Insurers in the securitisation market: Prudential capital and risk transfer

The Basel Accords have, over time, shaped the development of the financial markets as different products become more or less attractive for banks to offer and businesses to take up on a risk-adjusted return basis. After the financial crisis, the Basel III accords greatly increased the sophistication of the regime and addressed different areas of risk which, it was felt, had been insufficiently provided for with consequent risks to financial stability. The latest iteration, Basel 3.1, was finalised in 2017, but political agreement on implementation has been slow in coming. In most jurisdictions, including the EU, UK and US, it is only in the past year or so that these newest updates and revisions are starting to appear in legislative and regulatory dialogue, and banks are starting to prepare for implementation.

In the UK and Europe, the legislation governing prudential capital for banks is set out in the Capital Requirements Regulation ("CRR"),1 which implements the Basel Accords in the EU and in the UK through assimilated law. Similar regimes therefore apply in both jurisdictions. In the EU, Basel 3.1 has now been mostly implemented into legislation (with the exception of the Fundamental Review of the Trading Book) and has been effective since 1 January 2025, albeit transitional periods apply. In the UK, the Prudential Regulatory Authority or PRA (responsible for prudential regulation of banks and insurers) is in the process of implementing Basel III as part of the UK's wholesale transition of financial services legislation from assimilated EU statutes to the "handbooks" of the PRA and the Financial Conduct Authority ("FCA"). The PRA proposals have been set out in various consultations and discussion papers in recent years, and implementation has recently been pushed back until 1 January 2027.

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