Proposed Revisions to the EU Securitisation Framework

On 17 June the European Commission published its long-awaited legislative proposals¹ for reviving the European securitisation market (the proposals). This is a significant and wide-ranging package of reforms, aimed at reducing undue obstacles to the growth of the EU securitisation market.

The proposals will be welcomed by the market, with some reservations which we discuss below.

Introduction

The proposals are a response to the European Council’s request to the European Commission (the Commission) to identity measures to relaunch the European securitisation market, including through regulatory and prudential changes, and follow the Commission’s targeted consultation on the functioning of the EU securitisation framework launched in October 2024². 

Objectives

The proposals are one of the components of the EU’s Savings and Investment Union strategy and aim to revive the EU securitisation market and strike a better balance between safeguards and growth. This follows numerous recent calls from European politicians, market participants and national regulators for the revival of the European securitisation market as a means of increasing the EU’s competitiveness.

The stated objective is to make the EU securitisation framework less burdensome and more principles-based in order to reduce the high operational costs and capital requirements which currently keep many issuers and investors out of the market.

The Commission expects that the proposals, when implemented, will lead financial institutions to engage in more securitisation activity and free up their balance sheet for additional lending to EU households and businesses in order to support the EU’s priorities, such as the green and digital transitions, defence and infrastructure.

Scope

The Commission’s stated aim is to make targeted improvements to the EU securitisation framework, rather than to overhaul it.

The proposals comprise amendments to (i) the EU Securitisation Regulation (EUSR)³, (ii) the Capital Requirements Regulation (CRR)⁴, (iii) the Liquidity Coverage Ratio (LCR)⁵ and (iv) the Solvency II (SII)⁶ Delegated Regulations.

In addition, the Commission is considering amending the Undertakings for Collective Investment in Transferable Securities (UCITS) Directive⁷ as part of the upcoming review of the UCITS Directive.

Focus of the proposals

The main focus of the proposals is on due diligence and transparency, prudential requirements for banks and insurance companies, and enhanced supervision.

Due diligence and transparency requirements that are deemed duplicative or overly prescriptive are to be simplified or removed.

The prudential framework for banks and insurers is to be adjusted to better account for actual risks and to remove undue prudential costs for banks as issuers and investors in securitisations.

There will be enhanced market supervision of securitisations, in particular by strengthening the role of the European Banking Authority (EBA).

These proposals are intended to address both supply and demand issues: streamlining reporting and reducing capital requirements is intended to make it easier and cheaper for banks to originate securitisations, while simplified due diligence and amendments to capital charges and liquidity treatment should make it easier and more attractive to invest in securitisations.

The proposals are considered in more detail below.

I. Non-prudential aspects of the proposals

Due diligence

Verification of compliance by EU sell-side parties with the EUSR

EU institutional investors will no longer be required to verify compliance with the EUSR by EU sell-side parties in the transaction (originators, original lenders, sponsors and SSPEs). This proposal reflects the fact that sell-side entities established in the EU are subject to EU regulatory supervision and can be sanctioned for breach.

However EU institutional investors will continue to be required to verify that non-EU sell-side parties have complied with their obligations under the EUSR. This means that EU investors will still be required to verify compliance by sell-side parties with reporting and other EUSR transparency requirements before investing in US or other third country securitisations. The Commission’s rationale is that this is necessary because the ability of national competent authorities to enforce the EU securitisation framework against non-EU issuers is more limited.

However, unless the reporting templates are significantly simplified, US and other third country originators and issuers will continue to be reluctant to comply with the EU transparency requirements, putting EU investors at a competitive disadvantage in the US market.

Assessment of structural features; written procedures for ongoing monitoring

The requirement for institutional investors to assess the structural features of the securitisation has been made more principles-based by removing the detailed list of structural features that investors are required to check.

Similarly, the requirements that investors establish appropriate written procedures proportionate to the risk profile of the securitisation position in order  to monitor the position on an ongoing basis has been simplified by removing the detailed list of features that investors have to monitor.

Verification of STS criteria

The obligation for investors to verify compliance with the simple, transparent and standardised (STS) requirements will be removed, since compliance is already subject to regulatory compliance and notification (and in any case is not relevant for all types of investors). A related proposal provides that third party verifiers of STS compliance will need to be supervised in addition to be authorised by the respective national competent authority.

