Securitisation reform in focus: from policy to market reality

Background

European securitisation frameworks introduced in 2019 improved transparency and standardisation, notably through STS securitisations and the growth of the SRT market. Yet high costs and strict capital rules have limited appetite, leaving issuance far below pre‑Global Financial Crisis (GFC) levels and well behind the US (0.3% of GDP in 2022 versus 4%). Once tarnished by the GFC, securitisation is now seen by policymakers as a tool to support SMEs, green and digital transitions, and even defence financing. A comprehensive reform package could unlock genuine transformation, but current proposals risk adding new burdens unless carefully adjusted to remove barriers and encourage market growth.

Approach of policymakers

Support for securitisation reform from EU policymakers is evident in the Statement by the ECB Governing Council on advancing the Capital Markets Union, Statement of the Eurogroup in inclusive format on the future of Capital Markets Union and European Council meeting conclusions of 27 June 2024 and in the Letta, Noyer and Draghi reports of 2024.

On 29 January 2025, the European Commission published its Competitive Compass and on 19 March 2025 announced a new strategy for a Savings and Investments Union strategy to enhance financial opportunities (SIU), aimed at enhancing financial opportunities across the EU.  The SIU is a key EU initiative, building on previous proposals to create a single market for capital with a Capital Markets Union, which aims to boost economic growth and competitiveness, including encouraging access by EU citizens to the capital markets and “better financing options for companies” whilst addressing broader challenges relating to the digital and climate transition as well as other areas such as defence. The SIU strategy demonstrated a clear recognition that securitisation has the potential to unlock capital and support broader economic funding, which are key to achieving SIU objectives.  However, realising this potential requires targeted reform in some key areas including reviewing due diligence and transparency requirements, and considering targeted adjustments to prudential rules for banks and insurers.

In addition, the Competitiveness Compass shows a desire to simplify legislation more widely in order to support competitiveness and growth, which could lead to changes to other relevant regulatory frameworks going forward.

EU regulatory initiatives

On 17 June 2025, the European Commission published (i) a Proposal for amendments to the Securitisation Regulation1 (EUSR Proposal), (ii) a Proposal for amendments to the Capital Requirements Regulation2 (CRR Proposal) and (iii) a Call for feedback on targeted amendments to the Liquidity Coverage Ratio Delegated Regulation3 (LCR Proposal). This was followed by a Call for feedback on the European Commission's draft amendments to Commission Delegated Regulation (EU) 2015/35 (Solvency II Delegated Regulation)⁴ (Solvency II Proposal) on 18 July 2025 which was followed by the adoption by the European Commission on 29 October 2025 of a Delegated Regulation amending the Solvency II Delegated Regulation, together with associated annexes and Q&As (the Solvency II Delegated Regulation) (together the EU Reform Proposals)⁵. The EU Reform Proposals take into account responses to the European Commission’s Targeted consultation on the functioning of the EU securitisation framework (EU Targeted Consultation) and long-awaited report on the functioning of the EUSR (Article 44 Report) by the Joint Committee of the European Supervisory Authorities (Joint Committee) published on 31 March 2025.

The EU Reform Proposals signal cautious optimism, with a renewed focus on competitiveness and proportionate, principles‑based legislation. Whilst reforms aim to ease longstanding concerns, new obligations could raise compliance costs and deter entrants.  Since the EU Reform Proposals were published, the reforms have been discussed by legislators with indications that there is broad support for some of the European Commission’s proposals and also a willingness to make some targeted changes, taking into account market responses.  However alignment across stakeholders remains uncertain amid post‑GFC stigma and financial stability worries. Not all of the proposals have been welcomed and there is some hesitancy to take some bolder steps that the market would like to see to further enable growth⁶. 

The European Council (Council) and the European Parliament’s Committee on Economic and Monetary Affairs (ECON) deliberated on the proposals throughout October and November 2025.  On 11 November 2025, the European Central Bank (ECB), in response to requests from the Council and the European Parliament, published its opinion (ECB Opinion) on the EUSR Proposal and related amendments to the CRR Proposal and LCR Proposal⁷. On 28 November 2025, the European Commission published its position on points arising from the opinion of the European Economic and Social Committee (EESC)⁸ that it considers essential, reinforcing the rationale and support for a number of its original proposals and cautioning against measures that would add further red tape to the framework. On 11 December 2025, ECON published draft reports⁹ (ECON Position) indicating broad support for a number of reforms, including some further improvements for capital relief and adjustments for areas where the market has expressed concerns. On 19 December 2025, the Council adopted its final position¹⁰ (Council Position).

The EESC’s opinion, ECON Position, Council Position, and the ECB Opinion suggest broad support for the due diligence, transparency and resilient securitisation positions (RSPs) proposals, albeit with targeted adjustments, but a conservative stance in some areas, such as the prudential changes, raising the risk of pared‑back reforms¹¹. This also perhaps reflects a belief that whilst securitisation is a useful tool in the armoury, as the European Commission notes in its position response to the ECB Opinion¹², securitisation in itself is not a “silver bullet” but part of a wider array of reforms needed to achieve SIU aims. The ECON Position and Council Position indicate, however, that market concerns have been heeded to a degree in some areas and that there is a desire to ensure that capital requirements are simplified and reduced.

Overview

The EU Reform Proposals mark a broadly positive step towards revitalising securitisation, with initiatives to ease regulatory burdens and expand investor participation. They reflect a more nuanced understanding of market dynamics and the need to recalibrate post‑GFC safeguards that have constrained growth. Key measures include a proportionate approach to due diligence and transparency, potential use of unfunded guarantees by (re)insurers, and progress on capital requirements—such as more risk‑sensitive risk weight (RW) floors, reduced p‑factors, preferential treatment for RSPs, and revisions to the SRT framework. However, inflated capital charges for some assets, limited impact of the RSP category, modest LCR reforms, and only incremental changes to Solvency II temper optimism.

