where the transitional provisions do not apply, the due diligence obligations of the Securitisation Regulation completely replace section 5 of the AIFMD level 2 Regulation. COLL sourcebook
4.4 The Securitisation Regulation amends article 50a of the UCITS Directive to require
corrective action by UCITS fund managers when exposed to a securitisation that does not meet the requirements provided by the Securitisation Regulation. This duty applies in the same way as for AIF managers (see above). Proposed COLL 5.2.37R transposes amended Article 50a of the UCITS Directive. Prudential sourcebook for Investment Firms
4.5 Most of our proposals are consequential changes (mainly cross references) reflecting
the CRR Amendment to the relevant securitisation provisions.

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4.6 We also propose to make consequential amendments to the IFPRU guidance on
permissions for significant risk transfer under new articles 244/245. This is to reflect the clarifications made by:

• the new articles 244(2) and 245 (2) for the first option available to originator
  institutions (limitation on the risk weight of the mezzanine held by the originator institution)
• the new articles 244(3) and 245(3) for the third option available to originator
  institutions (approval by competent authorities in case of a transfer of credit risk to third party)
  4.7 We also propose to make consequential amendments to the IFPRU TP1 to the table on
  internal waivers as follows:
• references to articles 259(1)(b) and 262 are deleted because the ‘supervisory
  formula method’ for securitisation transactions has been replaced by the SEC‑IRBA methodology
• reference to article 259(3) is deleted because conditions in the new article 265 have
  changed in the CRR Amendment
• reference to article 263(2) is deleted because the treatment of unrated facilities has
  been eliminated
• reference to article 256(7) is deleted because the provision is no longer included in
  the new chapter 5 of title II, part 3 of Capital Requirement Regulation Q2: Do you agree with our proposals to amend the Handbook to be consistent with the Securitisation Regulation and the CRR Amendment?

CP18/22
Annex 1
Financial Conduct Authority
EU Securitisation Regulation application
Annex 1
List of Questions
Q1: Do you agree with our proposals for application and periodic fees for TPVs? Q2: Do you agree with our proposals to amend the Handbook to be consistent with the Securitisation Regulation and the CRR Amendment?

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Annex 2
Financial Conduct Authority
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Annex 2
Cost benefit analysis
Introduction

1. Section 138I of the Financial Services and Markets Act 2000 (FSMA) requires us to
   perform a cost benefit analysis (CBA) of proposed rules, and to publish the results. However, the proposals set out in this CP do not require a cost benefit analysis for the reasons detailed below. Proposals related to TPV authorisation and periodic fees
2. Under section 138I of FSMA we are not required to carry out a CBA in relation to
   fee rules.
   Changes to the Handbook
3. The changes we propose to the relevant modules of the Handbook are a direct result
   of the changes imposed by the implementation of the Securitisation Regulation and CRR Amendment. The proposed changes are administrative and they do not involve any change in policy. So we do not believe that these changes will add any significant costs or benefits.

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Financial Conduct Authority
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Annex 3
Compatibility statement
Compliance with legal requirements

1. This Annex records our compliance with a number of legal requirements applicable
   to the proposals in this consultation, including an explanation of our reasons for concluding that the proposals in this consultation are compatible with certain requirements under the Financial Services and Markets Act 2000 (FSMA).
2. When consulting on new rules, we are required by section 138I(2)(d) FSMA to include
   an explanation of why we believe that making the proposed rules is (a) compatible with our general duty, under section 1B(1) FSMA to act in a way which is compatible with our strategic objective and advances one or more of our operational objectives, and (b) our general duty under section 1B(5)(a) FSMA to have regard to the regulatory principles in
   section 3B FSMA. We are also required by section 138K(2) FSMA to state our opinion
   on whether the proposed rules will have a significantly different impact on mutual societies as opposed to other authorised persons.
3. In addition, this Annex explains how we have considered the recommendations made
   by the Treasury under section 1JA FSMA about aspects of the economic policy of Her Majesty’s Government to which we should have regard in connection with our general duties.
4. This Annex includes our assessment of the equality and diversity implications of
   these proposals.
5. Under the Legislative and Regulatory Reform Act 2006 (LRRA) we are subject to
   requirements to have regard to a number of high-level ‘Principles’ in the exercise of some of our regulatory functions and to have regard to a ‘Regulators’ Code’ when determining general policies and principles and giving general guidance (but not when exercising other legislative functions like making rules). This Annex sets out how we have complied with requirements under the LRRA. The FCA’s objectives and regulatory principles: compatibility statement
6. The proposals set out in this consultation are primarily intended to advance our
   operational objective of ensuring that the relevant markets function well. This is because they are designed to make the Handbook consistent with the directly applicable Securitisation Regulation and CRR Amendment, which seeks to ensure that the securitisation markets work effectively.
7. They are also relevant for our market integrity objective. This is because the
   Securitisation Regulation and CRR Amendment seek to enhance market integrity by