Simplified due diligence for repeat transactions and senior tranches

The recitals to the proposals state that investors should be allowed to conduct simplified due diligence for investments in repeat transactions where key risk characteristics are already well understood. For these purposes, repeat transactions are those (i) issued by the same originator, (ii) backed by the same type of underlying assets, (iii) exhibiting the same structural features, and (iv) offering the same or a lower level of credit risk compared to previous investments.

In addition, the recitals state that due diligence requirements should be proportionate to the risk profile of the securitisation positions and, accordingly, senior tranches should require a less extensive due diligence review than junior or mezzanine tranches.

The text of the draft regulation itself does not give specifics of how any such reduced due diligence exercise should be performed. Accordingly, while simplification of due diligence in these circumstances is welcome, a degree of uncertainty will be introduced in relation to how investors should conduct simplified due diligence in these cases.

Sanctions for breach of due diligence requirements

The scope of administrative sanctions under Article 32 of the EUSR has been broadened so that failure of institutional investors to meet the due diligence requirements in Article 5 is explicitly included in the list of situations where national competent authorities may apply sanctions (which potentially include fines of a percentage of global turnover).

This proposal potentially undercuts the benefits of simplified due diligence requirements: investors are likely to regard these potential sanctions as a material disincentive to invest in securitisations, especially since there is no requirement for the breach to be intentional. Existing sectoral legislation (e.g. CRR, AIFMD⁸, UCITS and SII) already provides sanctions for breach of due diligence requirements by specified categories of institutional investors.

Securitisations guaranteed by multilateral development banks

Where a securitisation position is fully, unconditionally and irrevocably guaranteed by a multilateral development bank, institutional investors will be exempt from due diligence requirements.

15% first loss tranche guaranteed or held by specified public entities

Institutional investors will also be exempt from performing a full due diligence assessment on securitisations where the first loss tranche is guaranteed or held by the European Union or by specified public entities and where that tranche represents at least 15% of the nominal value of the securitised exposures.

Secondary market investments

In the case of secondary market investments in securitisations, institutional investors will be permitted to document the due diligence assessment and verifications within a period exceeding 15 calendar days after the investment. The wording of the proposal does not appear to allow investors more time to carry out (as opposed to document) the due diligence assessment, and so this proposal may be less helpful in practice than it appears.

Delegation of due diligence

Where an institutional investor delegate the authority to make investment management decisions to another institutional investor, the draft regulation clarifies that the delegation does not transfer legal responsibility – the delegating investor remains ultimately responsible for ensuring compliance with the due diligence requirements. This proposal aligns the provisions on the delegation of due diligence with those contained in the AIFMD.⁹

Risk Retention

Risk retention will be waived if a securitisation includes a first loss tranche that is guaranteed or held by specified public entities and where that tranche represents at least 15% of the nominal value of the securitised exposures.

Transparency

Disclosure requirements for credit card and certain consumer loan securitisations

The proposal provides that in the case of securitisations of “highly granular pools of short-term exposures”, information shall be made available in aggregate form - loan level disclosure is not required. The recitals to the draft regulation refer to credit card exposures and certain types of consumer loans as examples of highly granular pools of short-term exposures. It may be debatable whether certain types of auto loan or lease transactions meet these criteria.

Reporting templates

The proposals acknowledge that the current reporting templates for both public and private securitisations are too costly and burdensome. The Commission proposes that reporting templates should be streamlined to reduce the number of mandatory data fields by at least 35%. The Commission also proposes converting certain mandatory fields to voluntary fields.

In addition, a dedicated and simplified reporting template for private securitisation is to be developed, in which the information to be reported should be aligned as closely as possible with existing templates, in particular the ECB guide on the notification of securitisation transactions¹⁰. The Commission will mandate the securitisation sub-committee of the European Supervisory Authorities (ESAs), under the leadership of the EBA, to draft the relevant regulatory technical standards.

In relation to the proposed simplified template for private securitisations, market participants will be hoping for a better outcome than the proposals from ESMA in its recent consultation paper¹¹, which raised significant issues (which we discussed in a previous alert)¹².

Public vs. private

Under the EUSR, the distinction between public and private securitisations primarily impacts disclosure requirements. In the case of public securitisations (but not private securitisations) information must currently be disclosed via an approved securitisation repository, and (in the absence of a prospectus) a transaction summary must be prepared for private securitisations. 

