Contents

Structured Finance

Next level

ESG back-reporting gaining traction

ESG back-reporting may be the next step for sustainable disclosures as the battle to beat greenwashing continues. The GSEs are leading the back-reporting charge, with the introduction of Fannie Mae’s Social Index calculations and Freddie Mac’s historical data file release for all active and inactive MBS pools since 2010 (SCI 18 August 2022).

“They are really driving a lot of the reporting and broader ESG standards, not only within the RMBS space, but across the securitisation market in general,” says Robert McDonough, director of ESG and regulatory initiatives at Angel Oak Capital.

However, this approach may not be accessible across all asset classes, especially where the same standardisation in products and consistency in structures are not present. “The short-dated nature of a lot of securitisations makes it hard to establish even a time series,” explains McDonough, “because these deals pay off relatively quickly versus an equity, or a bond issue that may have between five or 20 years in performance history.”

As a late bloomer in terms of ESG, sustainability reporting was simply not as prevalent in the securitisation market 10 years ago as it is today – meaning that for many companies, the historical data to reflect upon simply does not exist. “10 years ago, an auto ABS transaction would probably not have been constructed to minimise a smog index or maximise the fuel efficiency in a pool like that – whereas today, certain issuers are constructing transactions that are trying to appeal to climate-conscious investors,” states McDonough.

The issue of sustainability has become a deal-breaking matter for some investors, whose pressure continues to be a key driving force behind advancing ESG reporting standards. A recent KPMG ESG Due Diligence Survey found that not only would due diligence surveys alone be enough for more than 50% of M&A dealmakers to cancel any given deal, but that 60% of investors value ESG enough to pay a premium. But despite continued advancements in sustainability reporting and disclosure mechanisms, the potential to be misled by present ESG metrics and data remains without efforts to track sustainability progress through retrospective data analysis.

Calls to capture historical ESG data have emerged in the CLO market too. Panellists at IMN’s CLO Conference in New York earlier this year, for example, noted the risk of greenwashing in the market, due to the paucity of historical data in respect to companies only recently beginning to incorporate ESG disclosures into their due diligence practices (SCI 24 April).

Without comparables to look at, there is a major risk of greenwashing. This is true for SFDR reporting funds disclosing ESG data for the first time in June of this year. Although leniency is being granted, panellists agreed the responsibility remains with individuals rather than the regulatory bodies to mitigate this risk.

However, like many other asset classes within the structured finance universe, retrospective data analysis presents a major challenge due to having comparatively higher levels of innovation and product evolution than that of the RMBS issued by the GSEs. “For the GSEs, it’s really a happy accident,” suggests McDonough. “They’ve been issuing since 1971, and their issuance platform has been relatively stable over that time. Deals certainly looked a lot different in the 1970s or even in the early 2000s versus what they do today, but they have a fairly consistent product and product structure - so their ability to go back is much greater than other platforms that are private in nature and tend to evolve more quickly.”

He adds: “What investors are saying is what we are seeing now is insufficient, and so what we need is more transparency. But you can’t go back into the past and get data that wasn’t disclosed.”

Where no effort has been made to track ESG metrics until recently, there are a number of other ways to provide some form of historical data. “You could do some mapping for some existing data points to score these historical deals, and I guess one piece of that would be interesting would just to be able to see trends – that could identify if something has materially changed, or if this focus on ESG has resulted in an evolution of how products are actually structured,” McDonough explains.

Going back and recalculating or even using new technologies such as AI to compile reasonable estimates are among other options. However, somewhat more universally, back-reporting could prove helpful in assessing the oft-overlooked governance element. Governance factors are an essential component in ESG, especially for corporate issuers, as regulations including the Sarbanes-Oxley Act implementing governance standards have developed over time.

 “Governance is particularly challenging,” says McDonough, “for instance, any kind of corporate issuer – whether they’re issuing equities or debt – will have very significant governance factors.”

There are extensive governance factors that can be traced - including the independence and diversity of the board, reporting on executive compensation and so on – which expose companies’ reactions to increased requirements or governance. “You would guess that boards have become more diverse because of the pressure investors are putting on companies to be more inclusive, so it would be interesting to see,” he continues.

Within structured finance, governance factors are closely linked to individual deals, and often considered a prerequisite rather than pertaining to a separate deal classification, as with environmental and social factors. Therefore, given the absence of historical data, an assessment of a company’s corporate sustainability may not be accurately represented or understood in even the most thorough due diligence processes.