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Annex 3
Financial Conduct Authority
EU Securitisation Regulation application creating a framework for simple, transparent and standardised securitisations and promoting transparency and investor due diligence.
8. For the purposes of our strategic objective, “relevant markets” are defined by
section 1F FSMA.
9. In preparing the proposals set out in this consultation, we have had regard to the
regulatory principles set out in section 3B FSMA. In particular, as set out below:
The need to use our resources in the most efficient and economic way
10. Our proposals are intended to ensure that the rules and guidance in relation to the
implementation of the Securitisation Regulation and CRR Amendment enable firms to interact with us in the most efficient way possible. The principle that a burden or restriction should be proportionate to the benefits
11. We have sought to be proportionate in our approach to the TPVs. In particular, we have
reflected in our proposals the relatively simple business model of TPVs, their relatively low risk profile and the number of firms that are expected to operate in the UK as TPVs. The desirability of sustainable growth in the economy of the United Kingdom in the medium or long term
12. We believe that our proposal will support the growth of the UK economy by enabling
the UK’s securitisation and capital markets to work better for businesses and investors. The general principle that consumers should take responsibility for their decisions
13. We believe that our implementation of the Securitisation Regulation will enhance the
ability of investors to take responsibility through their due diligence obligations for their investment decisions in securitisations. The responsibilities of senior management
14. We do not consider that our proposals are inconsistent with this principle. TPVs will
not remove or affect the liability of the originator, sponsor or SSPE in respect of their obligations under the Securitisation Regulation. The desirability of recognising differences in the nature of, and objectives of, businesses carried on by different persons including mutual societies and other kinds of business organisation
15. We do not consider that our proposals are inconsistent with this principle.
The desirability of publishing information relating to persons subject to requirements imposed under FSMA, or requiring them to publish information
16. Our proposals include our publishing the identity of TPVs on our register.
The principle that we should exercise of our functions as transparently as possible
17. We do not consider that our proposals are inconsistent with this principle.
18. In formulating these proposals, we have had regard to the importance of taking action
intended to minimise the extent to which it is possible for a business carried on (i) by an authorised person or a recognised investment exchange; or (ii) in contravention of the general prohibition, to be used for a purpose connected with financial crime (as required by section 1B(5)(b) FSMA).

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Expected effect on mutual societies
19. We do not expect the proposals in this paper to have a significantly different impact on
mutual societies.
Compatibility with the duty to promote effective competition in the interests of consumers
20. In preparing the proposals in this consultation, we have had regard to the FCA’s duty to
promote effective competition in the interests of consumers.
Equality and diversity
21. We are required under the Equality Act 2010 in exercising our functions to ‘have due
regard’ to the need to eliminate discrimination, harassment, victimisation and any other conduct prohibited by or under the Act, to advance equality of opportunity between persons who share a relevant protected characteristic and those who do not, and to foster good relations between people who share a protected characteristic and those who do not.
22. As part of this, we ensure the equality and diversity implications of any new policy
proposals are considered. As stated in paragraph 2.7, we do not consider these proposals to have an equality or diversity implication. Legislative and Regulatory Reform Act 2006 (LRRA)
23. We have had regard to the principles in the LRRA and the Regulators’ Code for the
parts of the proposals that consist of general policies, principles or guidance:

• by consulting we are developing the proposals in a way which is transparent
  and accountable
• our proposals are intended to be proportionate and to target action only where it is
  needed by adjusting Handbook rules to keep them consistent with the Securitisation Regulation and CRR Amendment and by supplementing it in order to allow authorisation of TPVs

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Annex 4
Abbreviations used in this document
AIFMD The Alternative Investment Fund Managers Directive (2011/61/EU) CBA Cost benefit analysis CP Consultation Paper CRR Amendment The EU Capital Requirement Regulation (575/2013/EU) ESMA European Securities Market Authority FSMA Financial Services and Markets Act 2000 SI Statutory Instrument SSPE Securitisation Special Purpose Entity STS Simple, Transparent and Standardised TPV Third Party Verification agent UCITs The Undertakings for Collective Investment in Transferable Securities Directive (2009/65/EC) VoP Variation of Permission Short and long names of Handbook parts mentioned in this paper Glossary Glossary of Definitions COLL Collective Investment Schemes sourcebook FEES Fees manual FUND Investment Funds sourcebook Prudential/IFPRU Prudential sourcebook for Investment Firms

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We have developed the policy in this Consultation Paper in the context of the existing UK and EU regulatory framework. The Government has made clear that it will continue to implement and apply EU law until the UK has left the EU. We will keep the proposals under review to assess whether any amendments may be required in the event of changes in the UK regulatory framework in the future. We make all responses to formal consultation available for public inspection unless the respondent requests otherwise. We will not regard a standard confidentiality statement in an email message as a request for non-disclosure. Despite this, we may be asked to disclose a confidential response under the Freedom of Information Act 2000. We may consult you if we receive such a request. Any decision we make not to disclose the response is reviewable by the Information Commissioner and the Information Rights Tribunal. All our publications are available to download from www.fca.org.uk. If you would like to receive this paper in an alternative format, please call 020 7066 9644 or email:
publications_graphics@fca.org.uk or write to: Editorial and Digital team, Financial Conduct Authority, 12 Endeavour Square, London E20 1JN.

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Appendix 1
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Appendix 1
Draft Handbook text

FCA 2018/XX
SECURITISATION REGULATION IMPLEMENTATION INSTRUMENT 2018 Powers exercised A. The Financial Conduct Authority makes this instrument in the exercise of:
(1) the following powers and related provisions in or under the Financial Services and Markets Act 2000 (“the Act”):
(a) section 137A (The FCA’s general rules);
(b) section 137T (General supplementary powers); (c) section 139A (Power of the FCA to give guidance); (d) paragraph 23 (Fees) of Schedule 1ZA (The Financial Conduct Authority); (e) section 247 (Trust scheme rules); (f) section 261I (Contractual scheme rules); (2) regulation 6(1) (FCA rules) of the Open-Ended Investment Companies Regulations 2001 (SI 2001/1228); and (3) [the following fee powers and related provisions in the Securitisation Regulations 2018 (UK): …]. B. The rule-making powers listed above are specified for the purposes of section 138G(2) (Rule-making instruments) of the Act. Commencement
C. This instrument comes into force on 1 January 2019.
Amendments to the Handbook
D. The modules of the FCA’s Handbook of rules and guidance listed in column (1) below are amended in accordance with the Annexes to this instrument listed in column (2). (1) (2) Glossary of definitions Annex A Fees manual (FEES) Annex B Prudential sourcebook for Investment Firms (IFPRU) Annex C Collective Investment Schemes sourcebook (COLL) Annex D Investment Funds sourcebook (FUND) Annex E Citation E. This instrument may be cited as the Securitisation Regulation Implementation Instrument 2018.

