FCA CP26/6 & PRA CP2/26: The Most Significant Reform to UK Securitisation Rules Since Brexit — Closes 18 May 2026

Credit: AFME

Parallel FCA and PRA consultations propose a major overhaul of the UK Securitisation Framework, going further than industry expected, final rules H2 2026, PRA implementation Q2 2027.

Context:

On 17 February 2026, the FCA (CP26/6) and PRA (CP2/26) published parallel consultation papers on reforming the UK Securitisation Framework. The consultations close on 18 May 2026. Both papers are closely aligned and represent a coordinated response to years of industry feedback that the UK's post-Brexit securitisation rules, largely retained from the EU Securitisation Regulation, have become overly prescriptive and administratively burdensome relative to the risk they address.

The UK Securitisation Framework came into force in November 2024, replacing the previous retained EU law. CP26/6 and CP2/26 represent the second phase of reform, proposing amendments to the FCA Handbook and PRA Rulebook, respectively. The FCA expects to publish final rules in H2 2026 (with implementation six months after that), while the PRA targets Q2 2027 for implementation.

The proposals go further than industry initially anticipated. The scope of changes is extensive, covering due diligence requirements, risk retention, transparency obligations, the treatment of CLOs, the STS notification regime, and the differential treatment of public versus private securitisations. Practitioners should review transaction documents and structures in light of the proposed changes.

Rules and Guidelines:

The key proposed changes are: (i) Simplifying due diligence requirements — recognising that sophisticated institutional investors subject to internal governance and regulatory oversight do not need prescriptive one-size-fits-all due diligence mandates; (ii) Reforming risk retention rules, including addressing the CLO manager question, where feedback has suggested risk retention is disproportionate given AIFMs' existing regulatory obligations; (iii) Simplifying transparency requirements, ceasing to treat public and private securitisations differently in most cases, and removing prescriptive requirements for underlying documentation; (iv) STS regime changes — including allowing STS notifications for private securitisations to be made public if parties wish.

For CLOs specifically, the FCA is explicitly seeking data-led arguments on whether CLO risk retention should be further reformed to bring UK CLOs closer to US CLO treatment under Dodd-Frank (where credit retention rules do not apply to open-market CLOs). This is a significant signal; firms with strong evidence base should engage.

The FCA and PRA are also considering with HMT whether occupational pension scheme due diligence requirements should be aligned with the proposals, a coordination that could reduce compliance fragmentation.

Businesses Affected:

• Originators, sponsors, and original lenders established in the UK face changed risk retention and transparency obligations.

• Institutional investors (UK banks, insurers, pension funds) investing in securitisation positions, for whom simplified due diligence requirements represent a meaningful compliance burden reduction.

• CLO managers, particularly those arguing for alignment with US Dodd-Frank treatment, have a specific window to submit data-led arguments to the FCA.

• Legal advisers and structuring teams drafting securitisation documents should assess whether existing transaction documentation may need amendment as proposed changes crystallise.

Next Steps:

• Respond by 18 May 2026. This is a significant structural reform and firms with market experience should engage substantively, particularly on CLO risk retention, due diligence calibration, and the public/private STS notification question.

• Review existing transaction documents. Consider whether to draft for automatic fall-away of current UK risk retention and credit-granting requirements once new rules take effect, to be replaced by the new regime.

• For CLO managers: prepare data-led arguments on risk retention proportionality. The FCA has explicitly stated it needs stronger empirical evidence to justify further reform in this area.

• Monitor the HMT consideration of pension scheme due diligence alignment, which could affect occupational pension fund investment teams separately from the main FCA/PRA consultation.

Source | FCA | Securitisation Reform