“On the corporate side that would be interesting, but from a structured products perspective, the governance factors that are generally most important are around the structure of the deal, the legal protections, the structure of the trusts that the assets are held in, the role of the trustee and things like that. And those governance factors are specific to an individual deal and sort of end when that securitisation pays off,” McDonough concludes.

Claudia Lewis

ABS

In the fast lane

US prime auto ABS issuance to set new record

US prime auto loan ABS issuance is set to hit a new high this year, predict analysts. Supply in this sector is likely to exceed the US$59bn record set in 2002, according to JP Morgan Chase research.

“Auto ABS is a bright spot this year. Volume is up year on year, and increased volume in autos is offsetting negative volume in pretty much every other sector,” says Theresa O’Neill, senior ABS analyst at Bank of America.

There are several reasons for the uptick beyond simply healthy sales of autos, such as balance sheet and capital pressures experienced by bank lenders. Citizens Bank ,for example, is exiting the sector and brought two deals worth US$3bn in total to offload risk this year, thus entering the securitization market for the first and also the last time. It has a $10bn portfolio so there is room for it to issue more prime auto ABS as well.

Other bank lenders have sold portfolios of car loans in the wake of the regional bank crisis earlier this year, which the buyers have then securitized. “These capital issues at banks have resulted in off balance sheet securitizations or whole loan sales that make their way back into ABS,” explains O’Neill.

Meanwhile Bank of America returned to the market for the first time in 2012, again testifying to balance sheet pressures, while Porsche came back for the first time since 2014.

In addition to prime auto ABS deals, there has been increased corporate fleet and rental fleet transactions. As inventories have built up, dealerships have also been active in the floor plan market. There has been US$20.7bn of lease-backed issuance, US$12.8bn in fleet deals and US$3.9bn in floor plan deals this year, compared to US$16bn, US$11bn and US$1bn respectively in 2022.

Another feature of this year’s issuance has been the increased profile of credit unions, such as Veridian, based in Iowa, and GECU, based in Texas. These lenders tend to be deposit-rich but are expanding their sources of funding. The credit union regulator, the National Credit Union Administration (NCUA) recognizes securitization as a legitimate avenue of extra funding, note analysts.

Augmented supply has led to a spread differential between prime auto and AAA credit card ABS which is close to all-time highs. Normally, these two markets trade on top of each other but at the moment prime auto offers a 29bp pick-up versus credit cards. Three-year credit cards are dealing at Treasuries plus 59bp while three-year prime auto is at plus 85bp.

Given the fact that no remotely serious delinquency risks threaten prime auto, this pick-up between two AAA-rated assets is “pure gravy,” in the words of Amy Sze, senior ABS analyst at JP Morgan Chase in New York. She adds that it is an extremely liquid sector for bonds from top tier sponsors.

There are a few other factors which have informed the comparative width of auto prime spreads. Firstly, there is the United Auto Workers (UAW) strike, now at the end of its second week. So far, the industrial action has targeted only specific plants and inventory levels are high.

However, if the union - doubtless emboldened by the presence yesterday (September 27) on the picket line of President Biden armed with bullhorn -  continue the action and target more plants then inventory would be pressured and prices may rise.

There are also some worries about inflation and new vehicle prices, but at the moment continued post-Covid pent up demand is keeping sales lively.

One factor which has not affected auto ABS spreads or supply is concern that electric vehicles will make traditional gas-powered vehicles obsolete, thus depressing used vehicle prices. This, as a worry, has come and gone.

“It all comes down to consumer demand. Do people want to drive electric? It’s still a lot more expensive and in the US people have a preference for big trucks, so unless they make big, affordable electric trucks it’s not going to have an impact on ABS market supply,” says Amy Sze.

Simon Boughey

Structured Finance

SCI Start the Week - 25 September

A review of SCI's latest content

Last week's news and analysis
ESMA shines light on private securitisations
Update on ESMA’s securitisation overview
Job swaps weekly: CBRE names new debt and structured finance president
People moves and key promotions in securitisation
JPM sounds the klaxon
SRT prices, and new mega-deal looms
RFC issued on CMBS methodology
Updates on Scope’s CRE call and the ICE and DeltaTerra JV
Rhapsody in retail
CMBS offers liquidity for non-mall retail borrowers
Risk transfer round-up - 21 September
The week's CRT developments and deal news
Spanish CRT prices
Magdalena 7 prices tighter
Plus
Deal-focused updates from our ABS Markets and CLO Markets services.

