SECN 2.3 STS criteria: Simple, transparent and standardised asset backed commercial paper securitisation

1. (1)

   1An ABCP transaction must fulfil the following requirements to be considered an STS securitisation:

   1. (a)

      those in SECN 2.3.2R to SECN 2.3.22R;

   2. (b)

      the FCA must have received an STS notification in respect of that securitisation and must have included the securitisation in the list it publishes under regulation 10(2) of the Securitisation Regulations 2024; and

   3. (c)

      the sponsor involved in the ABCP programme of which that ABCP transaction forms part must be established in the United Kingdom.

2. (2)

   An ABCP programme must fulfil the following requirements to be considered an STS securitisation:

   1. (a)

      those in SECN 2.3.30R to SECN 2.3.37R;

   2. (b)

      The FCA must have received an STS notification in respect of that securitisation and must have included the securitisation in the list it publishes under regulation 10(2) of the Securitisation Regulations 2024; and

   3. (c)

      the sponsor involved in the ABCP programme must be established in the United Kingdom.

3. (3)

   For the purposes of SECN 2.3, a ‘seller’ means ‘originator’ or ‘original lender’.

1. (1)

   1Any SSPE must acquire title to the underlying exposures in a manner enforceable against the seller or any other third party, whether transfer of title is by means of:

   1. (a)

      true sale;

   2. (b)

      assignment; or

   3. (c)

      another transfer with the same legal effect as (a) or (b).

2. (2)

   The transfer of the title to the SSPE must not be subject to severe clawback provisions if the seller becomes insolvent.

1. (1)

   1For the purposes of SECN 2.3.2R(2), the following are severe clawback provisions:

   1. (a)

      those allowing the seller’s liquidator to invalidate the sale of the underlying exposures solely because it was concluded within a certain period before the declaration of the seller’s insolvency;

   2. (b)

      provisions where the SSPE can prevent the invalidation referred to in (a) only if it can prove it was not aware of the seller’s insolvency at the time of sale.

1For the purposes of SECN 2.3.2R if provisions of national insolvency laws allow a liquidator or court to invalidate the sale in the following circumstances, such provisions are not severe clawback provisions:

1. (1)

   fraudulent transfers; or

2. (2)

   unfair prejudice to creditors or transfers intended to improperly favour particular creditors over others.

1If the seller is not the original lender, the transfer of the underlying exposures to the seller by any of the means in SECN 2.3.2R(1) (whether direct or through one or more intermediate steps) must meet the requirements in SECN 2.3.2R, SECN 2.3.3 and SECN 2.3.4R.

1If the transfer of the underlying exposures is performed by assignment and perfected after the transaction’s closing, the triggers to effect such perfection must be set broadly enough to require perfection in all of the following events:

1. (1)

   severe deterioration in the seller’s credit quality standing;

2. (2)

   the seller’s insolvency; and

3. (3)

   unremedied breaches of the seller’s contractual obligations, including the seller’s default.

1The seller must provide representations and warranties that, to the best of its knowledge, the underlying exposures included in the securitisation are not encumbered or otherwise in a condition that can be foreseen to adversely affect the enforceability of the transfer by the means in SECN 2.3.2R(1).

1. (1)

   1The underlying exposures the seller transfers to the SSPE (if an SSPE is used) or that are otherwise securitised must meet predetermined, clear and documented eligibility criteria prohibiting active portfolio management of those exposures on a discretionary basis.

2. (2)

   For the purposes of (1), substitution of exposures that are in breach of representations and warranties is not considered active portfolio management.

3. (3)

   Exposures transferred to the SSPE (if an SSPE is used) or otherwise added to the securitisation after the closing of the transaction must meet the eligibility criteria applied to the initial underlying exposures.

1The underlying exposures must not include any securitisation positions.

1. (1)

   1After the underlying exposures have been selected, they must be transferred to the SSPE (if an SSPE is used) or otherwise securitised without undue delay.