Concerns remain around new obligations, stricter sanctions, third‑country reporting templates, and unresolved issues on risk retention. The absence of transitional or grandfathering arrangements may add operational costs, while proposals for a securitisation platform, ESG requirements, and SME/AIFM changes have not been taken forward. Enhanced supervisory oversight and harmonisation could improve efficiency but risk deeper intervention, with Article 32 sanctions potentially discouraging investor participation. With much depending on Level 2 detail and implementation, the true impact will take time, making follow‑through essential to unlock securitisation’s full potential.

We highlight below the key European Commission proposals and, in italics, related discussion points arising from the ECON Position, Council Position and the ECB Opinion.  

EUSR Proposal

The EUSR Proposal includes notable reforms for disclosure and transparency, STS and on-balance sheet securitisations as well as supervisory changes. We consider in more detail below some key changes from the EUSR Proposal, including where further targeted changes are needed to move the dial further.

• Subject matter and scope

  The scope of the EUSR remains largely unchanged, though it now explicitly includes, as a clarificatory matter, that "servicers" are within scope of supervision. Note that the Council Position proposes clarifying that the EUSR also applies to securitisation repositories and third-party verifiers (TPVs).

  There had been proposals 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"

  Definitions of "public securitisation" and "private securitisation" are introduced. The definition of "public securitisation" is notably broad in the Commission proposals, encompassing (i) transactions with a prospectus under the Prospectus Regulation¹³ or (ii) those marketed with notes admitted to trading on EU-regulated markets, Multilateral Trading Facilities, or Organised Trading Facilities¹⁴ (EU Trading Venue(s)), or (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 of “public securitisation” is concerning, particularly given industry objections advanced against extending it this way,¹⁵ as it is notably wide and open to interpretation. It may unintentionally include private transactions designed not to be public, such as those which are privately negotiated but listed e.g. for withholding tax benefits or investor requirements. Also bringing transactions admitted to trading on EU Trading Venues, including popular venues such as GEM or the Vienna MTF, would capture an extensive number of transactions and could discourage participants from these markets.

  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. This could bring within scope a significant number of transactions, including non-EU securitisations, and impose unnecessary reporting requirements and operational costs on firms, which might otherwise benefit from a proposed streamlined private template (as discussed below). It is worth noting however, as highlighted in the ECB Opinion that for an ABS to be considered eligible as collateral for Eurosystem credit operations, provide loan-level data irrespective of its classification as a public or private securitisation¹⁶.

  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).

  The 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 (as discussed above) and this also raised concerns as to the adequate protection of private data.

  It is encouraging that each of the Council, ECON and the ECB understand the potential difficulty with the proposed definition of “public securitisation”; the ECB, ECON and the Council currently recommend retaining the current drafting of the EUSR. This reflects the difficulty of achieving a workable definition; however finding a solution that works for the market going forward would be optimal to ensure that private transactions, notwithstanding the publication of a prospectus, may benefit from simplified private reporting.

• Due diligence

  The suggested reforms advocate for a more proportionate, principles-based framework. This approach aligns more closely with reforms seen in the UK Securitisation Framework which came into effect on 1 November 2024. However there is no clear definition of what is proportional.  The Council and ECB have both considered that clarification on the definition of what is proportional could be beneficial but no provisions are included in the Council Position at this stage..

  Whilst many of the due diligence proposals are welcome, others raised market concerns that could risk limiting investment in securitisation¹⁷.  Key reforms proposed include:

  • Reduced verification requirements, particularly on senior tranches and repeat transactions. 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 may need to 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.

    The Council deliberations and ECON suggest that “repeat transaction” should be defined (including the same originator, same type of underlying asset, same structural features and clearly being a repeat transactions. In addition, the Council proposes that, for repeat transactions, within 36 months, the due diligence may be documented solely on the elements of the transaction that have changed since the last issuance. Also, the Council and ECON contemplate still requiring that investors have an obligation to check STS compliance.  The Council supports reduced STS verification but without investors “solely or mechanistically relying on that notification or information”; however investors may rely on verification by authorised TPVs.  

    ECON and the Council have also indicated that third-country reporting to securitisation repositories is not intended and proposes that as a minimum the information required under Article 7(1) should be provided which may mean that templated information, and reporting to repositories, may not be required and, for non-performing exposures (NPEs), third-country originators/sponsors or original lenders must apply sound standards in the selection and pricing of exposures.

  • Secondary market due diligence extension of 15-days. A 15-day extension is permitted for documenting secondary market due diligence compliance, aligning with the UK framework. The intention is maybe to alleviate some pressure but may be of limited value as investors will need, in any event, to conduct appropriate due diligence before making a secondary market purchase and this proposal risks creating an additional documentation burden.
  • Waiver of due diligence requirements for certain public entity-guaranteed transactions.

    Due diligence is waived for transactions guaranteed, in full, by multilateral development entities, such as the European Investment Bank and European Investment Fund, recognising the role these entities can have in supporting the securitisation markets. The aim is to "crowd in private investment in de-risked structures with a public guarantee". 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, 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.

    Taking into account the proportionate due diligence, the Council and the ECB have mooted the greater use of TPVs to support supervisory processes, an option more viable with TPVs being supervised. The proposal for a lighter due diligence for the 15% public-entity guaranteed first-loss tranche however has met with some scepticism with the EESC, ECB and the Council expressing concerns as to whether this is justified. The European Commission reinforced however, in its response to the ECB Opinion, that it considers this proposal to be reasonable given that the characteristics of these transactions justify a lighter touch.

  • Investors are in scope of Article 32 sanctions. Notwithstanding that this amendment aims to reinforce the enforcement of due diligence obligations, investors are already subject to national supervisory requirements and capital sanctions for non-compliance. Therefore, this new measure may be self-defeating, potentially deterring market participation in the market, encouraging overly cautious and more extensive due diligence as a defensive response to sanctions, and ultimately undermining other intended benefits of the proposals.

