EU: Call for evidence regarding the amendment of the Securitization Framework

 

The EU is starting a public consultation regarding its Securitization Framework.

Securitisation is the process by which banks and other credit institutions bundle loans into securities and sell them to investors. This mechanism allows banks to transfer loan-related risks to other financial institutions or long-term investors, such as insurance companies and asset managers. By doing so, banks can free up capital originally set aside for risk coverage, enabling them to issue new loans.

This increased capacity on bank balance sheets can help address key challenges in the EU economy, including financing the green transition, which demands significant investment from both private and public sectors. However, if not conducted transparently, securitisation can also heighten financial system vulnerabilities, as seen during the US subprime mortgage crisis of 2007.

As part of the Savings and Investment Union, strengthening the EU Securitisation Framework is a priority. Securitisation enables issuers to consolidate and segment asset risks—such as those from mortgages, leasing, factoring, or credit card exposures—into different risk categories, distributing them across the financial system. On one hand, it serves as a tool for funding, credit risk management, and balance sheet optimisation, allowing financial institutions to increase lending and support deeper EU capital markets. On the other hand, it provides investors with access to a broader range of asset classes, helping them diversify their portfolios. A well-functioning securitisation market in the EU is crucial to mobilising investments for strategic priorities like the green and digital transitions, improving risk diversification, and enhancing economic productivity, competitiveness, and resilience.

The EU Securitisation Framework is built on the following regulations:

• The Securitisation Regulation, which establishes common rules on due diligence, risk retention, and transparency for all securitisations, and defines a category of simple, transparent, and standardised (STS) securitisation products.
• An amendment to the Capital Requirements Regulation (CRR), making bank capital requirements for securitisations more risk-sensitive and introducing preferential treatment for STS securitisations.
• Prudential rules governing insurers’ investments in securitisation, as outlined in the Solvency II Directive and the amended Commission Delegated Regulation (EU) 2015/35.

An evaluation of the Securitisation Framework is planned as part of this review process. The overarching goal, as outlined in the 2015 Impact Assessment, is to revitalise a safe and efficient securitisation market that enhances financing across the EU economy. A 2022 review of the Securitisation Regulation, published in a Commission report in December 2022, provided an initial assessment of its impact on the EU securitisation market.