2. (2)

   At the time of selection, the underlying exposures must not include exposures in default within the meaning of Article 178(1) of the UK CRR or exposures to a credit-impaired debtor or guarantor who, to the best of the originator’s or original lender’s knowledge:

   1. (a)

      was, at the time of origination, where applicable:

      1. (i)

         on a public credit registry of persons with adverse credit history; or

      2. (ii)

         if there is no such public credit registry, another credit registry that is available to the originator or original lender;

   2. (b)

      has a credit assessment or a credit score indicating that the risk of contractually agreed payments not being made is significantly higher than for comparable unsecuritised exposures the originator holds, if any;

   3. (c)

      has been declared insolvent;

   4. (d)

      had a court grant its creditors a final non-appealable right of enforcement or material damages as a result of a missed payment within 3 years before the date of origination; or

   5. (e)

      has undergone a debt restructuring process with regard to its non-performing exposures within 3 years before the date of transfer of the underlying exposures to the SSPE (if an SSPE is used) or other means of securitising the underlying exposure.

3. (3)

   If a credit-impaired debtor or guarantor has undergone a debt restructuring process as described in (2)(e), the underlying exposures may include exposures to that credit-impaired debtor or guarantor if:

   1. (a)

      the restructured underlying exposure has not presented new arrears since the date of the restructuring, which must have taken place at least 1 year before the date the underlying exposures were transferred to the SSPE (if an SSPE is used) or otherwise securitised; and

   2. (b)

      the information the originator, sponsor and SSPE have provided in accordance with SECN 6.2.1R(1) and SECN 6.2.1R(5)(a) explicitly sets out:

      1. (i)

         the proportion of total underlying exposures, which have been restructured;

      2. (ii)

         the time and details of the restructuring; and

      3. (iii)

         their performance since the date they were restructured.

1The debtors must, at the time the exposures are transferred, have made at least one payment, except in the case of revolving securitisations backed by exposures payable in a single instalment or with a maturity of less than 1 year (including, without limitation, monthly payments on revolving credits).

1. (1)

   1The securitisation must not be structured so that repayment of securitisation investors depends predominantly on the sale of the assets securing the underlying exposures.

2. (2)

   Paragraph (1) must not prevent such assets from subsequently being rolled over or refinanced.

3. (3)

   If a securitisation’s underlying exposures are secured by assets, and the value of those assets is guaranteed or the risks related to that value are fully mitigated by an obligation on the seller of those assets, or on another third party, to repurchase them, that securitisation does not contravene the prohibition in (1).

1. (1)

   1The interest rate and currency risks arising from the securitisation must be appropriately mitigated. Any measures taken to that effect must be disclosed.

2. (2)

   The securitisation must be structured such that:

   1. (a)

      the SSPE does not enter into derivative contracts, unless to hedge interest rate or currency risk; and

   2. (b)

      the pool of underlying exposures does not include derivatives.

3. (3)

   Any derivatives into which the SSPE does enter in accordance with (2)(a) must be underwritten and documented according to common standards in international finance.

1. (1)

   1The transaction documentation must clearly and consistently set out definitions, remedies and actions relating to:

   1. (a)

      delinquency and default of debtors;

   2. (b)

      debt restructuring;

   3. (c)

      debt forgiveness;

   4. (d)

      forbearance;

   5. (e)

      payment holidays;

   6. (f)

      losses;

   7. (g)

      charge offs;

   8. (h)

      recoveries; and

   9. (i)

      other asset performance remedies.

2. (2)

   The transaction documentation must clearly specify:

   1. (a)

      the priorities of payment and events triggering any change to these; and

   2. (b)

      the obligation to report such events.

3. (3)

   Any change in the priorities of payments which will materially adversely affect a securitisation position’s repayment must be reported to investors without undue delay.

1The transaction documentation must include clear:

1. (1)

   provisions facilitating timely resolution of conflicts between different classes of investors;

2. (2)

   definitions of voting rights;

3. (3)

   allocation of voting rights to classes of investor; and

4. (4)

   identification of responsibilities of the trustee and other entities with fiduciary duties to investors.

1. (1)

   1Before pricing or original commitment to invest, the originator and the sponsor must make the following data available to potential investors:

   1. (a)

      except as provided in (2), data covering a period of at least 5 years about static and dynamic historical default and loss performance, such as delinquency and default data, for substantially similar exposures to those being securitised; and

   2. (b)

      the sources of the data in (1)(a) and the reasons those exposures are substantially similar to those being securitised.

2. (2)

   If the data in (1)(a) relates to trade receivables and other short-term receivables, it must cover a period of at least 3 years.

3. (3)

   If the sponsor cannot access such data, it must obtain from the seller access to static or dynamic data about the historical performance of exposures substantially similar to those being securitised (such as delinquency and default data).