    It is encouraging that the Council, ECON and the ECB understand that the proposed regime may disincentivise investors and an alternative proposal needs to be considered but it appears that the approach may be to adopt a lighter touch, such as a cap (as considered in Council and ECON discussions, which could be an amount of at least twice the amount of the investment) remains open to debate, as opposed to a removal of the proposal entirely. ECON is concerned to avoid duplicative sanctions and suggest that the penalty may not apply where CRR sanctions apply.

  • Delegation permitted to institutional investors, though ultimate responsibility remains with the delegating party. Clarification is given that delegation to institutional investors is permitted, though ultimate responsibility remains with the delegating party, aligning with similar provisions for AIFMs. 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 above). Helpfully the ECB, Council and ECON support clarification that the responsibility should remain with the party to which delegation is made but without prejudice to sanctions under the CRR, unlike the Council which accepts the current proposal with modifications to clarify that the delegator must assess and monitor the delegate’s performance. The Council proposes that investors must ensure that the relevant managing party has the necessary experience to conduct the due diligence.
• Risk retention

  Risk retention is waived where the securitisation includes a first loss tranche that is guaranteed or held by certain public entities (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.

  The ECB Opinion suggests that NPE securitisations need additional safeguards and proposes that the greater of 15% or an expected loss factor should apply for the first-loss tranche with 5% retention on the remaining non-guaranteed tranches. This is further supported by ECON which introduces a requirement that NPE securitisations benefitting from public guarantees should be considered to comply with the risk retention requirement where the originator, sponsor or original lender retains a vertical slice of all tranches and one or more tranches are fully guaranteed by eligible public entities. The ECB also proposes that the retention of not less than 5% of the nominal value of each tranche sold or transferred to investors, which is fully guaranteed by eligible entities, should also be deemed compliant with risk retention requirements, provided that not less than 5% of the nominal value of each of the non-guaranteed tranches are retained.

  The Council, having noted that member states are divided on this issue, has proposed additional conditions including: approval by the public entity with its continued oversight throughout the life of the transaction, the transaction has only two tranches with a senior tranche to a first-loss position, the securitisation is not an NPE and the public entity holds or guarantees the first-loss tranche which cannot be hedged or transferred. For NPE securitisations the risk retention requirement shall be deemed satisfied for tranches that are not subordinated to any other tranches and that are either held or fully, unconditionally, and irrevocably guaranteed by the public entity. The Council proposes a further carve-out for certain synthetic securitisations, including where originated by a national promotional bank or institution, the first-loss is guaranteed by entities such as national promotional banks or multilateral development entities (and the first-loss is guaranteed on a continuous basis and the risk is not hedged or transferred), non-guaranteed tranches are retained until maturity and the guarantor approves the eligibility criteria. The Council may also propose a similar exclusion from the credit-granting standards.

  There is no clarification however on risk retention issues relating to the substance of the risk retainer for the interpretation of the "sole purpose test" that have plagued the market since the publication of the Article 44 Report and no mandate to amend the regulatory technical standards (RTS) on risk retention¹⁸. This may indicate that the European Commission’s views align with those of the Joint Committee on this matter.

• Disclosure and transparency reforms

  A streamlined template for "public securitisations" is proposed with aggregated reporting for asset-backed commercial paper (ABCP) and highly granular short-term exposure pools, such as credit cards and consumer loans (although query whether this could be extended to 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 which could mean that firms will need nevertheless 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)¹⁹, is also proposed to meet supervisory requirements without imposing full public securitisation reporting obligations. This marks a potential improvement over the European Securities and Markets Authority’s (ESMA) consultation proposals. The template will be reported to securitisation repositories, with Articles 10 and 17 of the EU Securitisation Regulation (EUSR) updated to reflect free access to public securitisation information only, although this will capture transactions that are otherwise considered, at the moment, to be private transactions but treated as "public" under the new definition. There are concerns as to the security of information that is reported for private deals and is an issue on which the legislators might want to provide some comfort if this measure proceeds.

  The European Banking Authority (EBA), ESMA, and the European Insurance and Occupational Pensions Authority will develop RTS and implementing technical standards (ITS) to define template details within 6 months of the final regulation entering into force. On 13 February 2025, ESMA published a Consultation Paper (Private Template Consultation) on the revision of the disclosure framework for private securitisation which sought to address market concerns as to disclosure and transparency. However, ESMA's Feedback Statement of 17 July 2025 confirmed that it would postpone any further work on this, pending the outcome of the EU Reform Proposals.  It remains to be seen to what extent, with new EBA oversight and the mandate under the Proposals, further refinements to the ESMA proposals will be made. 

  The draft text suggests that 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 under the EU Reform Proposals, so potentially this will impose additional administrative burdens for all existing transactions unless some relief is included.

  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.

  The ECB, the Council and ECON are broadly supportive of the proposals. The Council contemplates a definition of “highly-granular pools of short-term exposures”, as being “a pool of exposures where no single exposure represents more than 0.005% of the overall pool and every exposure has an original maturity of one year or less; this would remove the Commission’s limitation to credit cards and certain types of consumer loans. ECON provides for credit cards as an example only of assets that may benefit from relief from aggregated reporting and also that only “in truly justified cases” could competent authorities “ask for additional information, in a proportionate way to ensure that they have an overview of the market”. The Council may also be supportive of a further carve-out for certain synthetic securitisations like that proposed for risk retention as discussed above.

  The Council may also propose further clarifying timing for provision of information for public securitisations.²⁰

  The ECB insists that reporting should be to competent authorities, including the ECB, with data quality and comparability remaining key.  Not unexpectedly the ECB considers that climate and environmental data points could be included in the revised templates as access to such information is currently limited and impacts investors’ and authorities’ ability to assess related risks. The ECB notes the importance of sufficient information for the Eurosystem collateral operations. The European Commission’s response to this is that more time is needed consider the impact of the EUGB Regulation, noting also the current STS requirements for environmental performance data, before making further changes.