FCA 2018/XX
By order of the Board
[date]

FCA 2018/XX
Annex A
Amendments to the Glossary of definitions
In this Annex, underlining indicates new text and striking through indicates deleted text, unless otherwise stated. Insert the following new definitions in the appropriate alphabetical position. The text is not underlined. Securitisation Regulation Regulation (EU) 2017/2402 of the European Parliament and of the Council of 12 December 2017 laying down a general framework for securitisation and creating a specific framework for simple, transparent and standardised securitisation, and amending Directives 2009/65/EC, 2009/138/EC and 2011/61/EU and Regulations (EC) No 1060/2009 and (EU) No 648/2012. [Note: see https://eur-lex.europa.eu/eli/reg/2017/2402/oj] third party verification agent a person authorised in accordance with paragraph 28(1) of the Securitisation Regulation. [Note: see https://eur-lex.europa.eu/eli/reg/2017/2402/oj] Amend the following definitions as shown. early amortisation provision … (2) (except in (1)) has the meaning in article 242(14) 242(16) of the EU CRR. sponsor … (3) (in IFPRU and FUND) has the meaning in article 4(1)(14) of the EU CRR.

FCA 2018/XX
Annex B
Amendments to the Fees manual (FEES)
In this Annex, underlining indicates new text and striking through indicates deleted text. 3 Application, Notification and Vetting Fees …
3.2 Obligation to pay fees
…
3.2.7 R Table of application, notification, vetting and other fees payable to the FCA
Part 1: Application, notification and vetting fees
(1) Fee payer (2) Fee payable (£) Due date
…
(zzd) An application for
[authorisation] as a third party verification agent (1) Unless (2) applies, £1,500. (2) Firms which already have Part 4A permissions will not receive a 50% reduction in the authorisation fee. On the date the application is made. … 3 Annex 1R Authorisation fees payable
Part 1 - Authorisation fees payable
…

FCA 2018/XX
Part 1(a) Authorisation Fees payable to the FCA by FCA-authorised
persons
Application type Amount payable (£)
…
(4) Complexity groupings relating to third party verification agents (k) Third party verification agents £1,500 … … 4 Periodic fees … 4 Annex 11R Periodic fees in respect of payment services, electronic money issuance, regulated covered bonds, CBTL business and, data reporting services and third party verification agents in relation to the period 1 April 2018 2019 to 31 March 2019 2020 …
Part 2C – Activity group relevant to data reporting services providers
…
Part 2D – Activity group relevant to third party verification agents
Activity Group Fee payer falls into this group if:
G.26 TPV it is a third party verification agent.
…
Part 3

FCA 2018/XX
This table indicates the tariff base for each fee-block. The tariff base is the means by which the FCA measures the amount of business conducted by fee￾paying payment service providers, fee-paying electronic money issuers, CBTL firms, data reporting services providers (other than incoming data reporting services providers) firms registered under the Money Laundering Regulations and, issuers of regulated covered bonds and third party verification agents. Activity group Tariff base … G.26 TPV Not applicable …
Part 4 – Valuation period
This table indicates the valuation date for each fee-block. A fee-paying payment service provider, a fee-paying electronic money issuer, and a regulated covered bond issuer and a third party verification agent can calculate tariff data by applying the tariff bases set out in Part 3 with reference to the valuation dates shown in this table. … Activity group Valuation date … G.26 TPV Not relevant …
Part 5 – Tariff rates
Activity group Fee payable in relation to 2018/19 … G.26 TPV £250

FCA 2018/XX
Annex C
Amendments to the Prudential sourcebook for Investment Firms (IFPRU) In this Annex, underlining indicates new text and striking through indicates deleted text. 4 Credit risk …
4.1 Application and purpose
…
Purpose
4.1.2 G This chapter:
…
(2) contains the rules that exercise the discretion afforded to the FCA as competent authority under articles 115, 119(5), 124(2), 125(3), 126(2), 178(1)(b), 243(2), 244(2), 245(2), 286(2), 298(4) and 380 of the EU CRR; and … …
4.12 Securitisation
Recognition of significant risk transfer
4.12.1 R (1) A firm must notify the FCA that it is relying on the deemed transfer
of significant credit risk under article 243(2) 244(2) of the EU CRR (Traditional securitisation) or article 244(2) 245(2) of the EU CRR (Synthetic securitisation), including when this is for the purposes of
article 337(5) of the EU CRR, no later than one month after the date
of the transfer.
…
Significant risk transfer notifications and permissions …
4.12.3 G The significant risk transfer requirements in articles 243 244 (Traditional
securitisation) or 244 245 (Synthetic securitisation) of the EU CRR provide three options for a firm to demonstrate how it transfers significant credit risk for any given transaction:

FCA 2018/XX
(1) the originator does not retain more than 50% of the risk-weighted exposure amounts of mezzanine securitisation positions (as defined in article 242(18) of the EU CRR), where these are:
… (a) securitisation positions to which a risk weight lower than 1250% and higher than 25 % applies in accordance with Sub￾Sections 2 and 3 of Section 3 of Chapter 5 (Securitisation) of the EU CRR; and (b) more junior than the most senior position in the securitisation and more junior than any position in the securitisation rated credit quality step 1 or 2 subordinated to the senior securitisation position and more senior than the first loss tranche; … … Option 3
4.12.6 G For IFPRU 4.12.3G(3) (option 3), the FCA intends to grant permission for
an originator to make its own assessment of significant risk transfer only where it is satisfied that:
…
(2) the firm has appropriately risk-sensitive adequate internal risk management policies and methodologies in place to assess the transfer of risk; and … … Deduction or 1250% risk weighting
4.12.8 G A firm seeking to achieve capital relief by deducting or applying a 1250%
risk weight where permitted under articles 243 or 244 or 245 of the EU CRR does not need to make the notification in IFPRU 4.12.1R. However, in such cases, a firm should consider whether the characteristics of the transaction are such that the FCA would reasonably expect prior notice of it. … Significant risk transfer permissions
4.12.13 G A firm may apply for permissions under articles 243 244 (Traditional
securitisation) or 244 245 (Synthetic securitisation) of the EU CRR to consider significant risk transfer to have been achieved without needing to

FCA 2018/XX rely on options (1) or (2). The scope of such permission may be defined to cover a number of transactions or an individual transaction. … Implicit support and significant risk transfer …
4.12.27 G …
(4) If a firm fails to comply with article 248(1) 250(1) of the EU CRR, the FCA may require it to disclose publicly that it has provided non￾contractual support to the transaction. … TP 1 GENPRU and BIPRU waivers: transitional … Tables
1.9 R Table on internal model waivers
Permission Column A
FCA Rule (rule waiver or modification)
Column B
EU CRR reference
…
4 Supervisory formula method for securitisation transactions

• BIPRU 9.12.3R
• BIPRU 9.12.5R
• BIPRU 9.12.21R
  (Where authorised by the firm’s IRB permission) Art 259(1)(b) Art 262 [deleted] 5 ABCP internal assessment approach
• BIPRU 9.12.20R
  (Where authorised by the firm's IRB permission) Art 259(3) [deleted]

FCA 2018/XX
Permission Column A
FCA Rule (rule waiver or modification)
Column B
EU CRR reference
6 Exceptional treatment for liquidity facilities where pre-securitisation risk￾weighted exposure amount cannot be calculated

• BIPRU 9.11.10R as
  modified in accordance with
  BIPRU 9.12.28G
  (Where authorised by the firm’s IRB permission) Art 263(2) [deleted] …
  1.10 R Table on other waivers and requirements
  Permission Column A
  FCA Rule (rule waiver or modification)
  Column B
  EU CRR
  Reference
  …
  5 Traditional securitisation - recognition of significant risk transfer
• BIPRU 9.4.11R
• BIPRU 9.4.12R
  (subject to conditions in BIPRU 9.4.15D)
  Art 243(2), (3),
  (4) and (5)
  244(2)(3) and (4)
  6 Synthetic securitisation - recognition of significant risk transfer
• BIPRU 9.5.1R(6)
  and (7)
  (subject to conditions in BIPRU 9.5.1BD)
  Art 244(2), (3),
  (4) and (5)
  245(2)(3) and (4)
  7 Securitisations of revolving exposures with early amortisation provisions - similar transactions
• BIPRU 9.3.11D
• BIPRU 9.13.13R
• BIPRU 9.13.14R
• BIPRU 9.13.15R
• BIPRU 9.13.16R
• BIPRU 9.13.17R
  (subject to conditions in BIPRU 9.13.18G)
  Art 256(7)
  [deleted]

