UK PRA PS 19/25—Securitisation Prudential Reforms

1. Background and Next Steps/Implementation Timing

This briefing, which is relevant to the prudential treatment of securitisations in general (traditional and synthetic) by UK PRA regulated banks, covers the securitisation-related content of PRA Policy Statement 19/25 (PS 19/25, published 28 October 25). PRA 19/25 sets out the PRA's approach in relation to the securitisation prudential reforms envisaged in its October 2024 Consultation Paper 13/24 (CP13/24) that the PRA regards as conceptually linked to the UK's Basel 3.1 implementation. It includes (among other developments – see below) reforms relating to SEC-SA p factor (a major development), the prudential treatment of HMT MGS, the asset risk weight limits for prudential STS eligibility, & refinements to the credit risk mitigation approach hierarchy for securitisations. In line with the UK's delayed Basel 3.1 implementation, these reforms will take effect on 1 January 2027.

By way of recap, this briefing also covers the securitisation-related content of PRA Policy Statement 12/25 (PS 12/25, published July 25). PS 12/25 set out the PRA's approach in relation to the securitisation prudential reforms envisaged in CP 13/24 that the PRA regards as not being conceptually linked to the UK's Basel 3.1 implementation. PS 12/25 included reforms relating to the use of unfunded credit protection in synthetic SRT transactions (a major development), and supervisory expectations regarding senior management's role in overseeing SRT transactions. These reforms will take effect on 1 January 2026.

While the reforms in PS 19/25 and PS 12/25 are articulated as being "near-final", rather than "final", this is to facilitate publication, in Q1 2026, of a PS covering the entire UK Basel 3.1 implementation, and changes of substance are not expected.

Please note that this briefing does not cover the rules applicable to small domestic deposit takers (SDDTs) under the separate regime that applies to them.

Please do not hesitate to get in touch with Jo Goulbourne Ranero, or your usual A&O Shearman contact(s), to discuss further if helpful.

2. Summary

RECAP ON JULY 25 PS 12/25

• Confirmed that unfunded credit protection will be newly eligible in UK synthetic securitisations from 1 January 2026 – this was a major positive development
• Introduced certain technical reforms relating to senior management involvement in SRT sign-off from 1 January 2026