The proposals provide that a “public securitisation” will be a securitisation that meets any of the following criteria:

1. a prospectus has to be drawn up for that securitisation pursuant to Article 3 of Regulation (EU) 2017/1129 of the European Parliament and of the Council [the Prospectus Regulation]; or
2. the securitisation is marketed with notes constituting securitisation positions admitted to trading on an EU regulated market and/or Multilateral Trading Facility (MTFs) and/or Organised Trading Facility (OTF) or/and any other trading venue in the EU; or
3. the securitisation is marketed to investors and the terms and conditions are not negotiable among the parties.

The recitals to the draft regulation further explain item (iii) by stating that this is where the package is offered on a “take-it-or-leave-it basis” and investors have no direct contact with the originators or sponsor and cannot directly receive information to conduct due diligence without the latter disclosing any commercially sensitive information to the market.

A ‘private securitisation’ will be a securitisation that does not meet any of the criteria set out above.

Private securitisations will also be required to report to repositories, “[t]o allow for basic visibility for supervisors over the private market”. However to maintain the confidentiality of information in private securitisations, data from those transactions will not be publicly disclosed; only if a securitisation is public will access be available to investors or potential investors. The Joint Committee of the ESAs, under the leadership of the EBA, is mandated to develop draft implementing technical standards to specify the format for the provision of information to repositories.

The proposed widening of the definition of a “public securitisation” means that a much narrower range of securitisations will be able to use the proposed simplified reporting template for private securitisations. For instance, securitisations listed on a EU regulated market or MTF (such as most European CLOs) will become public deals.

The requirement for private securitisations to report to a repository may be a disincentive for US and other third country securitisation issuers to bring in EU institutional investors.

Simple, transparent, and standardized (STS) transactions

A number of changes are proposed to the STS requirements, including the following:

Mixed pools with a predominant SME component

The STS requirement for homogeneity of assets is regarded as an obstacle to SME securitisations. In order to support SMEs’ access to finance, it is proposed that a pool of underlying exposures will be treated as homogenous where at least 70% of the exposures at origination consists of exposures to SMEs (currently the requirement is for 100%). The remaining portion of the pool may also include other types of exposures from different member states without affecting the transaction’s STS status.

Active portfolio management on a discretionary basis

In order to enable investors to assess the credit risk of the asset pool, prior to investment, active portfolio management on a discretionary basis is not permitted under the STS criteria. Certain clarifications are proposed to what is considered active portfolio management on a discretionary basis.

Unfunded credit protection eligible for STS

The current STS criteria for on-balance sheet synthetic securitisations requires credit protection to be funded. In order to increase the ability of EU insurers to participate in the on-balance sheet STS market, the proposals allow unfunded credit protection to be eligible for STS treatment, subject to requirements relating to diversification, solvency, risk measurement and minimum size of the protection provider.

Some of these requirements are quite restrictive; for instance the insurer must use an approved internal model for risks related to the provision of credit protection, it must be assigned to credit quality step 2 or better and have total assets above EUR 20 billion. Only EU insurers will be eligible and, because of these restrictions (for instance the requirement for an approved internal model), currently only a limited number of EU insurers will be eligible.

Supervision

The proposals strengthen the role of the Joint Committee of the ESAs, which will be required to establish a specific securitisation committee, led by the EBA, in order to foster supervisory convergence by ensuring common supervisory practices. Among other things, the securitisation committee will be mandated to identity and remedy infringements of the EUSR.

These provisions suggest that there is intended to greater emphasis on supervision and enforcement of the securitisation rules by EU regulators.

II.Prudential aspects of the proposals

The Commission’s evaluation is that the existing prudential framework for banks and insurers is insufficiently risk sensitive and that capital ‘non-neutrality’ (used to capture inherent risks of securitisation) is disproportionately high for certain securitisation positions.

The proposals aim to reduce undue prudential impediments for banks to issue securitisations and for banks and insurers to invest in securitisations. The proposed measures do not amount to a fundamental overhaul of capital calculation methods, but rather an adaptation of existing systems and parameters, which in some areas results in significant additional complexity.

CRR

The Commission has concluded that the magnitude of capital non-neutrality in the prudential framework is no longer justified and that, in addition, the standardised approach (SEC-SA) is excessively conservative, both in absolute terms and relative to the internal ratings-based approach (SEC-IRBA). This disincentivizes EU banks from originating securitisations and reduces the attractiveness of synthetic SRT capital relief transactions.

