EUROPEAN COMMISSION

Strasbourg, 17.6.2025

SWD(2025) 825 final

COMMISSION STAFF WORKING DOCUMENT

IMPACT ASSESSMENT REPORT

Review of the Securitisation Framework

Accompanying the document

Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

amending Regulation (EU) 2017/2402 of the European Parliament and of the Council of 12 December 2017 laying down a general framework for securitisation and creating a specific framework for simple, transparent and standardised securitisation and























Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL









amending Regulation (EU) No 575/2013 on prudential requirements for credit institutions as regards requirements for securitisation exposures

{COM(2025) 825 final} - {COM(2025) 826 final} - {SEC(2025) 825 final} - {SWD(2025) 826 final}

Table of Contents

Glossary    

Table of Abbreviations    

1.    Introduction    

1.1. What is securitisation?    

1.2. Legal context    

1.3. Political context    

2.    Problem definition    

2.1 What are the problems and problem drivers?    

2.1.1. Problem Tree    

2.1.2. Problem 1: High operational costs for issuers and investors    

2.1.3. Problem 2: Undue prudential barriers for banks to issue securitisations    

2.1.4. Problem 3: Undue prudential costs for insurers to invest in the EU securitisation market    

2.2. What are the consequences? How likely is the problem to persist?    

3.    Why should the EU act?    

3.1. Legal basis    

3.2. Subsidiarity: Necessity of EU action and Added value of EU action    

4.    Objectives: What is to be achieved?    

4.1. General objectives    

4.2. Specific objectives    

5.    What are the available policy options?    

5.1. What is the baseline from which options are assessed?    

5.2. Description of the policy options    

5.2.1. Measures to reduce high operational costs    

5.2.2. Measures to reduce undue prudential barriers for banks    

5.2.3. Measures to remove undue prudential costs for insurers to invest in the EU securitisation market    

5.3. Options discarded at an early stage    

6.    What are the impacts of the policy options and how do they compare?    

6.1. Measures to reduce high operational costs    

6.1.1. Option 1.1 Targeted measures reduce high operational costs    

6.1.2. Option 1.2: Significant measures to reduce high operational costs    

6.2. Measures to reduce undue prudential barriers for banks    

6.2.1. Option 2.1: Targeted changes to the existing prudential (capital and liquidity) framework for banks    

6.2.2. Option 2.2: Radical overhaul of the existing prudential (capital and liquidity) framework for banks    

6.3. Measures to remove undue prudential costs for insurers    

6.3.1. Comparative impacts of Options 1, 2 and 3    

6.3.2. Comparative benefits and costs of the three options    

6.3.3. Overall assessment: Effectiveness, efficiency and coherence    

6.3.4. Stakeholders’ views    

6.3.5. Summary comparison and choice of preferred option    

6.4 Social, environmental and fundamental rights impact    

7.    Comparison and preferred combination of policy options    

7.1. Impact of the preferred policy options on the general objective    

7.2. Social, environmental and fundamental rights impact    

7.3. REFIT (simplification and improved efficiency)    

7.4. Application of the ‘one in, one out’ approach    

7.5. Impact on SMEs    

7.6. Impact on EU Competitiveness    

8.    How will actual impacts be monitored and evaluated?    

Annex I: Procedural information (still under development)    

1 - Lead DG, Decide Planning/CWP references    

2 - Organisation and timing    

3 - Consultation of the RSB    

4 - Evidence, sources and quality    

Annex II: Stakeholders’ consultation (Synopsis report)    

1 - Targeted Consultation    

2 – Call for Evidence    

3 - Bilateral contacts with stakeholders    

4 - Stakeholder Workshop    

5 - Input from the ESAs and ESRB    

5 - Input from Member States    

Annex III: Who is affected and how?    

1 - Practical implications of the initiative    

2 - Summary of costs and benefits    

3 - Details of costs and benefits    

1.    Status quo & Overview of costs and benefits identified in the evaluation    

2.    Size of the market for securitisations    

3.    Nature of duties due diligence requirements (Article 5)    

4.    Cost drivers for Article 5 costs and separation of incremental costs from business-as-usual costs:    

5.    Classification of due diligence costs from a better regulation perspective    

6.    One-off costs due diligence    

7.    Recurring costs due diligence    

8.    Benefits of moving to a more principles based and proportionate due diligence approach    

9.    Nature of duties transparency requirements (Article 7)    

10.    Drivers of transparency costs and separation of incremental costs from business-as-usual costs:    

11.    Classification of transparency costs from a better regulation perspective    

12.    One-off costs transparency    

13.    Recurring costs transparency    

14.    Impacts of the preferred policy option    

15.    Summary    

4 - Relevant sustainable development goals    

Annex IV: Analytical methods    

Annex V: Evaluation    

1.    Introduction    

2.    What was the expected outcome of the intervention?    

3.    How has the situation evolved over the evaluation period?    

4.    Evaluation findings    

5.    What are the conclusions and lessons learned?    

Annex VI: Securitisation Platform(s)    

