Breaking Down CP2/26. What the PRA’s Securitisation Reforms Mean

Consultation paper 2/26

Credit to Oliver Hooper, Senior Solutions Consultant at Suade

On the 17th February 2026, the PRA published a Consultation Paper (CP) centered around reducing the burden of current securitisation regulation on firms by introducing a more targeted and less prescriptive approach.

The Securitisation Regulation was developed due to the significant role securitisation played in causing 2007/8 GFC. The original aims of this regulation were to ensure:

• Originators followed sound credit underwriting standards.
• Manufacturers kept a material economic interest to ensure alignment of incentives & made appropriate disclosures.
• Investors performed the appropriate due diligence.

However, the PRA is now proposing the introduction of more lenient requirements around securitisation and the potential to lift restrictions on select resecuritisation structures.

Aims of this CP

What the PRA aims to achieve via it’s proposals:

1. Less prescriptive due diligence requirements for securitisation.
2. Combine the two existing risk modalities into a single modality.
3. Streamline market disclosure and transparency requirements.
4. Descope specific market disclosures and reg reporting requirements for single loan securitisations.
5. Exempt two types of securitisation structures from the existing ban and introduce alternative CRR capital treatments for those types.
6. Introduce further clarity around credit-granting requirements.
7. Improve readability of securitisation general requirements (PRA Rulebook).
8. Introduce a new approach for capital treatment of Mortgage Guarantee Scheme (MGS) or similar private scheme loans.

PRA Proposals

The PRA’s main proposals are summarised in sections below:

1. Due Diligence.
2. Risk Retention.
3. Transparency Requirements.
4. Resecuritisation Ban.

1. Due Diligence Requirements for Institutional Investors

It’s clear that there is unnecessary complexity and an accompanying administrative burden for institutional investors when following prescriptive due diligence procedure. The PRA has noted that this procedure doesn’t even necessarily improve investors’ understanding of securitisation risks.

Given that industry feedback states 30% of start-up costs for an investor entering the securitisation market is directly related to due diligence requirements, the PRA has proposed the following changes:

❌ Proposed Removals

• Removal of the following verification requirements:
  • Compliance with Chapter 2 Article 9 of the Securitisation Part credit-granting criteria, and Chapter 2 Article 6 of the Securitisation Part risk retention requirement, availability of specific information, and compliance with STS criteria. See some of the removals below and the full changes can be found here.
• Removal of the following requirements whilst holding a securitisation:
  • Establishment of written procedures for ongoing monitoring of a position and underlying exposures.
  • The prescriptive list of elements to be continuously monitored.
  • Running stress tests of cash flows and underlying exposures, and solvency + liquidity.
  • Internal reporting for investors to their management body.
  • Requirement for an investor to demonstrate comprehensive and thorough understanding of the securitisation structure & underlying exposures to the PRA.
• Removal of requirement to verify compliance with risk retention standards in the case where the originator is UK-based. This is complemented by removing the requirement for institutional investors to verify that non-UK-based originators comply with Article 6 risk retention standards.

2. Risk Retention - L-Shaped Risk Modality

Recap of the five modalities for retaining exposure to the performance of a securitisation:

1. Retention of no less than 5% of the nominal value of each of the tranches sold or transferred to investors.
2. Retention of randomly selected exposures equivalent to not less than 5% of the nominal value of the securitised exposures.
3. Retention of the first loss tranche and, if necessary, other tranches of similar risk profile than those transferred or sold to investors and not maturing any earlier, so the retention equals 5% of the nominal value of the securitised exposures.
4. Retention of the 5% of the ‘first loss’ part of every securitised exposure, so that the credit risk retained is subordinated to the credit risk securitised in respect of these same exposures.
5. Retention of the originator’s interest of not less than 5% of the nominal value of each of the securitised exposures.

The PRA is proposing to introduce an ‘L-shaped’ risk retention modality by combining modalities 1 & 3 (in bold above). The affect of this change on reporting will be reflected in C14.00, Column 0080, which requires information on the modality of risk retention for each transaction. The proposal would warrant firms to report the L-shaped modality as ‘U’ for “unknown”, highlighted below.

Transparency & Reporting Requirements

To reduce operational burden and cost implications, the PRA has proposed a number of changes, discussed below.