  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 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.

  However the legislators have expressed some concerns as to the impact of the 70% threshold, including that this could lead to a mixed pool of assets for an SME ABS transaction which is contrary to the STS simplicity requirements and problematic for Eurosystem monetary policy compliance. The ECB is concerned that the 70% de minimis is contrary to STS requirements and suggests restricting the remaining 30% to corporate or SME loans. Whilst the Council has also expressed similar concerns and, for SME securitisations, had mooted limiting the non-SME portion to corporate exposures to preserve homogeneity, it has simply clarified that the remaining portion of the pool should also be allowed to include exposures from different Member States and to other types of obligors that are not considered SME, and also that the exposures may be cross-jurisdictional. ECON proposes incorporating requirements of the current homogeneity RTS in the Level 1 text to remove complexity.

• STS on-balance-sheet securitisations

  Several key refinements aim to enhance clarity, facilitate credit protection provision and align risk management practices with market realities:

  • Unfunded credit protection agreements may be guaranteed by EU-based (re)insurance entities subject to safeguards. The safeguards include:
    • diversification (entities are required to have authorisation for at least two distinct non-life insurance classes);
    • solvency (a minimum CQS of CQS3 or higher and noting that this could be required on an ongoing basis);
    • risk management (including use of an approved internal risk model, though we note that use of the standard formula is more common);
    • minimum size (an asset requirement exceeding EUR 20 billion is required; to the extent that this is applied at the booking level, as opposed to consolidated group level, this would prevent a majority of (re)insurers from participating).

  Additionally, the guarantor must be based in the EU, meaning that non-EU entities are precluded.

  These safeguards could benefit from further adjustments in order to maximise opportunities for (re)insurance participation in the market.  SUERF²¹, the European Money and Finance Forum, for example, has highlighted a number of possible targeted adjustments to the safeguards²² and also that clarification is required for (re)insurers to provide unfunded credit protection to STS RSPs (as discussed below). SUERF concludes that removing the current collateralisation criterion "barrier - with safeguards as proposed by the European Commission, if worded appropriately - would actually strengthen financial stability, market efficiency, and support the EU's ambitious competitiveness agenda".

  The Council discussions indicate support for this measure and contemplate some changes that seek to address some flaws in the Commission’s proposals which would limit the viability of its proposals. These include using non-credit protection lines of business, rather than classes of insurance to measure business diversification, requiring a CQS 2 step at the time that credit protection was first recognised and have a current CQS3 or better and lowering the size threshold for eligible (re)insurers from EUR 20 billion to EUR 15 billion and allowing group-level compliance under certain conditions²³. However, there is no support to include non-EU guarantors in scope which would continue to be a limitation. In addition, there could be support for allocation of monitoring of the macroprudential risks to the European Systemic Risk Board and provision of data sharing mechanics to facilitate this.

  ECON has also addressed in its draft reports possible helpful refinements including: (i) recognising the protection at the date it is established, (ii) as an alternative to the internal model requirement that the relevant competent authority does not object to the underwriting of guarantees, (ii) changing CQS3 to CQS2, (iii) changing the minimum of two classes on non-life insurance to a broader business-based assessment and changing the EUR 20 billion requirement to either (i) a EUR 5 billion total assets test and/or (ii) a consolidated assets test of EUR 15 billion with financial support for timely payment. Again, there is no support to include non-EU groups in scope.

  The ECB has expressed concerns however about the role of unfunded guarantees and recommends that the EUSR remains unchanged in this respect. It recommends not including the proposals on unfunded guarantees.  It warns that synthetic securitisations may pose risks to financial stability and require close monitoring. Instead, it favours traditional risk transfer structures, which it views as more effective in delivering risk transfer, funding, and new lending. Concerns include the absence of a funding component, increased leverage, and heightened pro-cyclicality, also as noted by the European Systemic Risk Board. The ECB also highlights risks of market concentration, counterparty exposure, and contagion between banking and insurance sectors, particularly in the absence of collateral during downturns. It also questions whether the EUR 20 billion minimum size safeguard could exacerbate concentration.

  • Active portfolio management: Helpful clarifications are included that removals will be permitted due to sanctions or fraudulent activities, as well as loan amendments resulting from legal changes affecting enforceability, which are beyond the originator's control.
  • 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.
  • Non SEC-IRBA originators: These are now explicitly limited to annual commitments not exceeding one year’s expected loss; a clarification that previously applied only to SEC- SA approach users.
  • SME homogeneity requirements: Consistent with the changes for traditional securitisations, 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. The Council includes that at least 70% of the exposures in the pool, at origination, consists of exposures to SMEs, all the exposures in the pool are to obligors established in Member States; all the exposures in the pool are underwritten in accordance with standards that apply similar approaches for assessing associated credit risk; and all the exposures in the pool are serviced in accordance with similar procedures for monitoring, collecting and administering cash receivables. ECON proposes that deleting the EBA RTS would simplify the framework by reducing the homogeneity test to a single asset-class criterion, thereby removing unnecessary complexity and allowing similar loan types to be pooled more efficiently.
• 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

  As anticipated in the Article 44 Report, the European Commission proposes strengthening a securitisation supervision sub‑committee (SSC) under the Joint Committee. The SSC would be chaired and vice‑chaired by the EBA, which would also provide the secretariat. While intended to improve consistency, the lead supervisor concept faces scepticism from the ECB and Council, who warn against political influence and added administrative burdens. The Council favours clarifying transaction‑level oversight without requiring verification of every deal, and limiting supervisory guidelines to cases of divergent practices. ECON supports removal of verification of compliance of individual transactions.

  The SSC would coordinate supervisory authorities, issue common guidelines, and oversee STS compliance, with national regulators and the SSM retaining key roles. Reviews such as the ESMA Peer Report highlight fragmented approaches, reporting burdens, and supervisory inconsistencies, reinforcing the need for reform.