Regulars

Recent premium research to download
Emerging UK RMBS – July 2023
The return of 100% mortgages and the rise of later-life lenders herald an evolving UK RMBS landscape. This Premium Content article investigates how mortgage borrowers’ changing needs are being addressed.

Office CMBS – July 2023
The office CMBS market is grappling with headwinds brought about by declining occupancy rates and rising costs of borrowing. However, as this Premium Content article finds, the European CRE market may not be as badly affected as its US counterpart.

CRT counterparty risk – May 2023
Recent banking instability is unlikely to result in contractual changes in synthetic securitisations, but structural divergences are emerging. This Premium Content article investigates further.

‘Socialwashing’ concerns – May 2023
Concerns around ‘socialwashing’ remain, despite recent advances in defining social securitisations. This Premium Content article investigates why the ‘social’ side of ESG securitisation is more complex than its ‘green’ cousin.

European solar ABS – May 2023
Continental solar ABS is primed for growth as governments and consumers seek energy independence. This Premium Content article investigates.

All of SCI’s premium content articles can be found here.

SCI In Conversation podcast
In the latest episode, Guy Carpenter's md, mortgage and structured credit segment leader Jeff Krohn talks about the recent shape of events in the GSE CRT sector, from the perspective of the capital markets and reinsurance market. He also touches on the topic of recent issuance - or the lack of it - from mortgage insurers and looks as well forward to the prospect of greater issuance in the CRT sector by US banks.
The podcast can be accessed wherever you usually get your podcasts, including Apple Podcasts and Spotify (just search for ‘SCI In Conversation’), or by clicking here.

SCI Markets
SCI Markets provides deal-focused information on the global CLO and Australian/European/UK ABS/MBS primary and secondary markets. It offers intra-day updates and searchable deal databases alongside CLO BWIC pricing and commentary. Please email Tauseef Asri at SCI for more information or to set up a free trial here.

SRTx benchmark
SCI has launched SRTx (Significant Risk Transfer Index), a new benchmark that measures the estimated prevailing new-issue price spread for generic private market risk transfer transactions. Calculated and rebalanced on a monthly basis by Mark Fontanilla & Co, the index provides market participants with a benchmark reference point for pricing in the private risk transfer market by aggregating issuer and investor views on pricing. For more information on SRTx or to register your interest as a contributor, click here.

Upcoming SCI events
Women In Risk Sharing
18 October 2023, London

SCI's 9th Annual Capital Relief Trades Seminar
19 October 2023, London

Esoteric ABS Seminar
7 November 2023, New York

European CRE Finance Seminar
28 November 2023, London

Capital Relief Trades

Risk transfer round-up - 28 September

The week's CRT developments and deal news

People moves
ArrowMark Partners has recruited Moritz Ruhdorfer as a senior member of its securitised credit investment team. Based in ArrowMark’s London office, Ruhdorfer will assist the team with origination, structuring and execution for banks of SRT investments. With over 12 years of industry experience, his relationships in the asset class will expand the diversity of the firm’s sourcing networks and the depth of its fundamental research capabilities.

Most recently, Ruhdorfer was at Aon, where he supported the development of its regulatory capital relief capabilities and origination. The majority of his career was spent at Citi, where he originated, structured and distributed risk transfer trades.

Pipeline update
As the final quarter of the year commences next week, the SRT market is experiencing a continued pick-up in activity. 

For example, Santander’s “CRE-heavy UK SME” Chicago trade is believed to have priced earlier this week. One SRT investor indicates that the transaction printed in the high 10%-11% area.

Meanwhile, in terms of the imminent pipeline, the investor also highlights Société Génerale as having a large corporate trade about to close. Elsewhere, as mentioned last week, the investor confirms that two trades from Poland are currently underway – including one from Santander Polska. The investor further points to BPM being in the market with an Italian SME SRT deal.  

Regarding the broader trends and themes currently impacting the market, the investor describes current market sentiment as “looking pretty good.” He notes: “We’re just about to enter Q4, which is traditionally active in the risk-sharing market. I expect that pricing will hold up and widen slightly in some transactions. It is too soon to say which trades will and will not close.”

The investor echoes last week’s view that current conditions should benefit larger and experienced issuers. “More accomplished issuers know how to approach the market and anchor investors. For newer ones, it’s often more challenging, unless they have a good arranger helping in the process,” he says.

He concludes: “Therefore, that might lead to some differences in outcomes. But, on the whole, I think there is a good appetite on the investor side and there's a lot of pent-up supply on the bank side, so it should be a good Q4.”

