European securitisation reform: progress, but pitfalls remain

The existing European securitisation framework entered into force in 2019 and market participants have advocated since then for broader reforms to revitalise the EU securitisation market. Although the current framework made some improvements for transparency and standardisation, including introducing simple, transparent and standardised (STS) securitisations, high operational costs and conservative capital requirements have limited issuer and investor appetite, preventing the market from bouncing back to the levels seen before the Global Financial Crisis (GFC). Securitisation is increasingly seen as a potential force for good by policy makers and needed for broader growth of the wider economy; this is particularly the case for the green and digital transition, for support to small- and medium-sized enterprises (SMEs) and increasingly for defense financing but, in order to meet its full potential, policy makers acknowledge that a package of reforms is needed.

On 17 June 2025, the European Commission published its much-anticipated proposals for a package of measures (the Proposals) for reform of the EU securitisation framework. The package includes (i) a Proposal for amendments to the Securitisation Regulation, (ii) a Proposal for amendments to the Capital Requirements Regulation and (iii) a Call for feedback on targeted amendments to the Liquidity Coverage Ratio Delegated Regulation¹. A proposal for the Solvency II Delegated Regulation (Solvency II) was not included but is expected in the coming weeks, with changes expected for both STS and non-STS securitisations (see below for more details).

The Proposals take into account responses to the European Commission’s Targeted consultation on the functioning of the EU securitisation framework (EU Targeted Consultation) and propose a number of measures which aim to remove barriers by creating a more proportionate framework and releasing capital which, in turn it is hoped, will promote investment to support the wider EU economy, as anticipated in the EU's strategy for a Savings and Investments Union strategy to enhance financial opportunities (SIU)².

The proposals represent a broadly positive step toward revitalising the securitisation market, with reforms that aim to reduce regulatory burdens and expand investor participation, reflecting a more nuanced understanding of the markets' current dynamics and acknowledging the extensive safeguards implemented post-GFC that have disproportionately constrained the sector, including as compared to comparable products. However, whilst there are some significant improvements, changes arguably could go further in some areas if securitisation is to be a priority contributor to SIU, as policy-makers intend.

The reforms are underpinned however by enhanced supervisory oversight and increased harmonisation, reflecting perhaps lingering post-GFC concerns about financial stability, despite existing safeguards. Whilst harmonisation may promote efficiency and reinforce investor protection, it also suggests potentially deeper regulatory intervention across both the sell- and buy-side. For investors, now facing potential Article 32 sanctions, this could lead to overly cautious behaviour and reduced market participation.

Positive proposals include a more principles-based, proportionate approach to due diligence and transparency, though much depends on the detail of Level 2 measures, which remain to be developed. The potential for unfunded guarantees by (re)insurers for STS securitisations and progress on capital requirements bode well (namely more risk-sensitive RW floors, reductions in the p-factor, introduction of preferential capital treatment for a new category of "resilient securitisation positions" as well as revisions to the significant risk transfer (SRT) framework), albeit noting potentially inflated capital requirements for some asset classes and that the p-factor reductions are not as low as the temporary relief currently in place. The introduction of a "resilient securitisation position" category that benefits from enhanced regulatory capital benefits looks helpful but in practice may have limited impact due to minimum tranche size requirement and exclusion of investor positions in non-STS securitisations. The proposed reforms to the Liquidity Coverage Ratio (LCR) introduce useful adjustments, but may fall short of market expectations.

However, concerns remain; new and potentially more onerous obligations, stricter sanctions on investors for breach of due diligence requirements, and continued requirements for third-country templates (with the introduction of a new securitisation repository reporting requirement) as well as a broad definition of “public securitisation, may offset some gains. Also, issues plaguing the market concerning risk retention since the publication of the report on the functioning of the EU Securitisation Regulation (Article 44 Report)³ are not addressed.  Limited transitional arrangements and the absence of grandfathering arrangements could be a double-edged sword with benefits in some areas but risk additional operational costs and uncertainty in others.