Amending the approach to the provision of underlying documentation

Article 7(1) of the Securitisation Part requires manufacturers to provide all underlying documentation essential for understanding a securitisation position. The PRA is proposing to remove:

• The list of documents in sub-paragraphs ii to vii of Article 7(1)(b), replacing that list with the required provision of an offering document, prospectus, or term sheet together with all the transaction documents.
• The transaction summary which manufacturers are required to provide where a prospectus is not required.

Disapplication of various templates

Investor reports + Inside Information/Significant Event Reporting:

The PRA proposes to remove the prescribed template which investor reports are currently subject to, in order to improve the relevance & bespoke nature of the content to maximise investor need. The regulator will still specify which type of information is required.

The PRA further proposes to delete the template for inside information or significant event reporting.

ABCP Disclosure templates:

Due to data becoming quickly outdated, the PRA proposes the deletion of the template for ABCP transactions, introducing a revised framework:

• Manufacturers would be required to make aggregated information on underlying exposures available to investors monthly.
• Individual exposure level information would be required to be disclosed to the sponsor and, at request, to investors, potential investors, and specific regulatory authorities.
• ABCP investor reports would continue to be disclosed on a monthly basis.

Disclosures for certain asset classes:

Proposed deletion of underlying exposure templates for credit cards, commercial real estate, corporate, and esoteric exposures. These will be replaced with reduced expectations for each asset class.

Disclosures for single-loan securitisations:

Proposed removal of the requirement to complete the prescribed templates for single-loan securitisations, while remaining subject to broader transparency requirements e.g. specification around the type of information being disclosed.

Furthermore, the PRA proposes to exempt single-loan retail securitisations from the requirement to report under templates C 14.00, 14.01 and SC 14.00, 14.01. However, aggregated information for all securitisation exposures should continue to be reported under C & SC 13.01.

PRA templates + use of FCA templates:

To standardise and encourage comparability across disclosures, the PRA proposes that applicable templates should be deleted from the Securitisation Part of the PRA Handbook, directing firms instead towards the FCA Handbook. The FCA’s CP26/6 outlines revised templates which broadly align to the loan level data templates used by the BoE.

Additionally, the PRA has proposed:

• To delete the distinction between public & private securitisations in the Securitisation Part, for the purpose of reporting.
• To acquire securitistaion repositories as part of amendments to Securitisation Regulation 2024 & move away from the original EU framework.
• To shift the reception of private securitisation notifications from the PRA to the FCA.
• To delete the non-performing exposure (NPE) securitisation definition from the Securitisation Part.

Amendments to the Restrictions on Resecuritisation and the Definition of Resecuritisation

The PRA is proposing to exempt, from the existing resecuritisation ban, two resecuritisation structures:

1. Resecuritisations of securitisation positions created solely by tranched credit protection, where the credit protection applies on an individual exposure basis.
2. The resecuritisation of senior securitisation positions.

Both structures would be exempt, as long as they adhere to the following safeguards:

• The resecuritisation originator must be a PRA-authorised person.
• The originator of the resecuritisation must also be the originator and risk retainer of the underlying securitisation.
• The resecuritisation must be limited to a single round.
• The resecuritisation is expected to be homogeneous in terms of the asset class of the underlying exposures.

Furthermore, for the two exempted resecuritisation structures, the PRA would propose alternative capital treatment:

• For resecuritisation of securitisations with tranched credit protection on underlying exposures (Exemption 1), the PRA proposes that firms calculate capital requirements disregarding the credit risk mitigation.
• For resecuritisation of senior securitisation positions (Exemption 2), the PRA proposes that firms treat the underlying senior positions as unsecuritised pro-rata slices of the underlying exposures.

Finally, the PRA is proposing to introduce a new capital treatment for single loan residential mortgage securitisations for firms using the IRB approach.

In addition to the new ‘pari passu’ IRB treatment, the new treatment would allow firms to adjust loss given default (LGD) models to better reflect the economic substance of these exposures. Firms would make an adjustment to the LGP component for the unprotected part of the exposure (MGS). The LGP adjustment would be applied to the LGD estimate used to calculate capital requirements, rather than a direct modelling of the impact of the credit protection. LGP estimates would be floored at zero and the final LGD values would remain subject to the 5% input floor. The remaining elements of pari passu treatment would also remain untouched.

Further details about the LGP adjustment can be found in this paragraph.