The proposals will amend the CRR in order to: (i) introduce more risk sensitivity; (ii) reduce unjustified levels of non-neutrality; (iii) differentiate the prudential treatment for investors and originators of securitisations; (iv) mitigate undue discrepancies between SEC-SA and SEC-IRBA ; and (v) make the framework for SRT more robust and predictable.

Mitigating discrepancies between SEC-SA and SEC-IBRA capital requirements is intended to increase the participation in the securitisation market of smaller and medium-size banks that use SEC-SA.

The proposed amendments to the CRR are in the two areas:

1. the calibration of the two key parameters that set the level of non-neutrality, i.e. the risk weight floor and the (p) factor; and
2. the framework for significant risk transfer (SRT).

A number of additional technical amendments are proposed to address various technical inconsistencies in the framework.

Risk weight floors for senior positions

Risk weight floors are minimum risk weights that credit institutions are required to apply to securitisation exposures. Under the existing rules, risk weight floors are set at a fixed level, irrespective of the credit quality of the underlying pool: 10% for senior STS positions and 15% for senior non-STS positions). This has the effect of discouraging the securitisation of assets relatively low risk weights, such as residential mortgages and low-risk corporate loans.

The proposals introduce a risk-sensitive risk weight floor, under which the risk weight floors for senior positions will be proportionate to the average risk weights of the underlying pool (subject to a minimum level). The calculation of the risk weight floor for senior positions will differentiate between STS and non-STS transactions by using a different scalar for each. These have been designed to achieve “moderate to ambitious” reductions of capital requirements for assets with relatively low risk weights.

However for certain asset classes with high risk weights (e.g. 150%), such as corporate loans rated below BB, the adoption of risk-sensitive risk weight floors will increase existing capital requirements.

Amendments to the (p) factor

The (p) factor is one of the parameters used in the formula-based approaches for the calculation of securitisation risk weights (SEC-IRBA and SEC-SA). It increases the required amount of capital for securitisation positions compared to the capital required for the underlying exposures in unsecuritised form.

The Commission concluded that the current (p) factor levels are excessively high and lead to unjustified levels of overcapitalisation for some securitisations and that, in addition, non-neutrality of capital requirements is particularly high under SEC-SA and causes unjustified differences between SEC -SA and SEC-IRBA capital requirements.

The proposed amendments will distinguish between STS and non-STS securitisation positions, between originator/sponsor and investor positions and between senior and non-senior positions. The Commission’s intention is to reduce the (p) factor for senior positions, originator/sponsor positions and for STS securitisations; banks’ investments in non-senior securitisation positions “are not desirable and should not be supported.”

In the proposals, the formula for calculating the (p) factor under SEC-IRBA will be subject to a reduced scaling factor, a reduced floor and a new cap, but will otherwise remain unchanged.

Under the SEC-SA approach, where the (p) factor is a flat level, distinguishing only between STS and non- STS positions, the (p) factor will be reduced for senior positions of STS transactions only.

Resilient securitisation positions

The proposals introduce a new category of "resilient securitisations". These are senior positions in securitisations that meet specific criteria (at origination and on an ongoing basis) to ensure low agency and model risk, along with robust loss-absorbing capacity. 

These requirements are as follows:

1. only positions which are regarded as having reduced agency and model risks are eligible: (a) positions by originators and sponsors in both STS and non-STS positions and (b) investor positions in STS securitisations only. 
2. only sequential amortisation is allowed (or pro rata amortisation if the transaction includes performance-related triggers requiring a switch to sequential amortisation). 
3. the exposures in the pool must comply with a maximum concentration limit of 2%. 
4. (for synthetic securitisations) only credit support supported by high quality collateral or a sovereign/ supra-national guarantee is allowed. 
5. there must be minimum credit enhancement (i.e. maximum thickness) of the senior position.

For STS securitisations, only two of these five criteria are new. The “resilient” category can be viewed as a form of "STS Plus", although originator/sponsor bank non-STS positions can qualify (whereas investor non-STS positions cannot).

Article 243 of the CRR will now specify two sets of criteria for differentiated capital treatment of securitisation positions: (1) the existing criteria for STS securitisations; and (2) new “resilience” criteria under which securitisations can qualify for a more favourable capital treatment than other (non-resilient) positions, in the form of additional reductions to the risk weight floors and to the (p) factor.