The securitisation platform that was discussed in the EU Targeted Consultation is not taken forward and no additional environmental, social or governance (ESG) requirements are proposed at this stage (though may be considered in subsequent reviews and it is possible that the revised template proposals could include additional ESG data). Also, various changes for Alternative Investment Fund Managers (AIFMs) and SMEs had been mooted in responses to the EU Targeted Consultation, as well as the removal of certain transactions from the scope of the European Securitisation Regulation (EUSR)⁴, but have not been included.

With significant elements awaiting Level 2 development and implementation, true impact and market uptake will take time, making it essential that policymakers follow through to fully unlock securitisation’s potential.

We consider in more detail below some key details from the Proposals, including where further targeted changes are needed to move the dial further and ensure that securitisation can truly play its part in supporting the wider EU economy.

The key proposals to the EUSR are discussed below.

• Subject matter and scope

  The scope of the EUSR remains largely unchanged, though it now explicitly includes "servicers" as a clarificatory matter. There had been proposals ⁵ to exclude certain transactions, such as smaller transactions with minimal information asymmetry, single-credit risk transactions, or those governed by separate regulations, but these exclusions have not been incorporated. This omission is both disappointing and somewhat unexpected, given that the Article 44 Report had considered it a possibility and that including such exemptions could have streamlined processes and reduced costs for some transactions.

• Definitions of "public securitisation" and "private securitisation"

  The definitions of "public securitisation" and "private securitisation" are introduced for the first time. The definition of "public securitisation" is notably broad, encompassing (i) transactions with a prospectus under the Prospectus Regulation⁶, (ii) those marketed with notes admitted to trading on EU-regulated markets, Multilateral Trading Facilities, or Organised Trading Facilities⁷ (EU Trading Venue), and (iii) transactions where terms and conditions are not negotiable. "Private securitisation" is defined simply as any securitisation that does not fall within this scope.

  This broad definition is concerning, particularly given industry objections advanced against extending it this way,⁸ as it may unintentionally include private transactions designed not to be public, such as those which are privately negotiated but listed for withholding tax benefits or investor requirements. Additionally, the term "negotiable" remains undefined, leaving uncertainty as to what level of investor engagement is required and implications for EU- and also non-EU marketed transactions.

  The wider definition of "public securitisation" must also be assessed in relation to due diligence and transparency proposals. Whilst a more proportionate approach with streamlined public templates could lessen the burden for transactions within scope, the wider definition could bring within scope a significant number of transactions and impose unnecessary reporting requirements and operational costs on firms, which might otherwise benefit from a proposed streamlined private template (see "Disclosure and transparency reforms" below).

  Notably, proposals for Article 17 clarify that only public securitisation data is accessible to investors and potential investors; however, given the wider definition of "public securitisation", this would include transactions that are private in nature, but are admitted to trading on an EU Trading Venue for withholding tax benefits or investor requirements.

  The UK regulators are also considering what constitutes a "public" and "private" securitisation; this has been subject to preliminary discussions⁹ and further proposals are likely to be forthcoming in the UK's "Batch-2" proposals expected in Q4 this year. It is not known to what extent the UK regulators will adopt a similar approach but it could be an area of further divergence.

• Due Diligence

  The suggested reforms promote a more proportionate, principles-based approach. This approach aligns more closely with reforms seen in the UK Securitisation Framework which came into effect on 1 November 2024¹⁰. Key changes include:

  • Reduced verification requirements: EU sell-side entities benefit from reduced investor verification requirements (including no verification of Article 7 requirements, risk retention or STS compliance and removal of both prescribed structural features and written procedures content requirements); this simplifies due diligence, particularly on senior tranches and repeat transactions where less due diligence is warranted, thus saving costs and time which is certainly a step in the right direction. However, investors must still verify Article 7 templated disclosures from third-country originators and these templates now must be reported to securitisation repositories, potentially restricting EU investors from investing in non-EU transactions and extending the divide between EU and non-EU securitisations. This is disappointing noting also that the Article 44 Report had mooted that third-country due diligence could be improved; extending the reporting requirements in this way does not advance global investment for EU investors.
  • Secondary market due diligence extension: A 15-day extension is permitted for documenting secondary market due diligence compliance, aligning with the UK framework. This alleviates some pressure but we expect investors will need, in any event, to conduct appropriate due diligence before making a secondary market purchase.
  • Waiver of due diligence requirements for certain public entity-guaranteed transactions. Due diligence is waived for transactions guaranteed, in full, by multilateral development banks. Lighter due diligence, specifically via waiving the verification and documentation requirements, is also provided where the securitisation includes a first loss tranche that is guaranteed, or held, by a narrowly defined list of public entities, such as central banks,¹¹ and where that tranche represents at least 15% of the nominal value of the securitised exposures. The rationale for this is that a guarantor assumes the risk and carries out due diligence processes before providing the guarantee. It is interesting to note that no proposals were included for a securitisation platform, as mooted in the EU Targeted Consultation; these proposals go some way however to acknowledging that certain guaranteed assets are safer and the European Commission hopes that these changes will "crowd in private investment in de-risked structures with a public guarantee".
  • Delegation permitted to institutional investors. Clarification is given that delegation to institutional investors is permitted, though ultimate responsibility remains with the delegating party, aligning with similar provisions for AIFMs¹². Unlike the UK framework, investors cannot delegate full responsibility. Investors must therefore be able to demonstrate compliance and will nevertheless have to maintain robust systems which may obviate the benefits of delegation and could have a significant impact on institutions that rely heavily on delegation, particularly given the extension of Article 32 sanctions to investors (as discussed further below).
  • Investors are in scope of sanctions. Investors may be brought within scope of Article 32 sanctions for failing to meet Article 5 obligations, which may prompt more extensive due diligence than is required, as a potential defence to sanctions and negating intended benefits of the proposal.
• Risk retention

  Risk retention is waived where the securitisation includes a first loss tranche that is guaranteed or held by certain public entities, such as central banks (corresponding with the due diligence waiver, as discussed above) and where that tranche represents at least 15% of the nominal value of the securitised exposures.

  There is no clarification on risk retention issues that have plagued the market since the publication of the Article 44 Report and no mandate to amend the RTS on risk retention¹³.

• Disclosure and transparency reforms

  The proposals introduce a streamlined template for "public securitisations" with aggregated reporting for ABCP and highly granular short-term exposure pools, such as credit cards and consumer loans (query whether this could be extended to auto-financing and other highly granular asset classes), and anticipates distinguishing mandatory from voluntary fields. The European Commission considers that this could result in a reduction of mandatory fields in the templates by at least 35%.

  Competent authorities retain the right to request additional information however which could mean that firms will nevertheless need to ensure they have systems in place in order to comply with any requests.

  A simplified reporting template for private securitisations, based on the guide on the notification of securitisation transaction by the Single Supervisory Mechanism (SSM)¹⁴, is also proposed to meet supervisory requirements without imposing full public securitisation reporting obligations. This marks a potential improvement over ESMA's consultation proposals. The template will be reported to securitisation repositories, with Articles 10 and 17 of the EUSR updated to reflect free access to public securitisation information only, although as currently drafted this will capture transactions that are otherwise considered to be private transactions, such as those being listed or admitted to trading for investor or other requirements.

  The EBA, ESMA, and EIOPA will develop regulatory technical standards (RTS) and implementing technical standards (ITS) to define template details within 6 months of the final regulation entering into force. ESMA's earlier private template consultation (Private Template Consultation)¹⁴ sought to address market concerns but did not go as far as needed to make a meaningful difference so it remains to be seen to what extent, with new EBA oversight and the mandate under the Proposals, further refinements to the current ESMA proposals will be forthcoming.  With the new requirement to report the private template to securitisation repositories, it is possible that additional supervisory oversight of private transactions could introduce enhanced scrutiny of private transactions.

  The draft text suggests existing private securitisations may need to comply with reporting within a specified timeframe and will have to report on new templates and upload reports to securitisation repositories; grandfathering of existing transactions is not yet contemplated in the Proposals, so potentially this will impose additional administrative burdens for all existing transactions.

  No relief is proposed for intra-group transactions or small and medium-sized reporting entities, as had been mooted in the Article 44 Report, which could potentially limit cost reductions and market participation.

  For further background information, please see our article, ESMA consults on private templates for Securitisation Disclosure – more haste, less speed, which discusses the Private Template Consultation in more detail.