Annex VII: Competitiveness Check    

1 - Overview of impacts on competitiveness    

2 - Synthetic assessment    

Annex VIII: SME Test    

1 - Identification of SMEs affected    

2 - Consultation of SME stakeholders    

3 - Impacts on SMEs    

4 - Options to mitigate any negative impacts on SMEs    

Annex X: Comparison of securitisation and covered bonds    

Annex XI: Further details on the assessment of impact of insurance options    

1 - Detailed assessment of stakeholder impact    

2 - Detailed discussion of implementation costs    

Annex XII: Comparison of Due Diligence and Transparency Requirements    

Glossary

Table of Abbreviations

1.Introduction

Securitisation is a financial practice that involves pooling various types of contractual debt, such as mortgages, auto loans, or credit card debt, and selling their related cash flows to third-party investors as securities. This practice emerged prominently in the U.S. in the 1970s. Securitisation increases the depth and liquidity of financial markets by converting the illiquid debt instruments into tradable securities that capital market investors, such asset managers, insurers or banks, can buy. On the buy side, securitised assets are an attractive investment opportunity for investors seeking exposure to new risks, as they enable greater diversification and superior returns in comparison to some more established fixed income assets. In the EU’s bank-centric financial system, it allows banks to free up capital and provide more financing to individuals, households, and businesses, including SMEs 1 . Securitisation also allows banks to transfer risks outside of the banking system, thus fostering greater risk diversification within the financial system. By increasing the amount of financing available in the real economy, well-functioning securitisation markets can also contribute to higher economic growth and facilitate funding EU strategic objectives like defence or green and digital transitions. These elements make the securitisation review an important initiative under the Savings and Investment Union (SIU).

However, there are also risks associated with securitisation, as was seen during the Global Financial Crisis (GFC) 2 . Complex structures exposed investors to large losses. Similarly, misaligned incentives between issuers and investors incentivised issuers to securitise ‘bad loans’ 3 . At the same time, securitisation amplified asset price bubbles by increasing credit growth and the risk appetite of investors, which increased risks to financial stability. Moreover, securitisation increased risks within the financial system by increasing leverage (i.e. securitisation allows to increase lending within the financial system while holding less capital) and interconnectedness between financial market entities.

For these reasons, as a response to the GFC, the EU Securitisation Framework has sought to tackle the risks associated with this instrument, in particular agency and model risks. Agency risk in the case of securitisation arises when issuers have more information than investors. Model risk occurs when imperfect economic modelling is used to value and assess the risk of securitisation. Several measures have been introduced to deal with these risks, including risk retention, transparency, due diligence, and prudential requirements. Addressing these risks effectively continues to be a key objective of the Securitisation Framework today.

The evaluation of the current framework, however, shows that the Securitisation Framework has been designed and implemented mostly in response to the shock of the GFC and as a result is too strict and hinders market development. At the time, strict requirements were considered necessary to rebuild the securitisation market which had been suffering from inadequate protections and severe investor distrust. Now that appropriate safeguards have been firmly embedded in the market’s organisation and securitisation is gaining back investors’ trust, a better balance between safeguards and growth opportunities- both for investments and issuance- needs to be found.

The European public securitisation market, including CLOs, stood at approximately EUR 1.2 trillion in terms of outstanding volumes at the end of 2023 (compared to EUR 2 trillion at its peak during the GFC 4 ). Despite showing signs of gradual recovery (the EU public market was only EUR 790 billion in the second half of 2020 compared to EUR 900 billion by the end of 2023), securitisation issuance as a percentage of GDP remains much lower in the EU than in other major jurisdictions (according to AFME, 10-year average issuance is approximately 3% of GDP for the US and around 0.5% for the EU). A significant portion of the traditional securitisation transactions (see Section 1.1 right below for further details on the different types of securitisation) remains retained on banks' balance sheets (slightly over 40%) to be used as collateral for obtaining liquidity from the ECB, rather than being placed on the market with external investors. At the same time, the current investor base (i.e. the number of active investors participating in the market) remains small 5 , resulting in a limited capacity to absorb increased supply. In addition, the EU securitisation market remains highly concentrated in five Member States (France, Italy, Germany, Netherlands and Spain). This can lead to uneven development of capital markets within Member States and limit the tool's potential for risk diversification. Furthermore, banks often prefer to issue covered bonds to obtain funding since they are subject to less strict regulatory requirements.

Section 3.2 of Annex V (Evaluation) provides a more detailed assessment of the market context and market developments of the different parts of the securitisation market as well as the development in different countries.

1.1. What is securitisation?

Broadly speaking, there are two main types of securitisations: traditional (also known as “cash” or “true sale”), and synthetic (for an overview of the different parts of the EU securitisation market, see the market context in Annex V).