  The European Commission seeks to balance simplification with safeguards, introducing private templates, enhanced reporting for third‑country securitisations, and stronger oversight of TPVs. The ECB stresses that removing investor verification of STS compliance increases reliance on notifications, making TPV authorisation and supervision essential.

  Improved supervision could reduce friction and enhance certainty, but greater scrutiny of private transactions, new reporting obligations, and extended Article 32 sanctions risk higher costs and more cautious investor behaviour. This may undermine the goal of proportionate due diligence if liability concerns deter participation.

• Reports

  Future reports, as mandated under Article 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. ECON emphasises the need to consider the impact on SMEs and households. The Council may also require consideration of limits on UCITS investments and the impact of the unfunded guarantee changes.

  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.

  The Council may also propose that the ESRB, in cooperation with the ESAs, will be mandated publish within a period of time (possibly within 36 months of entry into force of the changes) a report assessing the impact of STS on-balance-sheet securitisations on financial stability, and any potential systemic risks. ECON may also emphasise that the benefit for SMEs and households should be considered.

What was not included?

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

• Grandfathering and transitional relief: There is no provision for grandfathering of current transactions and, other than a possible transitional period for the transparency changes and adoption of supervisory guidelines, no transitional relief is contemplated for application of the reforms as a whole. Whilst this could be useful where more proportionate measures are adopted, it could be problematic such as for private transactions having to report existing transactions to securitisation repositories on a new template or for existing transactions having to adapt to new reporting requirements, as discussed above. Legislators may be open to reconsidering this. The ECB supports phased transitional arrangements but without undue delays. The Council recommend transitional arrangements for certain STS transactions.
• STS equivalence recognition: The UK has extended the recognition of the EU STS transactions until 30 June 2026 but only to the extent that the transaction would otherwise be recognised as STS in the UK (i.e. an EU synthetic STS transaction cannot be “STS” under the UK equivalence).There is currently no reciprocity by the EU and no development of an equivalence regime although 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 due diligence relief: No relief from due diligence requirements is proposed for intra-group transactions or SME reporting entities, as had been mooted in the Article 44 Report, again potentially limiting cost reductions and market participation.
• Sponsors: Allowing AIFMs or non-EU investment firms to act as sponsors, and clarifications as to whether non-EU investment firms may act as sponsors, had been raised in responses to the EU Targeted Consultation and contemplated in the Article 44 Report but are not taken forward.
• ESG: No additional ESG provisions are included at this stage though this will be a focus for future reports. The Private Template Consultation contemplated additional disclosure however so further provisions could evolve in the disclosure templates as these evolve.Stakeholder feedback on incorporation of ESG factors into reporting has been mixed with some in favour and others concerned about access to data, particularly for older assets and standardisation.  However, alignment with other EU requirements such as the Corporate Sustainability Reporting Directive (CSRD) is a factor for regulators.

  In addition, the ECB is in the process of adapting its monetary policy operations to address climate-related transition risks²⁴ and in 2026, the Eurosystem will exclusively accept as collateral only those assets issued by companies whose social and environmental disclosure are compliant with the CSRD.  The ECB considers that climate and environmental data points could be included in the revised templates as such information is currently limited and impacts investors’ and authorities’ ability to assess related risks.  As noted above, the European Commission considers that more time is required to examine the impact of existing requirements.

  ESMA has noted that possible alignment with CSRD requirements and that including ESG metrics into the securitisation templates “would represent a relevant step toward harmonisation with other securities pledged as collateral in the Eurosystem’s credit operations”.

• 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. Notably, the ECON Position retains the prospect of a future securitisation platform as a longer-term consideration.

ECON expresses support for the further consideration of a platform which is currently being assessed by the ECB.

CRR Proposal

Proposed changes to the Capital Requirements Regulation (CRR)²⁵ are 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 detailed adjustments are introduced that aim to improve risk sensitivity and reduce capital costs.  The CRR Proposal is complex however and the impact and benefit of these is tempered by the need for possible further refinements, such as scenarios which risk higher capital charges, including for assets with high 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 CRR Proposal, 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 Council is sympathetic to retaining the distinction between originators/sponsors and investors but limit it to where the argument for delineation is strongest e.g. RSP or STS.  ECON is in favour of removing the distinction as “both engage in the same economic transaction and possess the same transaction knowledge” and the distinction would lead to higher capital requirements with no justification.

Key points of note include:

• RW floor adjustments: A more sensitive formulaic RW floor for senior positions is introduced, though not subject to a cap and applicable on an ongoing basis. This 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-RSPs, 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. However, whilst the proposals could improve the RW for lower risk assets, potentially RW could be increased or provide limited benefit for certain assets. Some stakeholders propose that further adjustments, including to the (p) factors, scaling factors and floors, are needed if the capital requirement reforms are to yield a significant benefit²⁶.

  The EESC expressed concern that modelling risk and arbitrage should be avoided and the ECB Opinion supports a more conservative approach however, with concerns that the proposals could result in particularly low RWs, proposing lowering the RW floors to 7%²⁷ only for resilient STS transactions and only applying to originating banks.

  The Council generally appears to take a more conservative stance than the Commission, reflecting divergent opinions amongst Member States; it raises minimum capital requirements in some areas, but also moves towards harmonisation by removing the distinction between investors and originators/sponsors in some cases. The Council’s proposals for the RW floors on senior securitisation positions are notably more conservative than those of the Commission. While both approaches support a formulaic, risk-sensitive floor applied on an ongoing basis, the Council raises the minimum capital requirements across the board: for example, increasing the floor for senior non-STS tranches from 10–12% under the Commission’s proposal to 13%, and for senior STS tranches from 5% to 6–8%. Also, (with the exception of some modifications in SEC-ERBA) no cap is introduced including for the senior RW floor and proposed caps in the p-factors are removed; this means higher capital charges may apply for higher risk assets.