• Targeted changes to facilitate SME financing

  The EU’s wider aims include facilitating finance for SMEs. The current regulatory requirements are seen as complex and a hindrance for SME financing.  The proposals introduce a targeted adjustment to homogeneity rules, allowing a 70% threshold (instead of 100%) for exposures in a pool at origination to be homogenous; this applies to traditional and on-balance-sheet securitisations and also to asset-backed commercial paper (ABCP) transactions. Additionally, the simplified due diligence proposals and a more proportionate disclosure and transparency framework, depending on final template revisions, could further support SME financing. However, the proposals do not address restrictive geographic and granular homogeneity requirements, which continue to limit SME finance.

  Responses to the EU Targeted Consultation highlighted unfavourable capital requirements as another constraint. The proposed capital requirement adjustments, discussed further below, could help alleviate some of these challenges for the SME market.

• STS on-balance-sheet securitisations

  The proposed changes introduce several key refinements aimed at enhancing regulatory clarity, improving credit protection structuring, and aligning risk management practices with market realities:

  • Credit protection agreements: These may now be guaranteed by EU-based (re)insurance entities, subject to stringent conditions, including diversification, solvency, risk measurement, minimum size, authorisation for at least two distinct non-life insurance classes, use of an approved internal risk model, compliance with capital requirements, a minimum credit quality step (CQS) of CQS2 or higher, and assets exceeding EUR 20 billion (though it is not clear if this is at an individual or group level). In addition, the guarantee-provider must be based in the EU meaning that non-EU entities are precluded.
  • Active portfolio management: Helpful clarifications are included that removals will be permitted due to sanctions or fraudulent activities, as well as this loan amendments resulting from legal changes affecting enforceability, which are beyond the originator's control.
  • Debt workouts: These can factor in both credit protection and retained junior tranches, broadening the scope of credit risk considerations.
  • Credit protection premiums: These will be linked to the size of the outstanding tranche and its credit risk, ensuring more effective protection and greater legal certainty. This replaces the current approach, which ties premiums to the nominal amount of performing securitised exposures at the time of payment. This change aims to ensure the effectiveness of the credit protection and legal certainty.
  • Non-Internal Ratings Based Approach (IRBA) originators: A clarification is included that these are now explicitly limited to annual commitments not exceeding one year’s expected loss, a clarification that previously applied only to standardised approach (SA) approach users.
  • SME homogeneity requirements: Consistent with the changes for traditional securitisations, the homogeneity requirements are refined, including permitting the 70% threshold for SME exposures in the underlying pool. Additionally, credit-impaired debtor information will come directly from the originator, sponsor, or SSPE, ensuring consistency. 
• ABCP

  As well as the 70% homogeneity threshold, ABCP transactions will benefit from reduced reporting of granular data.  In addition, it must be disclosed if the ABCP transaction is fully supported by a sponsor.

• Supervision

  The European Commission appears to be attempting to strike a balance between reform but with additional perceived safeguards; simplification of requirements may have lead regulators to balance this with enhanced supervision, as we see with a private template for supervisors needs, additional reporting of private templates and continued due diligence requirements for third-country securitisations (as well as securitisation repository reporting for these transactions).

  While harmonised supervision may offer benefits; lack of harmonised supervision can create friction in the market, with responses to the EU Targeted Consultation highlighting the need for greater regulatory certainty and cooperation.

  However, increased scrutiny of private transactions and additional verification requirements could introduce higher costs, lead to overly cautious behaviour and deter current and new participants. Article 32 may be extended to investors who fail to meet their Article 5 obligations, in addition to already existing disciplinary measures open to their regulators. This could undermine the intended benefits of more proportionate due diligence if investors feel compelled to adopt more conservative practices due to heightened liability risks.

  Third-party verifiers will also now be subject to supervision, as well as authorisation reflecting increased harmonisation of oversight at the EU level.

