We are often asked by our clients to comment on market trends and movements. Significant Risk Transfer [‘SRT’] is currently dominating our conversations, and much of our work, especially our AUP services connected with SRT issuance programmes. 12 September 2024 is a key date that will lead to a seismic market shift – are you ready?
On 12 September, the PRA will publish its near-final Basel 3.1 Rules and Strong & Simple Capital consultation paper [‘CP’]. Once issued, the PRA CP, the impact on Risk Weighted Assets [‘RWA’] and the need for SRT will then be at the heart of many boardroom discussions. Whether you are a funder, originator, servicer or holder of a mortgage book, whether you are PRA regulated or not, whether you hold assets greater or lower than £20bn (and therefore qualify for the Small Domestic Deposit Taker [‘SDDT’] regime) the imminent announcements will be market changing
Stricter regulations on RWAs and higher capital requirements as a result of Basel 3.1 or the SDDT regime, may enhance the stability of the financial system but balance sheets won’t look the same after the final implementation. Smaller, less profitable loan categories may be cut, as banks focus on safer, more profitable lending to preserve capital ratios and they are likely to engage in reassessment of their risk appetites.
We anticipate these changes will lead to a substantial increase in SRT transactions. A recent survey showed that around two-thirds of firms are either actively reviewing their products or planning to implement product range changes when the PRA feedback is published. It is anticipated that the first loan types to be affected will be ‘holiday lets’, ‘self-build’ and ‘small property developer’ loans.
Rockstead people are all appropriately experienced subject matter experts, and we are actively engaged in providing independent support and oversight on these and other risk matters. Get in touch to discuss how we can support SRT issuance programmes and remember to ask for a copy of our regulatory compliance case study, to see how we work with clients. Be sure to follow Rockstead on LinkedIn – to see our further comments on the 12 September CP.