  In contrast, ECON harmonises and generally lowers capital requirements for all holders of senior tranches, applying the same (lower) p-factor and RW floor to originators, sponsors, and investors. ECON frequently introduces caps to set upper limits on capital charges, including for the formulaic RW floor for senior positions; this has the potential to make requirements more predictable and market-friendly. ECON also includes lower floors within the RW floor formulae and reduced multipliers in the formulae.  Senior STS and RSP positions, in particular, benefit from these lower and capped RW floors, while non-STS positions also see harmonised treatment.

  Furthermore, ECON proposes that the RSP concept should apply only to synthetic transactions, recommending that the STS framework be reinforced for traditional deals and that all STS senior tranches of traditional securitisations be treated as ‘resilient’.

• 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.

    The Council’s approach is more conservative than the Commission’s; although it harmonises treatment for all market participants, the cap is removed and for non-senior positions the floor to the RW floor is increased and multipliers increased in some cases. The Council also removes the distinction between originators/sponsors and investors for senior STS tranches, applying the same formula to all holders, but with a higher minimum than the Commission. The overall effect is a more prudent regime.

    ECON in contrast sets the p-factor for senior positions at a lower level with caps to prevent excessive capital charges.

  • 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 CRR Proposals confirm are still due to expire in 2032.

    The Council adopts the Commission’s proposal. This may be reflective of divergent views of Member States.

    ECON however proposes a significant reduction in the p-factor of 0.3 (for a senior RSP synthetic securitisation or a traditional securitisation), 0.5 for other synthetic senior securitisation positions and 1 for all other securitisation positions.  Under this formulation, senior RSP synthetic and traditional securitisation positions benefit from a much lower p-factor (0.3), which significantly reduces the risk weight and capital charge for these exposures, regardless of whether they are held by originators, sponsors, or investors. Other synthetic senior positions get a moderate p-factor (0.5), still lower than the Commission/Council for investors. All other positions remain at p = 1, unchanged. Also, as there is no distinction between originator/sponsor and investor for senior RSP/traditional position, everyone benefits equally from the lower p-factor.

  • 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.

    All three approaches recalibrate the SEC-ERBA tables to align with their respective approaches to p-factor and RW floor adjustments.

• 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’s 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 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 introduce constraints that could significantly limit the benefits of RSPs and, in turn, undermine their financial viability. RSPs are also available only to originators, sponsors and STS investors. Stakeholders generally support the intended prudential benefits of this proposal but targeted adjustments may be required to fully maximise the potential of the reform, such as extending this to non-STS investors and clarification that the tranche thickness is determined at the outset (not on an ongoing basis).

  In addition, the Explanatory Memorandum to the CRR Proposal implies a collateralisation criterion for counterparty credit risk which is contrary to the changes in the EUSR which permit unfunded synthetic STS by (re)insurers (as discussed above) which could prevent (re)insurers from participating in the RSP market²⁸.

  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).

  The Council, ECON and the ECB support the introduction of an RSP category and also agree that the determinations should be made at the outset and not on an ongoing basis so as to avoid cliff effects. ECON proposes lower and capped RW floors and also proposes removing the definition of “senior securitisation” to avoid reclassifying many positions as non-senior and disproportionately increasing RWs. Furthermore, ECON proposes that the RSP concept should apply only to synthetic transactions, recommending that the STS framework be reinforced for traditional deals and that all STS senior tranches of traditional securitisations be treated as ‘resilient’. Both bodies agree that resilience should be determined at origination and not on an ongoing basis. The Council also offers preferential treatment for trade receivables and auto ABS and equipment leasing under SEC-ERBA. 

• 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 submission of a self-assessment to supervisors, including a cash-flow model to demonstrate SRT and the sustainability of capital relief.

  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. The Council contemplates that RTS will also specify notification requirements and structural safeguards, including coverage of legal clauses for early termination, amortisation structures, call options, other early termination clauses, excess spread, cost of protection and credit events.

  It should be noted that the EBA published its updated ECB Guide on options and discretions available in Union law (OND Guide)²⁹ in July 2025. The OND Guide includes guidance on the approach to SRT which is contrary to the proposals on SRT in the CRR Proposals (which favour the PBA test) and states that the commensurate risk transfer test should be considered. 

  The ECB believes that traditional securitisations achieve SRT objectives more optimally than on-balance sheet structures.  Also the ECB in the ECB Opinion recommends that the scope of the portfolios eligible for SRT should be clarified directly in the CRR in order to explicitly exclude certain types of complex exposures for which the exposure amounts and the exact coverage of credit protection cannot be modelled with sufficient certainty, or which produce excessive volatility over time e.g. counterparty credit risk for derivatives exposures.

  The ECB welcomes the PBA test but highlights that the competent authority should be able to require the originator, where relevant, to transfer a share of the weighted amounts of unexpected losses of the underlying exposures that is higher than the 50% required under the PBA, or to object to SRT when it deems that there is insufficient credit risk transferred to address special or complex features or to lead to a non-commensurate reduction in risk weighted assets (with the ECB noting that it will use the “commensurate test” as set out in the OND Guide).The Council also believes that competent authorities should be provided with the possibility to increase the minimum amount of transferred unexpected losses under the PBA in well justified cases, with specific circumstances, to be further specified in the regulatory technical standards to be developed by the EBA.

• Definition of “senior position”

  An amendment may also be introduced in the definition of the senior position, where an additional condition/clarification could be introduced that the senior tranche needs to attach above KIRB/KA. This has raised concerns that it has the potential to create a cliff effect. 

  The ECB is against a definition that creates cliff effects. ECON also proposes removing the definition as it recognises that it could severely impact the European securitisation market by reclassifying many positions as non-senior and disproportionately increasing RWs. Similarly, the Council has made some adjustments to ensure that determination of a senior position is determined at the outset and not adjusting over time; this will provide clarity and certainty that will provide more predictability for issuers and investors. This is a positive development as the Commission’s proposed definition creates a minimum attachment point which could result in many positions being reclassified as non-senior over time and disproportionately increasing RWs.