FCA 2018/XX
Permission Column A
FCA Rule (rule waiver or modification)
Column B
EU CRR reference
…
Sch 2 Notification and reporting requirements Handbook reference Matter to be notified Contents of notification Trigger event Time allowed … IFPRU 4.12.1R Reliance on deemed transfer of significant risk under articles 243(2) 244(2) and 244(2) 245(2) of the EU CRR, including for the purposes of article 337(5) of the EU CRR Sufficient information to allow the FCA to assess whether the possible reduction in risk￾weighted exposure amounts achieved by the securitisation is justified by a commensurate transfer of credit risk to third parties Intention to rely on deemed transfer of significant risk Within a reasonable period before or after a relevant transfer, not being later than one month after the date of transfer …

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Annex D
Amendments to the Collective Investment Schemes sourcebook (COLL) In this Annex, underlining indicates new text. 5 Investment and borrowing powers …
5.2 General investment powers and limits for UCITS schemes
…
5.2.2 R Table of application
This table belongs to COLL 5.2.1R.
Rule ICVC ACD Authorised fund manager of an AUT or ACS Depositary of an ICVC, AUT or ACS … 5.2.34G x x 5.2.37R x … … Investment in securitisation positions
5.2.37 R Where an authorised fund manager is exposed to a securitisation that does
not meet the requirements provided for in the Securitisation Regulation, it must, in the best interests of the investors in the relevant UCITS scheme, act and take corrective action, if appropriate.

FCA 2018/XX
Annex E
Amendments to the Investment Funds sourcebook (FUND) In this Annex, underlining indicates new text and striking through indicates deleted text. 3 Requirements for alternative investment fund managers …
3.5 Investment in securitisation positions
Application
3.5.1 G This section applies to a full-scope UK AIFM of:
(1) a UK AIF;
(2) an EEA AIF; and
(3) a non-EEA AIF. [deleted]
3.5.2 G To ensure cross-sectoral consistency and remove misalignment between the
interests of firms that repackage loans into tradable securities and originators within the meaning of article 4(41) of the BCD and AIFMs that invest in those securities or other financial instruments, the AIFMD level 2 regulation sets out:
(1) requirements that must be met by the originator, the sponsor or the original lender, for an AIFM to be allowed to invest on behalf of the AIF in securities or other financial instruments of this type issued after 1 January 2011; and; (2) qualitative requirements that must be met by AIFMs which invest in these securities or other financial instruments on behalf of the AIF. [Note: article 17 of AIFMD] [deleted] Subordinate measures
3.5.3 G Articles 50 to 56 of the AIFMD level 2 regulation provide detailed rules
supplementing the provisions in AIFMD on investment in securitisation positions. [deleted] Application
3.5.4 R This section applies to a full-scope UK AIFM of:
(1) a UK AIF;

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(2) an EEA AIF; and
(3) a non-EEA AIF.
3.5.5 R Where an AIFM is exposed to a securitisation that does not meet the
requirements provided for in the Securitisation Regulation, it must, in the best interests of the investors in the relevant AIFs, act and take corrective action, if appropriate.
3.5.6 G Article 41 of the Securitisation Regulation replaces article 17 of the AIFMD
with an amended provision which takes the place of article 54 (Corrective action) of the AIFMD level 2 regulation. FUND 3.5.4R and 3.5.5R transpose
article 17 of the AIFMD, as amended.
3.5.7 G A more general consequence of the replacement of article 17 of the AIFMD
is that Section 5 (Investment in Securitisation Positions) of the AIFMD level 2 regulation will no longer apply from 1 January 2019, subject to transitional provisions for certain securitisations issued during periods before that date. Where the transitional provisions are inapplicable, article 5 (Due-diligence requirements for institutional investors) of the Securitisation Regulation (in combination with the new FUND 3.5.4R and 3.5.5R), completely replaces Section 5 of the AIFMD level 2 regulation.
3.5.8 G The relevant transitional provisions are set out in articles 43(5) and 43(6) of
the Securitisation Regulation. Where the transitional provisions apply, they have the effect that articles 51 and 53 of the AIFMD level 2 regulation, concerning requirements for retained interest and due diligence, may continue to apply to eligible securitisations.

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Pub ref: 005777