  As anticipated in the Article 44 Report, the European Commission proposes several structural changes, including the strengthening of a securitisation supervision sub-committee (SSC) under the Joint Committee of the European Supervisory Authorities (the EBA, the EIOPA and ESMA) (the Joint Committee). The SSC will be chaired, and vice-chaired, by the EBA (at the moment the chair of the Joint Committee is appointed on a rotational basis) who will also provide the secretariat. The SSC will facilitate cooperation among supervisory authorities, with a lead supervisor tasked with preventing inconsistent practices. It will also have the power to issue guidelines for common supervisory procedures. National banking authorities will oversee STS compliance, while the SSM will supervise credit institutions. Greater oversight could also involve authorities verifying individual securitisation transactions.

  Both the Private Template Consultation and the Article 44 Report emphasise that supervisory needs have played a central role in shaping these reforms. The ESMA Peer Review Report - Peer Review on the implementation of the STS securitisation requirements on the implementation of STS securitisation, published on 27 March 2025, identified divergent supervisory approaches across key jurisdictions with high volumes of STS securitisations, highlighting areas for improvement. The Article 44 Report further underscores fragmentation, reporting burdens, coordination challenges, resource constraints, and supervisory inconsistencies as pressing concerns.

• Reports

  Future reports, as mandated under Articles 44 and Article 46 of the EUSR, will align with broader SIU objectives, emphasising securitisation’s role in supporting the wider market. The next Article 44 Report, due five years after the regulation's entry into force, will focus on securitisation’s contribution to financing EU companies and the economy, shifting away from an assessment of risks and vulnerabilities.

  Similarly, the Article 46 report, to be published after five years, will examine securitisation’s impact on the real economy, SMEs, financial interconnectedness, and stability. It will also explore the potential introduction of third-country STS equivalence and the extension of ESG disclosure requirements under Articles 22(4) and 26d(4) to a broader range of exposures.

• What was not included?

Below we note a few areas that are not contemplated in the Proposals, including some points of interest that were discussed as part of the Targeted Consultation:

• Grandfathering: There is no provision for grandfathering of current transactions. Whilst this could be useful, for example where existing transactions could avail themselves or more proportionate requirements, it could be problematic in other areas such as for private transactions having to report existing transactions to securitisation repositories on a new template.
• STS equivalence recognition: The UK has extended the recognition of the EU STS transactions until 30 June 2026.There is currently no reciprocity by the EU and no development of an equivalence regime but this could form part of a future Article 46 Report.
• Scope: It had been mooted in responses to the EU Targeted Consultation that transactions where the parties, such as AIFMs, are subject to a separately regulatory regime, together with smaller transactions, could be carved out of scope. This is a missed opportunity to remove additional hurdles for market participants where risks to financial stability in doing so are limited given the nature of the transactions and wider safeguards that remain in place.
• SMEs and intra-group transactions: No relief from due diligence requirements is proposed for intra-group transactions or small and medium-sized reporting entities, as had been mooted in the Article 44 Report, again potentially limiting cost reductions and market participation.
• Sponsors: Allowing AIFMs to act as sponsors had been mooted in the Article 44 Report but is not contemplated in the Proposals. Clarifications as to whether non-EU investment firms may act as sponsors had also been raised in responses to the EU Targeted Consultation and contemplated in the Article 44 Report but this has also not been taken forward.
• ESG : No additional ESG provisions are included at this stage though this will be a focus for future reports. We note that the ESMA Private Template Consultation contemplated additional disclosure however so it is possible that further provisions could evolve in the disclosure templates as these evolve.
• Safe asset: The EU Targeted Consultation opened the door to considering an EU securitisation platform which could provide a safe asset which might support securitisation, potentially along the lines of the US Freddie Mac and Fannie Mae models. This is an interesting concept and safe asset structures have been used successfully in the EU, notably in Italy to support the non-performing loan market. However, a deeper dive is needed as to the benefits, or downsides, of such a platform. There is no indication as to whether a separate consultation could be presented in the future. Note however, as discussed above, the waiving of due diligence for certain transactions where there are guarantees by public entities which effectively provides a sub-set of securitisations that are acknowledged as safer.
• Insolvency and tax harmonisation: It has been widely discussed that a broader package of reforms could include harmonisation of the currently fragmented insolvency and tax frameworks EU-wide. Increased harmonisation in these could widen the investor base and encourage the use of securitisation in countries that are not currently active in the market. Whilst it is clear that addressing broader harmonisation, as well as more agile regulatory processes are laudable aims, and could well be advantageous particularly for less well-developed markets, these are enormous tasks and unsurprisingly are not included in the current package or proposals as these are ultimately significantly longer-term measures.