• 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 outside the scope of the article, notable changes at this stage include, amongst others: changes 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.

  The Council also proposes that, to determine the exposure value of the undrawn portion of the cash advance facilities, a conversion factor of 10% (instead of 0%) may be applied to the nominal amount of a liquidity facility.

• Grandfathering/transitional provisions: No transitional or grandfathering provisions are included. This could be helpful to the extent that enhancements to the framework 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. The Council has however proposed some transitional arrangements for STS.
• Future reviews: 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.

  Overall, a number of prudential changes appear promising, where they introduce greater risk sensitivity and could reduce capital requirements. However, the stringent criteria for RSPs may limit their applicability, and the full impact of SRT revisions will depend on forthcoming details in RTS. It appears, from recent discussions in the Council³⁰ and ECON that there may be support to include further changes in some areas such as reconsidering the differentiation between originators/sponsors and investors in certain situations, introducing caps and further adjustments to the RW floors and scaling factors. The Council also proposes further clarification around requirements for significant risk transfer.

  It is worth noting that, whilst beyond the scope of this article, as noted above relating to the UK capital requirements, the FRTB trading book rules addressing market risk, which has been delayed in the EU until 1 January 2027³¹, could impact the capital treatment of some traded securitised assets.

LCR Proposal

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 Commission, the European Parliament and the Council.

The consultation period had a very short timeframe and ended on 15 July 2025. A formal proposal by the European Commission is awaited.

The ECB is concerned that permitting securitisations with CQS 5 to 7 in the liquidity buffer would constitute a deviation from international standards and, even with a higher haircut, may not be a reliable source of liquidity during periods of stress. The ECB also has reservations about the level of the lowering of haircuts.

Solvency II Proposal

The Solvency II Proposal introduces a comprehensive set of measures that aim to support productive investment in securitisation by (re)insurers, in addition to other wider reforms. Proposals relating to securitisation include reduced risk factors for both STS and non-STS securitisations, as well as the inclusion of securitisation in the liquidity buffer (for the purpose of avoiding forced equity sales) subject to a haircut of 25%.  Senior STS and non-STS securitisations benefit the most from the changes but there are also improvements for non-senior STS and non-STS securitisations.A concept of cash flows that are sufficiently fixed could indicate that securitisation positions could be included for the purpose of "matching adjustment" transactions but this could benefit from further clarity.

Supervisory monitoring of the impact of the reforms on use of capital will inform the review of the securitisation framework from time to time.

A key driver behind the reforms is the removal of barriers for both STS and non-STS so that risks can be moved outside the banking sector, thereby increasing the funding capacity for the real economy. The European Commission notes that securitisation represents less than 1% of insurers’ investment portfolios whereas in the U.S. investment in securitisations by life insurers is around 17%, and that the current framework has not been successful in reducing disproportionately high prudential costs for insurance companies and meaningfully increasing the level of investment by the insurance sector.

Key changes include:

• STS securitisations: there is alignment of insurers' investments in senior STS securitisations with equivalently rated covered bonds. Delegated Regulation (EU) 2018/1221 introduced into the Solvency II Delegated Regulation specific risk factors for spread risk of STS securitisations. However, the risk factors for senior tranches of STS securitisations remained above those applicable to corporate bonds or covered bonds with the same CQS. The European Commission now proposes to align the treatment of senior STS (with adjustments for non-senior STS), noting that, given the due diligence and transparency requirements under the EUSR to which, unlike corporate or covered bonds, STS securitisations are subject, (re)insurance undertakings have a better understanding and management of the risks related to STS securitisations.
• Non-senior STS and non-STS securitisations: more risk sensitivity is included for investment in both non-senior STS securitisations and non-STS securitisations aligning with the treatment for credit institutions. The European Commission accepts that the lack of risk-sensitivity in the current framework overestimates the spread risks underlying investments in the highest-quality tranches of non-STS securitisation and is also more significant for credit institutions. A new set of risk factors is introduced for senior tranches, while the risk factors for non-senior tranches are reduced in order to ensure a senior-to-non-senior capital requirement ratio that better aligns with banking rules.
• Inclusion of senior and highly-rated or senior STS securitisation positions in the liquidity buffers under the forced sale rules: securitisation positions can count towards the liquidity buffers, subject to a 25% reduction applied to the value, for (re)insurance companies when demonstrating their ability to avoid forced selling of equity investments under stressed conditions. In a change to the original Solvency II Proposal, a 30 % haircut is applied for securitisations which are held in investments in liquid assets held through collective investment undertakings and through other investments packaged as funds in which undertakings hold units or shares.
• Ongoing monitoring: Supervisory authorities are encouraged to monitor the impact of the reforms’ use of capital which will inform the review of the securitisation framework from time to time (including under Articles 44 and 46 of the EUSR).

There are also some amendments to the matching adjustment provisions, including a concept of cash flows being sufficiently fixed but it is unclear to what extent this would capture securitisation positions in the same way as provided for now in the UK rules.

The market has also long advocated for reform³², including for the provision on unfunded credit protection as discussed above. Whilst these proposals are a move in the right direction, as indicated in feedback provided on the Solvency II Proposal³³, further adjustments, such as a more favourable recalibration of the proposed risk factors (including non-STS transactions) which are still considered too high and do not sufficiently promote a level playing field, and clarification as to when a position is determined to be “senior” (i.e. at the outset and not on an ongoing basis)³⁴, may have been beneficial in encouraging new investment or enticing (re)insurers back to the market. As with any institutional investor, investment decisions are shaped by a complex interplay of macroeconomic, regulatory, and portfolio-specific factors but in addition (re)insurers will need to re-establish systems and controls as well as develop the expertise to make best use of these reforms which may take some time. No adjustments for these were included in the final Solvency II Delegated Regulation for STS securitisations though we note that the welcome removal of the double-rating requirement for STS securitisations in response to market feedback.³⁵

Possible additional or future reforms

The 10% acquisition limit under the UCITS Directive has been highlighted as being unduly restrictive and that adjustments are needed to ensure greater access to securitisation. ECON however is considering proposing an amendment to permit UCITS to be permitted to acquire no more than 70% of securities in a public securitisation. The Council has also recognised that UCITS could benefit from improvements to facilitate investments in securitisation and a level of 50% in public securitisations has been mooted.