CRT new issue pipeline

SCI SRTx indexes

For more information on the Significant Risk Transfer Index (SRTx), click here.

Capital Relief Trades

LBBW, mBank out of the blocks

SRT Market Update

Further details have emerged on one of the Polish SRT trades that had been in the pipeline (SCI 28 September). Meanwhile, LBBW has closed an innovative synthetic securitisation with the EIB Group.

Polish lender mBank has completed its third SRT transaction, representing the largest-ever synthetic securitisation in the CEE region. Dubbed Makalu, the deal references an approximately PLN10bn portfolio comprising retail banking non-mortgage loan exposures.

As part of the transaction, the bank issued CLNs with a nominal value of PLN731m. A fund managed by Christofferson Robb & Company acquired the majority of notes issued.

The transaction will lead to an improvement of mBank’s CET1 ratio by approximately 0.9 percentage points at the consolidated level and supports the development of the bank’s retail and corporate banking franchises. Arranged by UniCredit, it has been structured as meeting the STS criteria and has a final maturity of November 2036.

Over the last 18 months, mBank has completed three securitisations with a total reference nominal amount exceeding PLN20bn. The bank issued a PLN642.5m CLN in March last year and a €64m CLN in December (see SCI’s CRT Issuance Database).

The EIB synthetic securitisation, meanwhile, involves a €175m guarantee to support LBBW’s lending in the renewable energy sector. The deal will free up capital that will channel €350m in new financing from LBBW for clean power projects, thus contributing to the decarbonisation of the German economy and to Europe’s energy independence.

The €3.2bn reference portfolio consists of loans to SMEs and other corporates originated by LBBW in its ordinary business. The transaction is structured with a two-year replenishment period and falls under the STS securitisation framework.

Through a retrocession agreement, LBBW undertakes to convert the additional lending capacity into a new portfolio that is at least double the size of the mezzanine tranche guaranteed by the EIB (or €350m). The amount allocated under this operation is expected to result in the development of about 340MW of new electricity generation capacity from renewable sources, equivalent to the energy use of more than one million homes. The beneficiary companies will be in Germany, other EU Member States and Switzerland.

The operation is undertaken in line with the EIB Group’s commitment to support the REPowerEU programme.

Corinne Smith

Capital Relief Trades

SME SRT prints

'CRE-heavy' portfolio revealed

Further details have emerged regarding Santander’s latest UK SME synthetic securitisation (SCI 28 September). The static reference portfolio comprises 1,040 obligations, the majority of which are term loans (accounting for around 89%), with the remainder being revolving credit facilities (around 11%).

Of the portfolio, 819 exposures (or 72% of the pool) are secured by CRE assets, including 571 exposures that are SME term loans and revolving credit facilities collateralised by CRE. The remaining 28% of the pool consists of loans extended to SMEs and corporate debtors.

The largest industry concentration is real estate (41.5%), followed by financial and insurance (13%) and construction (7.3%). The rest of the portfolio is spread over more than 10 industries.

The 10 largest borrower groups collectively represent 5% of the portfolio, with individual group exposures capped at 0.5% of the reference notional amount.

The reference obligations are mostly denominated in sterling (97.3%), with the rest in US dollars or euros. Roughly 87% of the exposures are scheduled for repayment before 2028, which corresponds to a pool weighted average life of 2.6 years.

Scope has rated the risk of losses on five of the deal’s seven synthetic tranches, with respect to a credit event under the final terms of the CLNs. Tranches A to E are sized at £1.61bn (rated triple-A), £81.84m (double-A plus), £81.84m (single-A plus), £51.11m (single-A minus) and £112.5m (triple-B minus). The £81.9m and £30.7m tranches F and G are unrated.

The agency has also assigned triple-B minus ratings to the £69m and £43.5m class E1 and E2 CLNs, while the £50.3m and £31.6m class F1 and F2 CLNs are unrated.

Tranches A to F are subject to pro-rata amortisation contingent on performance and concentration triggers. Upon the activation of these thresholds, amortisation transitions to being strictly sequential.

Corinne Smith

Structured Finance

Wilmington bank adds CLO expertise

Market updates and sector developments

WSFS Financial Corporation’s global capital markets team is expanding into the CLO market, as it seeks to grow its wealth business and generate fee income on a national scale. To support this expansion, the company has recruited two new associates with expertise in CLOs.