1. (1)

   1ABCP transactions must be backed by a pool of underlying exposures that are homogeneous in terms of asset type, considering the specific characteristics relating to the asset type’s cash flows, including their contractual, credit-risk and prepayment characteristics.

2. (2)

   The pool of underlying exposures must have a remaining weighted average life of not more than 1 year. The underlying exposures must not have a residual maturity of more than 3 years.

3. (3)

   By way of derogation from (2), pools of auto loans, auto leases and equipment lease transactions must have a remaining weighted average life of not more than 3.5 years. The underlying exposures must not have a residual maturity of more than 6 years.

4. (4)

   Further details specifying which underlying exposures are homogeneous for the purposes of (1) are set out at SECN 2.4.

5. (5)

   The underlying exposures must not include loans secured by residential or commercial mortgages.

6. (6)

   The underlying exposures:

   1. (a)

      must contain contractually binding and enforceable obligations, with full recourse to debtors;

   2. (b)

      must have defined payment streams relating to rental, principal, interest, or any other right to receive income from assets warranting such payments;

   3. (c)

      may generate proceeds from the sale of any financed or leased assets; and

   4. (d)

      must not include any transferable security, other than corporate bonds not listed on a trading venue.

1. (1)

   1Any referenced interest payments under the ABCP transaction’s assets and liabilities must:

   1. (a)

      be based on generally used market interest rates or generally used sectoral rates reflective of the cost of funds; and

   2. (b)

      not reference complex formulae or derivatives.

2. (2)

   Referenced interest payments under the ABCP transaction’s liabilities may be based on interest rates reflective of an ABCP programme’s cost of funds.

1Following the seller’s default or an acceleration event:

1. (1)

   no amount of cash may be trapped in the SSPE above what is needed to ensure the SSPE’s operational functioning or the orderly repayment of investors under the securitisation’s contractual terms. However, an amount of cash may be so trapped if exceptional circumstances require it to be used (in the investors’ best interests) to pay expenses to prevent deterioration in the underlying exposures’ credit quality;

2. (2)

   principal receipts from the underlying exposures must be passed to investors via sequential payment of the securitisation positions, as determined by the securitisation positions’ seniority; and

3. (3)

   no provisions may require automatic liquidation of the underlying exposures at market value.

1. (1)

   1The underlying exposures must be originated:

   1. (a)

      in the ordinary course of the seller’s business; and

   2. (b)

      following underwriting standards at least as rigorous as those the seller applied at the time of origination to similar unsecuritised exposures, to the extent there are any.

2. (2)

   The originator or the original lender must fully disclose to the sponsor and other parties directly exposed to the ABCP transaction without undue delay:

   1. (a)

      the underwriting standards pursuant to which the underlying exposures are originated; and

   2. (b)

      any material changes from prior underwriting standards.

3. (3)

   The seller must have expertise in originating exposures of a similar nature to those securitised.

1If an ABCP transaction is a revolving securitisation, the transaction documentation must include triggers for termination of the revolving period, including in the following circumstances:

1. (1)

   the underlying exposures’ credit quality deteriorating to or below a predetermined threshold; and

2. (2)

   an insolvency-related event with regard to the seller or the servicer occurring.

1The transaction documentation must clearly specify:

1. (1)

   the sponsor’s, servicer’s, any trustee’s and ancillary service providers’ contractual obligations, duties and responsibilities;

2. (2)

   the processes and responsibilities necessary to ensure that the servicer’s default or insolvency does not result in servicing terminating;

3. (3)

   provisions ensuring derivative counterparties and the account bank are replaced in the case of their default, insolvency, and other specified events, where applicable; and

4. (4)

   how the sponsor meets the requirements of SECN 2.3.25R.

1The sponsor of an ABCP programme must:

1. (1)

   be a CRR firm; and

2. (2)

   not be an investment firm.

1The sponsor of an ABCP programme must:

1. (1)

   be a liquidity facility provider;

2. (2)

   support all securitisation positions on an ABCP programme level by covering all liquidity and credit risks and any material dilution risks of the securitised exposures as well as any other transaction and programme-level costs if necessary to guarantee to the investor the full payment of any amount under the ABCP with such support; and

3. (3)

   disclose to investors a description of the support provided at transaction level and of the liquidity facilities provided.

1. (1)

   1Before a credit institution may sponsor an STS ABCP programme, it must demonstrate to the PRA that its role under SECN 2.3.24R does not pose risks to its solvency and liquidity, even in extremely stressed market conditions.