The following tables set out the current and proposed minimum risk weight floors for senior securitisation positions:  

		Current	Proposed	Resilient
SEC-IRBA	STS	10%	7%	5%
SEC-SA	STS	10%	7%	5%
SEC-IRBA	Non- STS	15%	12%	n/a
SEC-SA	Non- STS	15%	12%	n/a

All of the proposed changes to the risk weight floors and the (p) factor are summarised in the tables set out on pp. 12-13 of the CRR proposals¹³.

Interaction with the output floor

The changes to the risk weight floor and the (p) factor have been calibrated in a way that is intended to mitigate the effects of the output floor under Basel III (which sets a minimum level for a bank’s risk weighted assets when calculated using SEC-IRBA compared to the required capital under SEC-SA). The transitional measure in Article 465(13) of the CRR (which in any expires on 31 December 2032) should therefore no longer be necessary.

The leverage ratio may now be a more relevant constraint for some banks. The leverage ratio, which assesses a bank’s exposure to excessive leverage, acts as a backstop to the CRR risk-weighted capital requirements, ensuring that banks maintain a minimum level of capital regardless of how those assets are weighted for risk.

SRT

The proposals introduce changes to the SRT framework with a view to making it more consistent and predictable. A new principles-based approach will be introduced to replace the existing mechanical tests. Originators will be required to submit a self-assessment to demonstrate that significant risk transfer is met, including in stress conditions, and this will require a cash-flow model analysis to evidence the resilience of the SRT.

The technical details of the test, the requires structural features and the principles of the assessment process are to be specified in regulatory technical standards developed by the EBA.

Solvency II

The Commission plans to adopt draft amendments to the SII regulation in a package of amendments expected to be published as a consultation in the second half of July 2025.

The Commission’s evaluation is that the prudential treatment of non-STS securitisation is very conservative and lacks risk-sensitivity, because the capital requirements do not differentiate between senior and non-senior tranches. Accordingly, the Commission is considering enhancing the risk sensitivity of non-STS securitisations by introducing lower capital requirements for senior tranches and slightly reducing capital requirements on non-senior tranches.

The Commission is also considering making adjustments to the prudential treatment of STS securitisation in order to align the capital requirements for senior STS tranches more closely with those of corporate or covered bonds, and possibly reducing capital requirements for non-senior tranches to a comparable extent.

Liquidity Coverage Ratio (LCR)

The liquidity treatment of securitisations in the banking prudential framework is one of the main impediments to increasing the demand from banks’ treasuries as investors. LCR eligibility is also an important investment criterion for non-bank investors, because an instrument with a favourable LCR treatment can be more easily sold to a bank when needed, and at a better price.

In the LCR framework ¹⁴, banks are required to hold  “high quality liquid assets” (HQLA) covering their net liquidity outflows over a 30 days stress period. For the composition of this HQLA buffer, the LCR differentiates between assets of extremely high liquidity and credit quality (Level 1 assets) and assets of high liquidity and credit quality (Level 2 assets). Currently only AAA-rated senior tranches of STS traditional securitisations are eligible for the LCR buffer, and only as Level 2B assets. Level 2B assets are subject to higher haircuts than Level 2A assets (a 25% haircut for mortgage and auto loan securitisations and 35% for other asset classes) and may only form up to 15% of the bank’s total LCR buffer. There is also a maturity cap of 5 years (which de facto eliminates long-term securitisations such as mortgages or infrastructure).

In a consultation¹⁵ which will last for four weeks, the Commission is proposing to incentivise EU Banks to diversify their LCR buffers and to support the liquidity of the securitisation market by making targeted amendments to the LCR framework.

The proposals in the consultation maintain the current approach of only allowing senior tranches of STS traditional securitisations to be recognised as HQLA, but extend eligibility to the LCR buffer beyond securitisations with AAA ratings. Securitisations with a rating from AAA to A- will now be eligible as HQLA. Securitisations with a rating from AAA to AA- will have a haircut of 25%, while senior tranches rated from A+ to A- will have a higher haircut of 50%.

Importantly, the Commission also proposes to grant a lower 15% haircut to ‘resilient’ STS traditional securitisations, provided that the minimum issue size of the tranche is EUR 250 million (or the domestic currency equivalent) and they have a credit rating from AAA to AA-. This is the same haircut as for Level 2A HQLA.

The proposals remove the requirement for securitisations eligible for the LCR buffer to have a remaining weighted average life of five years or less. This will make securitisations with a long-term initial maturity, such as RMBS, eligible for the LCR buffer.

In addition, to encourage diversification, LCR buffer eligibility will be extended to all types of asset classes, provided that they meet the homogeneity requirements for STS securitisations.

