Market updates and sector developments

PCS has submitted its response to the UK PRA in connection with the consultation on the introduction of the output floor pursuant to Basel 3.1, as it relates to securitisation (SCI 1 November 2023). While welcoming the PRA’s suggestions, the organisation points out that “all the obvious difficulties that flow from a rigid application of the proposed Basel rules to securitisations – and especially SRT securitisations – flow from the original miscalibration of the capital requirements.”

More specifically, PCS states that they flow from an incorrectly calibrated non-neutrality factor (the p-factor), which is then made worse by structural flaws in the current CRR architecture that result in doubling-up the prudential buffers. “Therefore, PCS urges the PRA to go beyond ad hoc, stop-gap measures designed to ameliorate the most egregious outcomes of the currently miscalibrated framework and fix, once and for all, the Pillar 1 non-neutrality issue. For reasons set out in our response, we do not believe that leaving this issue to the Basel Committee is the best way to proceed,” it argues.

The response also seeks to answer the question of whether STS should be extended to synthetics, as it has been in the EU. PCS says it has tried to show why, for reasons of prudential coherence, competitiveness within the UK banking system and the international competitiveness of the UK as a whole, such an extension should be put into effect.

In other news…

Italian court rulings could slow NPL securitisation recovery times
Recent decisions by Italian courts to suspend foreclosure proceedings started by securitisation SPVs through special servicers could lead to considerable delays in recovery times for Italian NPL securitisations. Morningstar DBRS says debtors could start defending enforcement proceedings by third parties on the basis of the rulings, which could mean master servicers having to start fresh enforcement proceedings.

Some Italian enforcement courts suspended foreclosures in Q4 2024 on the basis that third-party entities who had been subdelegated the task of recovering receivables were neither banks nor authorised financial intermediaries, as required by the Italian Securitisation Law. The rulings followed the 2021 decision by the Bank of Italy to intensify supervisory activity in relation to servicers, off the back of an increase in securitisation transactions.

The ratings agency says the “lack of uniform interpretation could also affect the performance of transactions that benefit from the garanzia sulla cartolarizzazione delle sofferenze (GACS) scheme”.

The Italian Supreme Court is yet to rule on limits to subdelegating special servicing activities to entities that are not either a bank or authorised financial intermediary.