MFA Encourages the FCA and PRA to Enhance UK Capital Markets by Eliminating Redundant Securitisation Regulations

Bryan Corbett: “Removing redundant requirements will enable managers to better manage risk and deliver returns for their investors, unlock greater access to capital for UK businesses, and help cement the UK’s position as a leading financial centre.”

London, UK – Managed Funds Association (MFA) encouraged the UK Financial Conduct Authority (FCA) and the UK Prudential Regulatory Authority (PRA), to enhance the UK capital markets by eliminating redundant securitisation due diligence regulations in two letters submitted today. Removing duplicative regulations will increase capital investment in the UK and optimize risk management on behalf of UK investors.

The letters explain that duplicative due diligence requirements for securitisations will continue to place UK-based fund managers at a competitive disadvantage to managers in the US and other non-EU countries. Limiting UK-based manager access to foreign US securitisation markets has impeded their ability to manage risk and deliver returns for their investors. It has also dampened alternative investment fund managers (AIFMs) participation in the securitised markets generally, preventing UK capital markets from recovering more fully from the global financial crisis.

“MFA supports the FCA and PRA consultations to improve the ability of UK investors to participate in foreign securitisation markets and compete on the global stage,” said Bryan Corbett, MFA President and CEO. “Removing redundant requirements will enable managers to better manage risk and deliver returns for their investors, unlock greater access to capital for UK businesses, and help cement the UK’s position as a leading financial centre.”

The letters detail that AIFMs are already subject to the robust requirements from the Alternative Investment Managers Directive (AIFMD). However, UK-based managers are also subject to duplicative requirements from the Securitisation Regulations. These regulations are better suited for market participants, such as banks and insurance companies, that mainly serve a domestic client base of retail investors and are not subject to the AIFMD. AIFMs serve global clients primarily comprised of institutional investors and already operate in a highly regulated environment. MFA therefore calls for AIFMs to be excluded from the additional due diligence requirements when investing in securitisations.

In its letter to the PRA, MFA argues that the UK’s due diligence requirements have held back the UK’s securitisation markets and companies access to capital:

“The effect [of duplicative requirements] is that US institutional investors in securitisations face far fewer impediments than EU/UK Institutional investors in securitisations. It is thus no surprise that the US securitisation market has made a stronger, faster, and broader recovery from the [global financial crisis] than the European securitisation market, and moreover that US companies have had greater access to capital and loans than UK or EU companies.”

In the letter to the FCA, MFA notes that removing burdensome regulations will not increase risk since AIFMs will still have risk management obligations:

“AIFMs are already subject to the risk management obligations imposed under the FUND Sourcebook. As a result, they are required to apply a high standard of scrutiny to all investment opportunities. MFA considers it disproportionate to impose additional regulatory burdens with respect to investments in securitisations, given the rigorous due diligence procedures that AIFMs already adopt.”

Read the full letter to the FCA here.

Read the full letter to the PRA here.

About the Global Alternative Asset Management Industry

The global alternative asset management industry, including hedge funds, credit funds, and crossover funds, has assets under management of £3.2 trillion (Q4 2022). The industry serves thousands of public and private pension funds, charitable endowments, foundations, sovereign governments, and other global institutional investors by providing portfolio diversification and risk-adjusted returns to help meet their funding obligations and return targets.

About the Managed Funds Association

Managed Funds Association (MFA), based in Washington, DC, New York, Brussels, and London, represents the global alternative asset management industry. MFA’s mission is to advance the ability of alternative asset managers to raise capital, invest, and generate returns for their beneficiaries. MFA advocates on behalf of its membership and convenes stakeholders to address global regulatory, operational, and business issues. MFA has more than 170 member firms, including hedge funds, credit funds, and crossover funds that collectively manage nearly £1.7 trillion across a diverse group of investment strategies. Member firms help pension plans, university endowments, charitable foundations, and other institutional investors to diversify their investments, manage risk, and generate attractive returns over time.