PRA PS 19/25 REFORMS

• As envisaged by CP 13/24, PS19/25 amends the SEC-SA p-factor (which is also relevant to IRB banks under the IRB output floor) from 1 January 2027. The reforms reduce the quantum of the SEC-SA p-factor and make it newly risk sensitive/formulaic in a manner similar to the current SEC-IRB p-factor. This is a welcome reform to the UK securitisation risk weighting framework, with positive implications for issuance by SA banks, though somewhat less beneficial for certain non-granular pools and residential mortgages.
• In line with CP 13/24, PS 19/25 introduces no further 'big-ticket'reforms to the UK securitisation risk weighting framework. In contrast, in the EU, the Commission's legislative package envisages significant reforms, under all risk weighting approaches, to the p factors, risk weight floors, and HQLA treatment of securitisation positions, and to the notification process, quantitative tests, and permitted structural features, associated with SRT. The PRA is sympathetic to the view that certain further aspects of securitisation risk weighting framework are risk-insensitive, but is looking to Basel for reform in this respect.
• As proposed in CP 13/24, the PRA implements new prudential approaches to reflect the benefit of the guarantee in HMT's MGS, and similar private schemes. The proposed approach under the IRB is acknowledged to be conservative. Further refinements to allow an LTV approach to be considered in LGD modelling, contemplated in CP 13/24 and requested by industry participants, are not introduced in PS 19/25, however, the PRA proposes to consult on these in due course.
• The PRA re-iterates its view that HMT's MGS, and similar private schemes are likely to be securitisations, declining to endorse the view that "single mortgages with tranched protection" are excluded from the definition of securitisation, or that the application of the securitisation definition "is dependent on the prudential treatment of the transaction". The PRA, however, indicates that it will give further consideration to whether industry concerns about these schemes can be addressed in a manner that is consistent with the PRA's objectives, including considering the use of the PRA's powers under Article 8 of the securitisation part of the PRA Rulebook in relation to the re-securitisation prohibition – this was not envisaged in CP 13/24 and is a significant point.
• In line with CP 13/24 and industry expectations, the PRA continues to oppose STS for synthetic securitisations.
• In line with CP 13/24, the PRA maintains its existing, non-Basel-aligned, credit rating requirements for insurers to write unfunded credit protection on securitisation positions (these have fallen away in the EU for Solvency II insurers), and limits (much more tightly than does the EU) the specified categories of public body that are not obliged to comply with the credit rating requirements to write unfunded credit protection on securitisation positions (though the latter requirements are relaxed somewhat relative to the CP 13/24 proposals).
• The PRA makes certain amends to the asset risk weight limits for STS prudential eligibility relative to the current limits and to the CP 13/24 proposals. The revised limits, however, effectively continue to exclude pre-operational project finance – a significant point – and remain highly restrictive in relation to CRE and ADC exposures.
• The PRA does not provide for, but moots the possibility of, a future UK fast track notification process for SRT – this was not envisaged in CP 13/24 and is a significant point.
• In line with CP 13/24, the point in time specified for SRT quantitative risk transfer testing remains unchanged (i.e. it is ongoing), however, the PRA newly indicates that it may consider reform in this respect in a future consultation – this was not envisaged in CP 13/24 and is a significant point.
• The PRA provides new fall-back risk weights for the calculation of K_SA by non-originator investors in third party securitisations (i.e. where there is limited data access) – this was not envisaged in CP 13/24 and is a significant point. The fall-back risk weights are cross-referenced in the asset risk weight limits for STS prudential eligibility, however, given that those limits are tested by reference to the "best knowledge of the originator or original lender" the application of the fall-back risk weights in that context is somewhat unclear. This interaction (and provision for the availability of the fall-back risk weights to originators, for example in relation to the treatment of unrated corporates) would appear to warrant further consideration by the PRA.
• As proposed in CP13/24, the PRA adopts securitisation-specific decision trees/flow charts for credit risk mitigation.
• As proposed in CP 13/24, the PRA increases the preferential CCF for cash advance facilities in the securitisation exposure value calculation from 0% to 10% in line with revised general CCF for UCCS under the UK's Basel 3.1 implementation.
• As proposed in CP 13/24, the PRA helpfully modifies the K_SA. calculation to avoid double counting of exposures in default, however, the modification is now made optional to avoid operational burden (this was not envisaged in CP 13/24).
• As proposed in CP 13/24, the PRA imposes an obligation on firms to notify PRA of breaches of securitisation requirements, but this is now made subject to an effective materiality qualifier(this was not envisaged in CP 13/24).
• The PRA helpfully confirms that the nomination of ECAIs for securitisation risk weighting purposes only remains permitted – this was not envisaged in CP 13/24.
• As proposed in CP 13/24, detailed mechanics are adopted for a firm intending to exercise the option to apply the SEC-ERBA instead of the SEC-SA (where the SEC-SA is otherwise available).
• The PRA appears to agree (as requested by industry participants) with the distinction drawn by the EBA, in Q&A, between retention via securitisation positions and retention via entitlement to cash-flows – this was not envisaged in CP 13/24.
• As indicated in CP 13/24, the PRA now proposes to provide "feedback" rather than a notice of "non-objection" in relation to SRT assessments.
• Article 47a is now aligned with the EU CRR to avoid divergence in terms of NPE classification (this was not envisaged in CP 13/24).

3. Recap on July 25 PS 12/25 Reforms

PS 12/25 Confirmed That Unfunded Credit Protection Will Be Newly Eligible In UK Synthetic Securitisations From 1 January 2026 – This Was A Major Positive Development

In PS 12/25, the PRA confirmed its decision to permit the use of unfunded credit protection (UFCP) in synthetic SRT transactions. This was a highly significant development, likely to improve UK competitiveness, potentially unlock additional deal-flow, and improve investor diversification.

As anticipated in CP 13/24, the PRA indicated that it still regards UFCP as a "complex feature" to be discussed by a firm with its supervisor at an early stage, and expects originators, as part of the monitoring and stress-testing of SRT transactions, to assess the risk of a downgrade of the protection provider and the implications for the effectiveness/eligibility of the unfunded credit protection and to reflect this in their capital planning.

The existing CRR requirements in relation to the use of UFCP in synthetic securitisations also continue to apply: these include mechanics to account for the residual credit risk on the UFCP provider, and credit rating requirements to write unfunded credit protection on securitisation positions . As discussed further below, the PRA has not responded to industry requests to remove specific CQS credit rating requirements for insurers in line with Basel (as was done in the EU for Solvency II insurers as part of the EU Basel 3.1 implementation in January 2025).

Beyond these provisions, however, the PRA, happily, does not propose any Basel super-equivalent restrictions.

PS 12/25 Introduced Certain Technical Reforms Relating To Senior Management Involvement In SRT Sign Off From 1 January 2026

The second reform in PS 12/25 related to the senior managers who can sign off on SRT trades. This reform (in line with expectations following CP 13/24) included a requirement for oversight and approval by the chief finance function (SMF 2) and any senior manager holding Prescribed Responsibility (PR) O , or AA and CC, if a different person. In light of industry concerns about the bottlenecks this could create in large institutions, however, the PRA, helpfully, amended the draft expectations to clarify that a Senior Manager, while retaining accountability for the oversight and approval of these transactions, may rely on expert input and/or delegate the act of signing and submitting notifications, where this is consistent with the PRA's expectations on reasonable steps and delegation.

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