Proposed changes to the Capital Requirements Regulation (CRR)¹⁶ are more ambitious and take into account representations from the market as to areas where reform could have a significant impact.  The European Commission acknowledges that current capital requirements are excessive, particularly given existing risk mitigants in securitisation frameworks. To address this, several adjustments aim to improve risk sensitivity and reduce capital costs.  The proposals are complex however and the impact and benefit of these remain to be digested, including as to scenarios which risk higher capital charges, including for assets with high risk weights (RW), noting also that there is currently no cap for the RW floors and that the current temporary relief reducing the p-factor for the purpose of the Output Floor calculations allows lower p-factors than those contained in the Proposals, albeit with modified scaling factors.  Also the detailed application of some proposals remain to be determined in Level 2 measures.  Note that the proposals discriminate in some areas against investors depending on the characteristics of the investment, who may not receive as great capital benefit, comparable to that of originators.  This may impact investment in senior, as well as non-senior positions. The main proposals include:

• RW floor adjustments: A more sensitive formulaic RW floor for senior positions is introduced, though this is not subject to a cap; it aims to be proportionate to the underlying pool's risk, while maintaining a minimum threshold: i.e. a floor of 10%* KIRB (for SEC-IRBA) or KA (for SEC-SA)*12.5%, subject to a floor of 5% for STS and 10% (for non-STS originators) or 12 % (for non-STS investors). For non-Resilient Securitisations, the floor is 7% (for STS) and 12% for non-STS.

  These proposals appear to be improvement as the current framework is quite risk-insensitive, allowing currently only for two fixed RW floors for senior positions: 10% RW floor for senior STS position and 15% RW floor for the exposure to a senior non-STS position. The proposals could improve the RWs for lower risk assets but potentially increase RWs for certain assets.

• Targeted amendments to the (p) factor: Reduced and differentiated scaling factors for STS and non-STS securitisations are included, with a more favourable approach for senior and STS positions, including:
  • SEC-IRBA: Scaling factors for positions are reduced, varying by resilience of transactions, seniority of tranches, STS or non-STS classification and whether it is an originator or investor position. It is helpful that a lower floor and new cap are introduced which provides additional certainty and limits as to capital implications.
  • SEC-SA: The p-factor is primarily reduced for senior positions. For non-STS, it is set at 0.6 for senior originator or sponsor positions and 1 for others. For STS, it is 0.3 for senior positions (originator, sponsor, or investor positions meeting the requirements of Article 243(3) of the CRR) and 0.5 for others. Note that this is not as favourable as the temporary relief granted under the CRR for the purposes of the output floor and which the Proposals confirm are still due to expire in 2032.
  • SEC-ERBA: RW in the look-up tables are recalibrated to align with changes to the RW floor and p-factor under SEC-IRBA and SEC-SA. The tables now incorporate a formula for calculating a risk-sensitive RW floor, particularly for high-CQS positions that approach the lowest RW levels. If the formula produces a higher result than the look-up table, it will override the table values. A fallback RW is set at 10% for STS and 15% for non-STS when calculation is not possible.

• Introduction of RSPs:

  Senior positions may benefit from more favourable capital treatment via a reduced RW floor, and, for certain investors, a lower p-factor. The concept was first proposed in the Joint Committee Advice on the review of the securitisation prudential framework of 12 December 2022 and is introduced as a mechanism to support less risky assets from the conservative calibrations. Whilst the amortisation, granularity, and funded synthetic requirements mirror existing STS standards and are therefore unlikely to present issues for many transactions, the proposed limits on senior tranche thickness could pose constraints. Stakeholders will no doubt be analysing the proposals in more depth and it is possible that they could be subject to further industry representations to maximise the intended prudential benefits of this proposal.

