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MFA Proposes Improvements for the UK Securitisation Regulation to the FCA

As the UK reforms financial regulations post-Brexit, MFA highlights how addressing current flaws in Sec Reg will enhance the UK’s global competitiveness.
 

LONDON, UK –Managed Funds Association (MFA) sent a letter to the UK Financial Conduct Authority (FCA), today, proposing improvements to the UK regulatory framework for securitisations that would expand capital investment in the UK and optimise risk management on behalf of UK investors. MFA’s letter encourages the FCA to address regulatory redundancies and enhance compatibility with the rules governing other jurisdictions with thriving securitisation markets, such as the US.

MFA’s letter is in anticipation of the repeal of the UK Securitisation Regulation (Sec Reg) inherited from the EU in the third quarter of 2023 and subsequent consultation on the next iteration of the Sec Reg. In the letter, MFA encourages the FCA to set the scope of the consultation as widely as possible to maximize the ability to create a more agile regulatory framework.    

“FCA has an opportunity to empower UK investors to better engage in global securitisation markets and compete on the global stage,” said Jennifer Han, MFA Chief Counsel and Head of Global Regulatory Affairs. “Addressing the current regulation’s duplicative requirements will ensure alternative asset managers have the tools they need to manage risk and deliver reliable returns for their investors, including UK pensions. MFA appreciates the FCA’s industry engagement and commitment to improving the regulatory framework for securitisations and solidifying the UK as a leading financial centre.”

MFA’s letter emphasizes that the general due diligence requirements under the Sec Reg are redundant and ultimately inhibit alternative investment fund managers’ (AIFMs) global investment strategies. MFA calls on the FCA to remove AIFMs from the scope of due diligence requirements altogether as they are already subject to robust requirements under the Alternative Investment Fund Managers Directive (AIFMD). From the letter:

“Instead of improving risk management, the due diligence requirements under the Sec Reg have created an unnecessary barrier to investment, hindered global investment management strategies of many AIFMs and dampened the participation by AIFMs in the securitised markets generally. MFA of course recognises the importance of protecting investors, and AIFMs are well-equipped to understand the risks of their investment opportunities – robust risk management is core to AIFM business models generally – and investors demand no less through initial and ongoing due diligence of the AIFM.”

The letter also notes how the risk retention due diligence requirement prevents AIFMs from investing in many US securitisations, even though the US regulations have similar risk retention rules. From the letter: 

“The requirement to verify risk retention is a particularly difficult criteria for AIFMs to satisfy when investing in international markets. MFA members have found that, in their experience, US securitisations that are compliant with the risk retention requirements under the Sec Reg and EU SR are in the minority, in spite of the fact that US originators/sponsors are required to retain an interest in transactions, but they are able to do so through different prescribed modalities, which can make it challenging for an AIFM to verify on a deal-by-deal basis.”

MFA’s letter to the FCA is available here.


 

About the Global Alternative Asset Management Industry

The global alternative asset management industry, including hedge funds, credit funds, and crossover funds, has assets under management of £3.2 trillion (Q4 2022). The industry serves thousands of public and private pension funds, charitable endowments, foundations, sovereign governments, and other global institutional investors by providing portfolio diversification and risk-adjusted returns to help meet their funding obligations and return targets.

About the Managed Funds Association

Managed Funds Association (MFA), based in Washington, DC, New York, Brussels, and London, represents the global alternative asset management industry. MFA’s mission is to advance the ability of alternative asset managers to raise capital, invest, and generate returns for their beneficiaries. MFA advocates on behalf of its membership and convenes stakeholders to address global regulatory, operational, and business issues. MFA has more than 170 member firms, including hedge funds, credit funds, and crossover funds that collectively manage nearly £1.7 trillion across a diverse group of investment strategies. Member firms help pension plans, university endowments, charitable foundations, and other institutional investors to diversify their investments, manage risk, and generate attractive returns over time.

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