The new EU securitisation landscape

The EU requires substantial investments in order to enhance its competitiveness in financial markets and its defense. The current securitisation framework, designed in response to the 2008 financial crisis, has proven too conservative and limits the potential use of securitisations in the EU. High operational costs and overly conservative capital requirements have limited access for many issuers and investors to the European securitisation market as a critical tool for economic investment.

In order to relaunch the European securitisation market, the EC published proposed amendments to the EU Securitisation Regulation and to the Capital Requirements Regulation (Regulation (EU) 575/2013, the "CRR"). 

Streamlined Due Diligence Framework

The most significant change involves an overhaul of due diligence requirements. The new framework introduces:

• Reduced verification requirements: Investors are no longer required to adhere to the verification requirements of Article 5(1) and Article 5(3)(c) of the Securitisation Regulation when the sell-side party is established and supervised in the EU. These sell-side entities are already subject to supervision in the EU and can be sanctioned in case they breach their obligations under the Securitisation Regulation. It is therefore appropriate that investors are no longer required to verify whether these sell-side entities, when acting on behalf of the sell-side parties in the transaction, comply with due diligence requirements.
• Risk-proportionate approach: Due diligence requirements will be proportionate to the risk profile of securitisation positions, focusing on risk characteristics that materially affect performance.
• Senior and junior tranche differentiation: Senior tranches will require less extensive due diligence due to their substantial credit enhancement and lower risk profile.
• Repeat transaction simplification: Simplified due diligence should be allowed for repeat transactions with well-understood risk characteristics.
• Multilateral Development Banks: When the securitisation position is fully, unconditionally and irrevocably guaranteed by a multilateral development bank listed in the CRR, the risk exposure is lowered to such an extent that it exempts institutional investors, except the entity providing the guarantee, from their due diligence requirements.
• Mandatory Fields Reduction: A proposed 35% reduction in mandatory data fields for public reporting templates should reduce IT and reporting burdens. 

Different treatment of public and private securitisations 

The proposed new regulatory architecture distinguishes between public and private securitisations, enabling more proportionate regulatory treatment while maintaining appropriate oversight. Public securitisations are proposed to encompass transactions where (i) underlying notes require a prospectus to be published in accordance with the Prospectus Regulation (Regulation (EU) 2017/1129), (ii) when the securitisation is marketed with notes constituting securitisation positions admitted to trading on a regulated market, MTF or OTF (as defined in MiFID II) and (iii) transactions marketed to investors under non-changeable terms and conditions on a "take-it-or-leave-it" basis where investors have no direct contact with originators or sponsors.

This distinction enables the regulatory framework to recognise that public securitisations warrant different treatment compared to private transactions that may involve more bespoke structures and direct negotiation between parties. Private securitisations will be subject to simplified reporting requirements with confidential data, acknowledging their unique characteristics compared to public securitisations. 

Enabling SME Securitisations 

SME loans have not been a popular asset base for securitisation, among other reasons due to higher risk and heterogeneous risk exposure. The proposal aims to facilitate SME securitisations. For example, whereas, currently, underlying credit facilities would, among other requirements, need to consist exclusively of commercial loans with (a) exposure secured by immovable property located in the same jurisdiction, or (b) exposure to obligors with residence in the same jurisdiction in order to qualify as an STS securitisation, under the new proposals, the pool of underlying exposures meeting such criteria can be reduced to 70% (and the remaining portion of the exposure pool can include other exposure types from different member states) without the STS status being affected. 

STS label allowed for unfunded credit protection in synthetic securitisations 

Current legislation restricts STS-qualified synthetic securitisations to funded credit protection (in the absence of specific security providers), which has limited market development and banks' ability to transfer risk outside the banking system. To address this, the Securitisation Regulation is proposed to permit unfunded guarantees from insurance and reinsurance undertakings that meet specific robustness, solvency, and diversification criteria, aiming to expand the pool of protection providers and facilitating greater participation in the STS on-balance-sheet market, which benefits from a lower 10% risk weight floor for retained senior tranches compared to 15% for non-STS securitisations.

Differentiation between risk management approaches 

The existing regulatory framework applies uniform risk weight floors to senior securitisation positions, regardless of the underlying exposure quality. The proposed changes introduce minimum risk weight floors at 7% for STS securitisations and at 12% for non-STS securitisations.

To address the general overcapitalisation of securitisation transactions, several solutions are proposed for regulatory capital approaches SEC-IRBA, SEC-SA and SEC-ERBA, including reduction of the applicable scaling factor, lower the applicable floor and capping (p) factors. 

Further preferential capital treatment can be achieved in case of newly introduced 'resilient securitisation positions'. Senior securitisation positions are considered resilient if the securitisation satisfies a set of eligibility criteria at the origination date and on an ongoing basis thereafter. For resilient positions, there is a floor of 5% for STS securitisations, 10% for the Originator or sponsor in non-STS securitisations, and 12% for investors in non-STS securitisations.  The benefits of resilient positions are applicable to senior positions in securitisations that meet the following requirements (in short summary):

• Reduced Agency and Model Risks: Only originators and sponsors (both STS and non-STS) and investors in STS securitisations qualify due to reduced agency risks.
• Amortisation: Sequential amortisation is required.
• Concentration and Granularity: Includes maximum concentration limit of 2% per obligor.
• Counterparty Credit Risk (Synthetic securitisations only): Credit protection must be backed by high-quality collateral or sovereign/supra-national guarantees.
• Minimum Credit Enhancement: Sufficient non-senior credit protection should be present. 

Prudential amendments under CRR

In addition to the above sweeping changes to the Securitisation Regulation, the capital requirements under CRR are amended in relation to both the liquidity cover ratio (LCR) and the net stable funding ratio (NSFR).

Under the current framework, securitisations (and other level 2B HQLA assets) can account for up to 15% of the institution's total liquidity buffer, but only AAA rated securitisation notes qualify. Under the CRR amendment proposals, notes with a lower rating may – subject to applicable haircuts - also count towards the liquidity buffer.

In respect of the NSFR, increases in stable funding factors that were due to take effect on 28 June 2025 have been shelved and the current lower rates become permanent.

Conclusion

The proposed reforms represent the most significant changes to the EU Securitisation Regulation since its inception. To a large extent,  the existing methodology is maintained, with loosening of certain due diligence and capital requirements that were considered overly cautious. Although market parties would prefer to see even more extensive amendments, the proposals, if implemented, should improve the EU securitisation market through reduced transaction costs, a more risk-based approach, increased eligibility for STS securitisation and reduced obligations for banks to maintain capital for less-risky securitisations. 

Implementation Timeline and Practical Steps

The EC has formally submitted its proposed amendments to both the European Parliament and the Council of the EU, following which the legislative process will commence. The legislative timeline remains uncertain, with no formal deadline established for completion. Market participants are keen for the changes to be effective as soon as possible and have also argued (in the context of SIU proposals) in favour of additional relaxation of prudential requirements for insurance firms and pension funds to invest in securitisations.

If you have any questions on the proposed changes to the EU Securitisation Regulation and the Capital Requirements Regulation, please contact Jan-Hein Prins, Niek Groenendijk or Marieke Driessen.