Although there is no proposal to allow securitisations to be Level 2A assets, as many have advocated, the extension of LCR eligibility for beyond AAA-rated securitisation tranches, the lower 15% haircut for ‘resilient’ STS transactions and the removal of the 5 year maturity cap are significant improvements.

What is not in the proposals?

A number of possible reforms which have been floated in previous reports and consultations from EU regulators, such as the recent report from the Joint Committee of the ESAs¹⁶, have not made it into the proposals.

For instance, there is no proposal to clarify the territorial scope of the EU Securitisation Regulation or to change to the definition of “securitisation”. Nor is there any proposal to introduce an STS equivalence regime for third country securitisations.

In addition, there is no reference to the ESAs’ request to the Commission to confirm the ESAs’ interpretation of the term ‘predominant’ in regulatory technical standards relating to the ‘sole purpose’ test in Article 6 (2) of the EUSR (or to consider legislative adjustments to clarify the term ‘sole purpose’ in the Level 1 text). This can be taken to suggest that the Commission does not endorse the ESAs’ interpretation on this point.

Initiatives concerning a possible future European or national‑level securitisation platform have been left to future collaboration between industry and regulators.

Next steps

The Commission’s draft legislative proposals will go to the Council (made up of the heads of state or government of the EU member states) and the European Parliament, both of which will propose amendments.

If the Council and Parliament cannot agree on the amendments (which is regarded as the likely outcome), the Commission will go into trilogue (an informal negotiating process) between the Commission, the Council and the European Parliament. Given the legislative process, it is unlikely that the final agreed text will enter into force before early 2027.

The final adoption of the amendments to the LCR and Solvency II Delegated Regulations by the Commission will take place only once co-legislators have reached an agreement on the Level 1 securitisation package.

The Commission is also considering amending the issuer limit in the UCITS Directive. This limit restricts UCITs funds from acquiring more than 10% of the securities of a single issuing body, with the result that UCITS funds can only invest up to 10% in a single securitisation issuance.

EU/UK Divergence

Divergence between the EU and UK securitisation frameworks - which we examined in a previous alert¹⁷ - looks set to continue. EU/UK divergence is, however, something of a moving target, since EU and UK regulatory reviews are on different timetables. A consultation on substantive reforms to the UK securitisation framework (‘Batch 2’ reforms) is due to be launched by the FCA and the PRA in the second half of 2025. This may result in greater (or less) divergence with the EU rules.

Conclusion

The Commission’s proposals mark a turn of the tide in the history of EU securitisation regulation. EU politicians and regulators, previously sceptical of market concerns that over-regulation was holding back growth of the market, now accept that the current rules do not sufficiently acknowledge the good credit performance of EU securitisation and the risk mitigants in the regulatory framework which have significantly reduced agency and model risk.

The proposals are wide-ranging and positive and largely address the main points which industry participants have identified as impediments to the growth of the EU securitisation market.

In particular, the proposed changes to the prudential framework are significant, albeit at the expense of some additional complexity. The adoption of a risk-sensitive risk weight floor should spur securitisation activity for residential mortgages and other low risk asset classes, while the reduction in the (p) factor should significantly improve the economics of securitisations for challenger and smaller banks using SEC-SA. In addition, the CRR changes, together with the ability of unfunded synthetic SRT transactions to be STS, should be a major boost to the synthetic SRT market. The changes to the LCR framework are also highly beneficial for bank treasuries.

In relation to the conduct rules, the proposed reduction in due diligence obligations for EU investors investing in EU securitisations should simplify the investment process and the proposed 35% reduction in mandatory data fields for public reporting templates should alleviate IT and reporting burdens. There will also be additional flexibility for STS securitisations backed by SME loans.

Some proposed amendments may, however, hinder rather than promote, the recovery of the EU securitisation market. Adding sanctions for breach of investor due diligence obligations may deter investors and potentially undercuts the principles-based approach and the proportionality of due diligence requirements.

In addition, the proposals perpetuate the distinction between the due diligence requirements required for EU institutional investors to invest in EU securitisations and those required to invest in US and other third-country securitisations. This is a significant disadvantage for EU institutional investors investing in securitizations outside the EU.

Much detail is still to come – for instance the details of the Solvency II proposal and the reporting templates to be developed by the EBA.

Overall, however, the proposals, if implemented in close to their current form, should be a major boost to the EU securitisation market.