2. (2)

   The requirement referred to in (1) is fulfilled if the PRA has determined, based on the review and evaluation referred to in regulation 34A(2) of the Capital Requirements Regulations 2013, that:

   1. (a)

      the arrangements, strategies, processes and mechanisms that credit institution has implemented; and

   2. (b)

      the own funds and liquidity that credit institution holds,

   ensure sound management and coverage of its risks.

1The sponsor must:

1. (1)

   perform its own due diligence;

2. (2)

   verify compliance with the requirements set out in SECN 4.2.1R and SECN 4.2.2R or equivalent PRA rules; and

3. (3)

   verify the seller has in place servicing capabilities and collection processes meeting the requirements specified in Article 265(2)(h)–(p) of the UK CRR or equivalent requirements in a third country.

1The seller, at the level of a transaction, or the sponsor, at the level of the ABCP programme, must satisfy the risk-retention requirement referred to in SECN 5 or equivalent PRA rules.

1Before pricing or original commitment to invest, the sponsor must make available to potential investors pricing on request:

1. (1)

   the aggregate information required by SECN 6.2.1R(1) or equivalent PRA rules; and

2. (2)

   the information required by SECN 6.2.1R(2) to SECN 6.2.1R(7) or equivalent PRA rules, at least in draft or initial form.

1If the sponsor does not renew the funding commitment of the liquidity facility before it expires, the liquidity facility must be drawn down and the maturing securities must be repaid.

1. (1)

   1All ABCP transactions within an ABCP programme must fulfil the requirements of SECN 2.3.2R to SECN 2.3.22R.

2. (2)

   Notwithstanding (1), a maximum of 5% of the aggregate amount of the exposures underlying the ABCP transactions and which are funded by the ABCP programme may temporarily not comply with the requirements of SECN 2.3.10R, SECN 2.3.11R and SECN 2.3.12R without affecting the ABCP programme’s STS status.

3. (3)

   For the purposes of (2), an appropriate and independent external party must regularly verify compliance of a sample of the underlying exposures.

4. (4)

   The sponsor of the ABCP programme must comply with the requirements under SECN 2.3.23R to SECN 2.3.29R;

1The remaining weighted average life of the underlying exposures of an ABCP programme must not be more than 2 years.

1The ABCP programme must be fully supported by a sponsor in accordance with SECN 2.3.24R.

1The ABCP programme must not contain any resecuritisation. The credit enhancement must not establish a second layer of tranching at the programme level.

1The securities an ABCP programme issues must not include the following clauses, if they are exercisable at the discretion of the seller, sponsor or SSPE:

1. (1)

   call options;

2. (2)

   extension clauses; and

3. (3)

   other clauses that affect the final maturity of those securities.

1. (1)

   1The interest rate and currency risks arising at ABCP programme level must be appropriately mitigated. Any measures taken to that effect must be disclosed.

2. (2)

   The ABCP programme must be structured such that:

   1. (a)

      the SSPE must not enter into derivative contracts, unless to hedge interest rate or currency risk; and

   2. (b)

      the pool of underlying exposures does not include derivatives.

3. (3)

   Any derivatives into which the SSPE does enter in accordance with (2)(a) must be underwritten and documented according to common standards in international finance.

1The ABCP programme’s documentation must clearly specify:

1. (1)

   the responsibilities of the trustee and other entities with fiduciary duties, if any, to investors;

2. (2)

   the contractual obligations, duties and responsibilities of the sponsor (who must have expertise in credit underwriting), any trustee and other ancillary service providers;

3. (3)

   the processes and responsibilities necessary to ensure that the servicer’s default or insolvency does not result in servicing terminating;

4. (4)

   the provisions ensuring derivative counterparties and the account bank at ABCP programme level are replaced in case of their default, insolvency and other specified events, where the liquidity facility does not cover such events;

5. (5)

   the remedial steps that must be taken on specified events, or on the sponsor’s default or insolvency to achieve collateralisation of the funding commitment or replacement of the liquidity facility provider (as appropriate); and

6. (6)

   that the liquidity facility must be drawn down and the maturing securities repaid if the sponsor does not renew the liquidity facility’s funding commitment before it expires.

1The servicer must have:

1. (1)

   expertise in servicing exposures of a similar nature to those securitised; and

2. (2)

   well-documented and adequate policies, procedures and risk-management controls relating to the exposures’ servicing.