Also, hurdles for pension funds, including occupational retirement provision in accessing the securitisation market 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. 

Wider reforms, including addressing the currently fragmented EU insolvency and tax frameworks, will also be necessary to remove barriers and fully unlock securitisation’s potential. Increased harmonisation in these areas could widen the investor base and encourage the use of securitisation in countries that are not currently active in the market; these are enormous tasks however and unsurprisingly are not included in the current package or proposals as these are ultimately significantly longer-term measures. 

EU and UK Divergence

Many EU banks are active in the UK market and require dual compliance with both the UK and EU regulatory regimes. As the two regimes evolve, further divergence risks a heavier regulatory burden on these market participants together with associated costs. We expect regulators will take this into account when assessing reforms in conjunction with their competitiveness and growth objectives. Noting also that many UK banks lend into the EU out of EU branches or entities. The adoption of mechanisms for mutual recognition would also reduce market friction.

Implications for originators and investors

As regulatory proposals advance and the path forward becomes clearer, market participants should begin adapting processes to reflect potential new requirements, including sustainability-related disclosures, reporting regimes, sanctions, and delegation provisions. They will also need to upgrade systems to ensure compliance and prepare for changes to prudential standards that could affect funding and financing strategies. Finally, careful attention should be given to implementation deadlines and transitional periods when shaping business and investment plans.

Final thoughts

A pivotal opportunity is emerging for policymakers to deliver reform and position securitisation as a driver of economic growth. As the EU focuses on competitiveness, access to capital will be critical, requiring a broader investor base, efficient capital deployment, and the removal of barriers to entry. Whilst it is clear that securitisation reform is just one area of reform that the EU needs to target, it is an important component that could help to support the wider economy. Meaningful change, however, must encourage new entrants and incentivise the return of former participants, such as insurers, while ensuring a level playing field across jurisdictions.

The legislative path remains uncertain however, with potential complexities from ECON and Council negotiations as well as risks of further future UK-EU divergence. Ultimately, unlocking securitisation’s full potential will also depend on longer-term structural reforms to insolvency and tax regimes. Securitisation stands as the first major reform package within the EU’s SIU agenda, and its progress will be closely watched as a benchmark for the success of subsequent initiatives. Policymakers face the challenge of reconciling differing priorities: ensuring financial stability in the face of market risks, aligning European rules with international standards to maintain competitiveness, and bridging political divides to secure consensus. The way legislators manage these tensions will not only determine the credibility of securitisation itself but also set the tone for how the wider SIU goals can be achieved across other reform areas.

Significant change is close, but whether it will reinvigorate Europe’s securitisation market, let alone achieve the wider SIU aims, remains unclear. 

When will the changes to be implemented?

• The EUSR Proposal and CRR Proposal

  Draft ECON reports were published on 11 December 2025 and the final reports are expected in early January 2026 with a 27 January  deadline for tabling amendments. The approval of the draft report is scheduled for the 5 May 2026. The Council finalised its position on 19 December 2025.

  Once both institutions adopt their respective positions, the trilogue negotiations can commence. This is likely to occur a few weeks or months after positions are agreed, so we can expect the trilogue to commence in early summer 2026. The trilogue phase may take several months, and a final agreement might not be reached until late 2026 or beyond, depending on how protracted negotiations are. Once the regulations are finalised and published in the Official Journal of the European Union, they will enter into force on the date specified in the text. As previously discussed, it remains unclear whether transitional periods will be included.

• The LCR Delegated Regulation

  The consultation period ended on 15 July 2025 and a formal proposal is awaited. This awaits formal adoption by the European Commission and submission to ECON and the Council who will have 2 months to confirm or reject the proposals.

• The Solvency II Delegated Regulation

  This was adopted by the European Commission on 29 October 2025 and has been submitted to ECON and the Council, who have a period of three months for scrutiny, extendable by an additional period of three months. Subject to any objection by ECON and the Council, the Solvency II Delegated Regulation will enter into force on 30 January 2027 in line with wider Solvency II reforms.    

• Final implementation

  It is unclear if the entire package of reforms for the EU securitisation framework is intended to enter into force at the same time or whether its implementation will be staggered. Approvals and changes to the proposals are subject to the usual EU legislative process and could take up to 2 years or more from the date of the original proposals. Any RTS or ITS may follow in due course; however, given the strong policymaker support for change and the Council’s encouragement to reach a timely position, there is clear momentum for progress.  The date for entry into force of the Solvency II is also noteworthy; query whether this could act as a potential anchor point for the other related workstreams.³⁶

This article is an update of our articles, European securitisation reform: progress, but pitfalls remain andA beacon or a chink of light - EU and UK securitisation regulatory forms on the horizon? previously published on Hogan Lovells' website. A version of this article is published in the 2025 edition of Capital Markets Intelligence’s Securitisation & Structured Finance Handbook.

For further information on some of the areas discussed in this article please also see:

• Securitisation reform – interpreting the Brussels mood music
• ESMA consults on private templates for Securitisation Disclosure – more haste, less speed
• Not harder, still smarter? The new UK securitisation framework nears the finish line
• Securitisation disclosure - could less be more?
• Smarter, not harder - a new securitisation framework for the UK
• Following the Basel Brick road: Significant risk transfers in 2025
• Can't put a price on risk: the impact of Basel III on significant risk transfer securitisations

This article is current as of [***], is for guidance only and should not be relied on as legal advice in relation to a particular transaction or situation. Please contact your normal contact at Hogan Lovells if you require assistance or advice in connection with any of the above.