WSFS Global Capital Markets provides global services to the leveraged loan and capital markets, with capitalisation in excess of US$1bn. Services include loan agency services, project finance administration, investment grade and high yield debt offerings, SPE services, and default and bankruptcy services.

Joining the WSFS Global Capital Markets team are Anita Patel, CLO analyst, and Samuel Fatoki, relationship manager.

In other news…

CMU roadmap calls for further ‘targeted amendments’
The Finance Ministers of France and Germany have published a joint roadmap for the EU Capital Markets Union. The statement notes that strengthening the CMU is “a shared priority” for the two countries and that despite substantial recent progress on the CMU agenda, three first-order priorities should be focused on, in order for the EU to catch up with markets like the US.

One of these priorities is securitisation, which the roadmap describes as an “excellent tool” for the risk and liquidity management of banks, as well as being key to allowing banks to provide sufficient credit to companies by freeing up new lending capacities. In particular, the statement urges policymakers to use the opportunity of the Solvency 2 review to adopt further targeted amendments of the prudential rules for securitisation within this legislative cycle.

“A more comprehensive reform of the regulatory framework of securitisations might be necessary, in the longer run, in order to foster this critical tool that contributes to the financing of Europe’s economy. In that perspective, France and Germany will jointly identify areas where amendments are appropriate and possible and will promote these measures vis-a-vis the Commission and other stakeholders,” the statement concludes.

Structured Finance

Job swaps weekly: Khan heads to Natixis CIB

People moves and key promotions in securitisation

This week’s roundup of securitisation job swaps sees Natixis CIB hiring a new head of structured credit capital markets. Elsewhere, Arrow Global has recruited two senior execs to its real estate and credit divisions, while Intesa Sanpaolo has appointed a new head of structured finance and loans legal advisory. 

MUFG’s Asif Khan has joined Natixis CIB as md and head of structured credit capital markets. Khan will be based in Natixis’s New York office, working within the global markets Americas team, and will report to Emmanuel Issanchou, head of global markets Americas and global head of credit markets.

Khan leaves his role as md and global head of CLOs at MUFG after almost 10 years with the firm, having originally joined in early 2014. During his time with the business, he established and led the MUFG CLO platform.

In his new role, Khan will oversee structured credit sales and syndication, and be responsible for supporting origination for the Americas team. Prior to MUFG, he was a partner at Vibrant Capital — then known as DFG Investment Advisers — and had stints at Morgan Stanley, Wachovia/Wells Fargo, Goldman Sachs and Credit Suisse.

Meanwhile, Arrow Global has hired Zachary Vaughan, formerly of Brookfield Asset Management, as head of real estate and chair of its real estate investment committee, and Morgan Stanley’s Toni McDermott as cio for credit and direct lending. 

Vaughan left his role as managing partner and global head of core plus and perpetual funds at Brookfield in April after 11 years with the business. He also previously held senior roles at Reichmann International and CPP Investments. His appointment comes in the aftermath of key real-estate-focused acquisitions by Arrow, including the bolt-ons of Eagle Street Partners and Blue Current Capital, as well as the launch of its Mica Real Estate subsidiary in the Netherlands.

McDermott leaves her role as md of loan solutions and securitisation at Morgan Stanley, having previously held md roles at both Centerbridge Partners and Deutsche Bank. 

Intesa Sanpaolo has promoted Laura Ersettigh to head of structured finance and loans legal advisory, based in its Milan office. Ersettigh joined the bank in late 2020 as head of IMI corporate and investment banking loans legal advisory, leaving her position at Allen & Overy after five years with the firm. She previously spent five years at Pedersoli Studio Legale.

ING has promoted Peter van Eijndhoven to director for sustainable structured finance, based in its Amsterdam office. Van Eijndhoven has been with the bank for 18 years and is promoted from the role of director for sustainable project finance.

In further promotion news, M&G has elevated two London-based directors to co-head of structured credit research. The firm has promoted Tim Morris and Eoin O'Shaughnessy, who were both previously directors for structured and private assets and have been with M&G for 16 years and 11 years respectively.

Voiter’s Alexandre Azzi Feres has joined BTG Pactual’s Grand Capital subsidiary as partner and head of structured finance, working out of São Paulo. Azzi Feres leaves his role as commercial superintendent at Voiter after two and a half years with the Brazilian bank. He previously worked at Banco Pine, Banco Fibra and Banco PAN.