  Key criteria include amortisation rules, a 2% concentration limit, strict collateral standards for synthetics (these being STS-aligned criteria) and also defined senior tranche thickness limits under SEC-IRBA, SEC-SA, and SEC-ERBA. RSPs are available to originators, sponsors, and STS investors. The European Commission argues that tranche thickness and the new Principle-Based Approach (PBA) (as discussed below) for SRT will mitigate arbitrage risks. In the case of SRT, this is further managed through the proposed PBA detailed separately below. The proposal is however wider than the original RSP exception proposed by the Joint Committee' in particular, there is no longer a requirement for the investor to also be an originator (which was the case under the original proposal).

• SRT framework revisions: The existing mechanical and commensurate risk transfer tests are to be replaced by a PBA (with deletion of the mezzanine securitisation position definition as it was only used for the mechanical tests). The risk transfer must include at least 50% of unexpected losses to third parties and submit a self-assessment to supervisors, including a cash-flow model to demonstrate SRT and the sustainability of capital relief. An amendment may also be introduced in the definition of the senior position, where an additional condition/clarification should be introduced that the senior tranche needs to attach above KIRB/KA. Supervisory flexibility is maintained, with further details to be set out in RTS, including conditions for a fast-track process. Additionally, the supervisory SRT assessment will be standardised through RTS, replacing the current permission-based approach, which will no longer be permitted.
• Other technical changes: The update introduces a series of additional technical refinements intended by the European Commission to enhance risk sensitivity, supervisory clarity, and consistency, whilst also aiming to reduce unnecessary complexity across various regulatory areas. Although highly detailed and subject to stakeholder analysis to fully assess their impact, notable changes at this stage include, amongst others: increased capital requirements for retail and commercial real estate exposures; clarifications and adjustments to risk measurement methodologies and the treatment of specific exposures and approaches; streamlined reporting requirements; and greater alignment with existing rules on non-performing exposures and expected loss calculations.

Overall, a number of prudential changes appear promising, where they introduce greater risk sensitivity and could reduce capital requirements. However, the stringent criteria for resilient transactions may limit their applicability, and the full impact of SRT revisions will depend on forthcoming details in RTS.

No transitional or grandfathering provisions are included, with transitional Output Floor measures still set to expire on 31 December 2032. This could be helpful to the extent that enhancements to the framework could result in lower capital requirements for current transactions.  If it results in significant changes, however, for example to SRT transactions, this could require additional discussions with supervisors.

There will be a further review by the EBA after 2 years of the changes entering into force and the European Commission will consider, 4 years after the date of entry into force, whether a more fundamental change is needed to the RW formulae.

A central element in reviving securitisation is reforming its prudential treatment for banks. While the proposed reforms focus on senior tranches of STS traditional securitisations, they fall short of extending to non-STS or Level 2A (or above) assets, disappointing market expectations. Notably, this means they are still subject to higher haircuts (being in Level 2), and in addition are subject to the Level 2B group sub-limit of 15% of total high quality liquid assets (HQLA). Still, there are notable improvements, including:

• Eligibility of senior tranches is broadened; those with CQS5 (i.e. an A+ rating from S&P or an A1 rating from Moody's) to CQS7 (i.e. an A- from S&P or A3 from Moody's) will be eligible as Level 2B high quality liquid assets (HQLA), with a higher 50% haircut.
• Haircuts are reduced (down from 35% to 25% (aligning with Basel standards) or even 15% for larger, higher-quality RSP tranches), and alignment with the EUSR homogeneity criteria is expanded beyond just ABS backed by commercial, auto, and personal loans. On the basis that the larger the issue size of securitisations, the deeper the secondary market, there will be a minimum issue size of EUR 250 million (or the equivalent amount in domestic currency) for securitisations with a long-term credit rating of between CQS1 and CQS4.
• The 5-year weighted average life requirement is set for removal.
• The EBA may be mandated to regularly monitor the liquidity of securitisations, in particular the senior tranches of STS traditional securitisations, and to report its findings to the European Commission, the European Parliament and the Council.

The consultation period has a very short timeframe which ends on 15 July 2025. A formal proposal by the European Commission is then expected.

Another key factor in reviving securitisation is the need to modify the prudential treatment of securitisation for insurers.

