On 9 October 2024, the European Commission (Commission) launched a targeted consultation (Securitisation Consultation) on the functioning of the EU securitisation framework.

This represents a significant opportunity to change the legal and regulatory landscape of EU securitisation and its associated regime.

The Commission’s Directorate-General for Financial Stability, Financial Services and Capital Markets Union has launched an eight-week consultation targeted at market participants in a continued effort to revitalise the EU securitisation market.

The Commission has cast a wide net, seeking feedback from issuers, investors, sponsors, servicers, arrangers, rating agencies, industry associations, competent authorities, research institutions, and all other established stakeholders active throughout the securitisation market.

Background

The EU securitisation framework, consisting of Regulation (EU) 2017/2402 (Securitisation Regulation), has been in application since January 2019. It sets out a general framework for securitisation in the EU.

The securitisation framework’s general objective was to revive a safe securitisation market that would improve the financing of the EU economy. The EU currently suffers from a disproportionately heavy reliance on bank lending to finance growth.

The March 2024 statement of the Eurogroup of EU Finance Ministers and the European Council’s April 2024 conclusions on the Capital Markets Union (CMU) highlighted the need to revitalise the European securitisation market.

Relaunching securitisation has also been recommended in the report from Christian Noyer, the report from Enrico Letta, both in April 2024 and the ‘Future of European Competitiveness’ report by Mario Draghi (Draghi Report) in September 2024. The collective aim is to strengthen the lending capacity of European banks, create deeper capital markets, build the European savings and investments union and increase the EU’s competitiveness. These incentives, together with feedback gathered by the Commission since the entry into force of the Securitisation Regulation in 2019, constitute the main themes of the Commission’s Securitisation Consultation.

Overview of the Consultation:

• The effectiveness of the securitisation framework
  The Securitisation Consultation starts broadly by inviting opinions on whether the current EU Securitisation Regulation is effective and whether the policy amendments since the global financial crisis have achieved their goals.
• Scope of application of the Securitisation Regulation
  Questions around whether the jurisdictional scope of the Securitisation Regulation should be more clearly set out in the legislation. Legal definitions are also explored with questions on the definition of securitisation and sponsor.
• Due diligence requirements
  The Securitisation Regulation imposes due diligence requirements on EU investors both before investing and whilst holding the securitisation position. This section includes questions relating to the depth of these requirements and the costs incurred by investors in complying with them.
• Transparency requirements and definition of public securitisation
  The Securitisation Consultation paper discusses the significant improvements in the level of transparency in the EU securitisation market since the global financial crisis, aimed at ensuring full information for investors to meet their due diligence needs. However, the Securitisation Consultation highlights the gaps and inefficiencies in this area and asks a series of questions relating to potential amendments to the definition of public securitisation and to possible amendments to the transparency requirements applicable to private securitisations.
• Supervision
  The Commission discusses the various participants in a securitisation transaction, in some cases based in different jurisdictions. It also highlights the issue of several national competent authorities with differing supervisory approaches and the uncertainty this can cause. The Commission asks a series of questions about how supervision by national competent authorities can be streamlined and seeks feedback on how to prevent supervisory divergence.
• The STS standard
  The simple, transparent, and standardised (STS) category was introduced to encourage the standardisation of securitisation transactions across the EU and attract new issuers and investors to the market. Questions around this theme invite opinions on whether this could be expanded or if it is overly restrictive/burdensome for both parties.
• Securitisation platform
  This section addresses the potential establishment of a pan-European securitisation platform, long-mooted by the EU and echoed by the Draghi Report. The Commission seeks viewpoints on the form and desirability of this and potential public guarantees.
• Prudential and liquidity treatment of securitisation for banks
  In the most extensive section in the Securitisation Consultation, the Commission seeks to gather viewpoints on the impact of the prudential (Capital Requirements Regulation 2013) and liquidity (LCR Delegated Regulation) treatment on the attractiveness of securitisation instruments for banks.
• Prudential treatment of securitisation for insurers
  The Commission asks questions about whether the prudential rules in the current EU Solvency II Directive disincentivise insurance companies from allocating their investment assets to securitisation positions.
• Prudential framework for IORPs and other pension funds
  This section addresses Institutions for Occupational Retirement Provision (IORPs) and other pension funds. The Commission seeks opinions on whether the EU IORP II Directive restricts IORP’s investments in securitisations.
• Impact on SME’s
  Increasing credit provision to EU SMEs is a long-term CMU objective. This section asks stakeholders about impediments to securitising SME loans or impediments to investing in SME securitisations. It also poses an open-ended question as to how securitisation can support access to finance for SMEs.

Next Steps

The Commission’s Securitisation Consultation (click here) on the EU securitisation framework is currently open. Stakeholders wishing to contribute should do so by 4 December 2024. The Commission expects to adopt proposals and potentially bring forth a formal legislative proposal as early as H1 2025.

For further information on this topic, please contact David Maughan or your usual William Fry contact.