Dentons’ Matthew Royko has joined Bryan Cave Leighton Paisner as a real estate partner, working out of the law firm’s Atlanta office. Royko focuses on real estate finance spanning secured and unsecured lending transactions and acquisition financings. He leaves his position as partner at Dentons after eight years with the firm, having previously spent 10 years at McKenna Long & Aldridge.

Ram Realty Advisors has appointed former Wells Fargo md Sean Barlas as chief investment officer. Barlas will be based in Charlotte, North Carolina. He will oversee Ram Realty’s investment teams in south Florida, central Florida, North Carolina and Tennessee. In his role at Wells Fargo, he led the real estate merchant banking group, which invested across the risk spectrum, including direct equity and structured finance. 

Pieterbas Kist has joined African Asset Finance Company as director in its structured finance and funding team, working out of Rotterdam. Kist left his role as head of financial sourcing and solutions at Signify Capital in 2022 after four years with the Netherlands-headquartered electronics group. Prior to that he spent 10 years at Philips, where he worked in its business finance, healthcare and lighting financing teams.

Aeolus Capital Management’s Jake Nichols has joined Aon as senior md and global clients leader within its reinsurance solutions division. In his new role, he will focus on risk transfer solutions and be based in Bermuda. Nichols joined Aeolus in 2020 and was previously a senior vp at Guy Carpenter.

Europe-focused structuring, restructuring and capital raising advisory firm TreeCap Partners has appointed Aggregate Holdings’ Boris Lemke as founder and managing partner, based in London. TreeCap was launched in late 2022 by former HDI Global veteran Frank Bandemer. 

Lemke leaves his position as investment director at Aggregate Holdings after four years with the business, and will focus on corporate and structured finance, capital and loan markets, real estate, infrastructure and project finance at TreeCap.He left his role as director in the corporate finance and private debt syndicate team at Deutsche Bank in 2019 after 10 years with the bank.

And finally, Banca Akros has promoted Luisa Giacomelli to vice president in its securitisation and structured solutions team. Giacomelli is based in Milan and joined Akros in 2020 after two years as an analyst in the securitisation structuring and origination division at RBS. Prior to that, she spent a year and half at NatWest.

Capital Relief Trades

Fed clarifies CLN definition

Market updates and sector developments

The US Fed has updated its FAQs on Regulation Q to provide guidance in connection with the recognition of CLNs under the capital rule, a step that the US CRT market has been awaiting for over a year. Under the capital rule, a Fed-regulated institution can recognise the credit risk mitigation of the collateral on a reference portfolio under the rules for synthetic securitisations, provided that the requirements in section 41 or 141 are met and that the transaction satisfies the definition of ‘synthetic securitisation’.

The FAQs state that a synthetic securitisation must first include a guarantee or credit derivative and, in the case of a credit derivative, the derivative must be executed under standard industry credit derivative documentation. Second, the operational criteria for the SSFA require use of a recognised credit risk mitigant, such as collateral.

In contrast, the direct CLNs the Fed has reviewed generally do not satisfy either the definition of synthetic securitisation or the operational requirements of the SSFA. It notes that direct CLNs frequently reference, but are not executed under, standard industry credit derivative documentation and the cash purchase consideration is property owned by the note issuer, not property in which the note issuer has a collateral interest. As such, institutions that issue direct CLNs - or have consolidated subsidiaries that issue them - would not automatically be able to recognise such transactions as synthetic securitisations under the capital rule.

However, the FAQs do recognise that firms can, in principle, transfer a portion of the credit risk on the referenced assets to investors via a direct CLN at least as effectively as the synthetic securitisations that qualify under the capital rule. Therefore, the guidance notes that, on appropriate facts, a reservation of authority can be requested where the primary issues presented by the transaction are limited to these two common issues.

In other news…

PRA delays output floor policies
The UK PRA has updated its timetable for implementing the Basel 3.1 standards in the UK, to support firms in their planning processes. The consultation period ended on 31 March and the authority says it has been considering the feedback it received since then.

First, the implementation date of the final Basel 3.1 policies has been extended by six months to 1 July 2025 and the transitional period has been reduced to 4.5 years, to ensure full implementation by 1 January 2030. Second, to allow appropriate time to fully consider the responses to the credit risk and output floor proposals without delaying publication of rules on the other parts of the package, the authority intends to split publication of its near-final Basel 3.1 policy statements into two.

In 4Q23, the PRA intends to publish the near-final policies on market risk, credit valuation adjustment risk, counterparty credit risk and operational risk. In 2Q24, it intends to publish the near-final policies on credit risk, the output floor and reporting and disclosure requirements.