SECN 2.2 STS criteria: Simple, transparent and standardised non-ABCP securitisation

A securitisation which is not an ABCP programme or an ABCP transaction must fulfil the following requirements to be considered an STS securitisation:

1. (1)

   those in SECN 2.2.2R to SECN 2.2.29R; and

2. (2)

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

3. (3)

   the originator and sponsor involved in the securitisation must be established in the United Kingdom.

1. (1)

   Any 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)

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

For the purposes of SECN 2.2.2R(2), the following are severe clawback provisions:

1. (1)

   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. (2)

   provisions where the SSPE can prevent the invalidation referred to in (1) only if it can prove it was unaware of the seller’s insolvency at the time of sale.

For the purposes of SECN 2.2.2R(1), if provisions of national insolvency laws allow a liquidator or court to invalidate the sale of underlying exposures 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.

If the seller is not the original lender, the transfer of the underlying exposures to that seller by any of the means in SECN 2.2.2R(1) (whether direct or through one or more intermediate steps) must meet the requirements in SECN 2.2.1 to SECN 2.2.3.

If 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.

The 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 2.2.2R(1).

1. (1)

   The 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 SECN 2.2.8R(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.

1. (1)

   The securitisation 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)

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

3. (3)

   The underlying exposures must contain contractually binding and enforceable obligations, with full recourse to debtors and, where applicable, guarantors.

4. (4)

   The underlying exposures must have defined periodic payment streams (the instalments of which may differ in their amounts) relating to rental, principal, or interest payments, or to any other right to receive income from assets supporting such payments. The underlying exposures may also generate proceeds from the sale of any financed or leased assets.

5. (5)

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

The underlying exposures must not include any securitisation position.

1. (1)

   The underlying exposures must be originated:

   1. (a)

      in the ordinary course of the originator’s or original lender’s business; and

   2. (b)

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

2. (2)

   The originator or the original lender (as the case may be) must fully disclose to potential investors, without undue delay:

   1. (a)

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

   2. (b)

      any material changes from former underwriting standards.

3. (3)

   For securitisations with residential loans as underlying exposures, the pool of loans must not include any loan that was marketed and underwritten on the premise that the loan applicant or, where applicable, intermediaries were made aware that the lender might not verify the information provided.

4. (4)

   The assessment of the borrower’s creditworthiness must meet the requirements in:

   1. (a)

      CONC 5.2A.7R;

   2. (b)

      MCOB 11.6.2R(1)(a), MCOB 11.6.2R(1)(b), MCOB 11.6.2R(2), MCOB 11.6.5R(1), MCOB 11.6.60R and MCOB 11A.2.1R; or

   3. (c)

      where applicable, equivalent requirements in a third country.

5. (5)

   The originator or original lender must have expertise in originating exposures of a similar nature to those securitised.

1. (1)

   After 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.

The 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)

   A securitisation must not be structured so that repayment of 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 fully mitigated by an obligation on the seller or another third party to repurchase them, that securitisation does not contravene the prohibition in (1).

The originator, sponsor or original lender must satisfy the risk-retention requirement in accordance with SECN 5.

1. (1)

   The 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.

Any referenced interest payments under the securitisation assets and liabilities must:

1. (1)

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

2. (2)

   not reference complex formulae or derivatives.

If an enforcement or an acceleration notice has been delivered:

1. (1)

   no 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 amortisation of the securitisation positions, as determined by the securitisation positions’ seniority;

3. (3)

   repayment of the securitisation positions must not be reversed with regard to their seniority; and

4. (4)

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

Transactions featuring non-sequential priority of payments must include triggers relating to the performance of the underlying exposures resulting in the priority of payments reverting to sequential payments in order of seniority. Such performance-related triggers must include the deterioration in the credit quality of the underlying exposures below a predetermined threshold.

The transaction documentation must include appropriate early amortisation provisions or, in the case of a revolving securitisation, 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;

2. (2)

   an insolvency-related event with regard to the originator or the servicer occurring;

3. (3)

   the value of the underlying exposures falling below a predetermined threshold (early amortisation event); and

4. (4)

   failing to generate sufficient new underlying exposures meeting the predetermined credit quality (trigger for termination of the revolving period).

The transaction documentation must clearly specify:

1. (1)

   the servicer’s, any trustee’s and other 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, such as a contractual provision enabling the servicer to be replaced in such cases; and

3. (3)

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

The 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.

1. (1)

   The 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.

The 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.

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

1. (1)

   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. (2)

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

1. (1)

   An appropriate and independent external party must verify a sample of the underlying exposures before the securities resulting from the securitisation are issued.

2. (2)

   That verification must confirm that the data disclosed in respect of the underlying exposures is accurate.

1. (1)

   Before pricing or original commitment to invest, the originator or the sponsor must make available to potential investors a liability cashflow model precisely representing the contractual relationship between the underlying exposures and the payments flowing between:

   1. (a)

      the originator;

   2. (b)

      the sponsor;

   3. (c)

      the investors;

   4. (d)

      other third parties; and

   5. (e)

      the SSPE.

2. (2)

   After pricing or original commitment to invest, the originator or the sponsor must continually make that model available to investors and potential investors on request.

For a securitisation whose underlying exposures are residential loans or auto loans or leases, the originator and sponsor must publish the available information about the environmental performance of the assets financed by such residential loans or auto loans or leases as part of the information disclosed pursuant to SECN 6.2.1R(1).

1. (1)

   Before pricing or original commitment to invest, the following information must be made available to potential investors:

   1. (a)

      that required by SECN 6.2.1R(1); and

   2. (b)

      at least in draft or initial form, that required by SECN 6.2.1R(2) to SECN 6.2.1R(4).

2. (2)

   The final documentation must be made available to investors at the latest 15 days after closing of the transaction.