The Managed Funds Association (MFA) has written to the Financial Conduct Authority (FCA) in the UK, proposing improvements to the securitization regulation. In the letter, the MFA proposed amendments aimed at expanding capital investment and optimizing risk management on behalf of investors.

MFA's letter comes ahead of the repeal of the UK Securitization Regulation expected in the third quarter of 2023. In the document, the association urged the financial regulator to address regulatory redundancies in the securitization market and to ensure there is compatibility with other markets, including the US.

Duplicative Requirements

"FCA has an opportunity to empower UK investors to better engage in global securitization markets and compete on the global stage," said Jennifer Han, MFA's Chief Counsel and Head of Global Regulatory Affairs. "Addressing the current regulation's duplicative requirements will ensure alternative managers have the tools they need to manage risk and deliver reliable returns to investors, including UK pensioners."

Specifically, MFA urges the UK's regulator to remove alternative investment fund managers from the scope of due diligence requirements. According to the association, Alternative Investment Fund Managers (AIFMs) are already subjected to a broad set of requirements under the Alternative Investment Fund Manager Directive (AIFMD).

Risk Retention Due Diligence

Furthermore, the MFA said the risk retention due diligence requirement under the securitization market laws prevented AIFMs from investing in many US securitizations. This, according to the association, is despite the fact that US regulations have risk retention rules similar to those of the FCA. Besides, the group said the requirements for risk retention include criteria difficult for AIFMs to meet.

"MFA members have found that, in their experience, US securitizations that are compliant with the risk retention requirements under the SEC Reg and EU SR are in the minority, in spite of the fact that US originators/sponsors are required to retain an interest in transactions, but they are able to do so through different prescribed modalities, which can make it challenging for an AIFM to verify on a deal-by-deal basis," the MFA said.

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