The European Commission intends to publish a comprehensive set of draft amendments to the insurance prudential rules with proposed changes to Solvency II "in the coming weeks". Changes to the prudential treatment of securitisation will be part of this draft legal act. They will concern both non-STS and STS securitisations and possibly include:

• Non-STS securitisations, new – and lower capital requirements for senior tranches, which currently attract the same capital requirements as non-senior tranches; and
• STS securitisation, aligning the prudential treatment of senior tranches more closely with those of covered bonds or corporate bonds.

The 10% acquisition limit under the UCITS Directive has been highlighted as being unduly restrictive and that adjustments would be warranted in order to improve access to securitisation.  Also, there are hurdles for pension funds, including occupational retirement provision in accessing the securitisation market which could also usefully be addressed, as highlighted in responses to the EU Targeted Consultation.  Again, improving the disclosure transparency frameworks would help to remove barriers to entry into the market.

In the much longer term, wider reforms, including insolvency and tax adjustments, will also be necessary to remove barriers and fully unlock securitisation’s potential.

The new UK Securitisation Framework, which came into force on 1 November 2024 (New UK Securitisation Framework), included some targeted adjustments and taking a more principles-based, proportionate approach in a number of areas, such as due diligence and disclosure. It is interesting to note that the EU proposals adopt a similar approach in some areas, including a more proportionate approach to due diligence but going further in other areas such as for SMEs and with further refinements for on-balance-sheet STS (which is not available in the UK).  A further "Batch 2" reform proposal is anticipated in Q4 this year is expected to contemplate the public/private distinction and revisions to the template requirements.

The PRA’s consultation paper CP13/24 – Remainder of CRR: Restatement of assimilated law included targeted proposals for the securitisation capital reforms with some potentially positive changes for UK securitisations, including, inter alia, an optional formulaic p-factor proposal and some changes for SRT but it did not consider weight floor adjustments or the concept of RSPs.

Many EU banks are active in the UK market and require dual compliance with both the UK and EU regulatory regimes. Further divergence risks a heavier regulatory burden on market participants, with associated costs and no doubt regulators will take this into account when assessing reforms, in conjunction with their competitiveness and growth objectives. As long as the UK requirements are lighter than the EU, which has been the case to date, the friction is more manageable, noting also that many UK banks lend into the EU out of EU branches or entities.

We will watch this space with interest and particularly for areas of divergence between the UK and EU regimes as they develop.

For more information on the UK reforms, please see Not harder, still smarter? The new UK securitisation framework nears the finish line and Smarter, not harder - a new securitisation framework for the UK for more information.

For further information on the UK securitisation capital requirements, please see our articles: Following the Basel Brick road: Significant risk transfers in 2025 and Can't put a price on risk: the impact of Basel III on significant risk transfer securitisations

A pivotal opportunity is within reach, one that policymakers must seize to deliver meaningful reform and position securitisation as a key pillar of economic growth. As the UK and EU intensify their focus on competitiveness and growth, ensuring access to capital will be vital to support priority areas. With the right conditions, securitisation is well-placed to contribute but this requires a broader investor base, more efficient capital deployment, and the removal of structural barriers to market entry.

The reform agenda reflects growing political recognition of securitisation’s role in financing SMEs, the green and digital transitions and bolstering strategic and defence resilience. It also signals a more nuanced appreciation of post-crisis safeguards and the need to recalibrate overly restrictive rules, particularly when compared to lighter-touch alternative financing options.

While the proposed reforms respond to many of the market’s long-standing concerns, some new requirements risk offsetting progress by placing additional strain on existing participants and deterring new entrants. The legislative path ahead remains uncertain, with the possibility that negotiations in the European Parliament and Council could introduce further complexities and may not address remaining concerns. Regulatory divergence between the UK and EU could also create friction. Furthermore, unlocking securitisation’s maximum potential will ultimately depend on complementary structural reforms, including to insolvency and tax regimes but these are much further away on the horizon.

Significant change is tantalisingly close and the proposals certainly bode well for positive results; whether it will be enough to reinvigorate Europe’s securitisation market, and how swiftly meaningful results will materialise, remains uncertain.