Traditional securitisation (outstanding public 6 and bank originated, sponsored or invested private 7 volumes within the EU securitisation market stood at more than EUR 1,1 trillion as of end 2023) is used primarily to obtain funding and to transfer risk out of the balance sheet of the lender. An example of a traditional securitisation is a bank selling a pool of mortgages to a securitisation special purpose entity (SSPE). As a result, the credit risk associated with the mortgages is transferred, and the mortgages are ‘erased’ from the balance sheet of the originator bank. If a bank transfers a sufficient amount of the risk to investors, it is allowed to reduce the capital it holds against the securitised assets, i.e. achieving ‘capital relief’ that is available for further lending. The SSPE issues notes (debt instruments) divided into tranches of varying risk profiles (usually into three tranches – junior, mezzanine and senior), which are then sold to investors. The money raised through selling the notes to investors is paid by the SSPE to the bank for the purchase of the mortgage loans. This gives the bank immediate access to funds that can be used for further lending. Common types of traditional securitisations include residential mortgage-based securitisation (RMBS), commercial-mortgages backed securitisation (CMBS), asset-backed securitisation (ABS), collateralised debt obligations (CDOs), and others.

Instead of placing the notes of a traditional securitisation on the market, banks can also choose to retain part of the transaction. This allows banks to access central bank liquidity, but prevents them from achieving ‘capital relief’. These ‘retained’ traditional securitisations currently form an important part of the traditional securitisation market segment.

Figure 1: Traditional Securitisation Structure

A specific type of traditional securitisation is Asset-Backed Commercial Paper (ABCP) securitisation. It is a short-term securitisation where the securities issued take the form of asset-backed commercial paper with a maturity of less than one year. ABCP is usually used to finance very short-term assets, such as trade receivables. ABCP is a popular form of financing for corporates because it allows them to access short-term funding at a lower cost than they would be able to obtain through traditional bank loans. The EU public and private outstanding ABCP volume by the end of 2023 is estimated to EUR 180 million. 8

Synthetic securitisation (outstanding volumes in the EU securitisation market stood at EUR 295 billion as of end 2023 9 ) is a type of securitisation that differs from traditional securitisation. In traditional securitisation, assets are transferred off the bank's balance sheet. In contrast, synthetic securitisation does not involve the physical transfer of assets. These assets remain on the originator's balance sheet, but the risk is managed using financial instruments such as guarantees, making it like an insurance contract.
Just as an insurance policy compensates the policyholder when an adverse event occurs, synthetic securitisation allows banks to be compensated when losses materialise to the underlying pool of assets. Thus, the banks transfer the risk of default on a set of loans to investors, without selling the actual loans themselves. This allows banks to obtain ‘capital relief’ i.e. reduce the amount of capital that they need to hold for these assets, but it does not allow them to obtain funding. The investors get remunerated for accepting the credit risk of the originating bank.

Figure 2: Synthetic Securitisation Structure

Figure 3: Example of synthetic securitisation and regulatory capital relief

In the EU, securitisations can also be classified as public or private. Public securitisations (EU outstanding volumes (excluding ABCP volumes) stood at EUR 900 billion as of end of 2023 10 ) are those that must provide a prospectus to investors. Private securitisations (outstanding volumes stood at EUR 632 billion as of end 2023 11 ) are defined as securitisations where no prospectus has to be drawn up in accordance with Directive 2003/71/EC. Private securitisations have to fulfil the same regulatory requirements as public securitisations, but they are not required to use a securitisation repository to disclose the information prescribed by Article 7 of the SECR. Most traditional securitisations are public, while the majority of synthetic securitisations are private.

The securitisation market is therefore not a homogeneous market but is composed of various different segments or types of securitisations. See Annex IX for a selection of case studies which elaborate how securitisation has been used for the benefit of the real economy.

1.2. Legal context

The Securitisation Framework was adopted in 2017-18 and entered into application in 2019-20 12 . It aimed to revive a safe securitisation market that improves financing of the EU economy. It consists of a Securitisation Regulation (SECR) 13 as well as amendments to the pre-existing Capital Requirements Regulation (CRR) 14 , Liquidity Coverage Ratio Delegated Act (LCR) 15 , Solvency II (SII) Delegated Regulation 16 . The SECR laid down a general framework for securitisation applicable to all involved parties. It consists of detailed rules on risk retention, transparency, due diligence, the prohibition of re-securitisation, and credit-granting standards. It also introduced an additional voluntary framework for Simple, Transparent and Standardised (STS) securitisations, originally limited to traditional securitisations only.

The CRR defines the prudential framework for banks and sets out how much capital banks need to hold for their securitisation exposures, whether as originators or investors in securitisation. SII defines the prudential framework for insurers and establishes capital requirements for insurers’ investments in securitisation. The LCR defines eligibility conditions for securitisation to be included in the banks’ liquidity buffers. Both CRR and LCR are largely consistent with and implement the Basel III securitisation standards.

In 2021, as part of the Capital Markets Recovery Package to help the EU economy to recover from the COVID-19 pandemic, limited amendments to the SECR and to the CRR were introduced. These amendments expanded the scope of the STS framework to synthetic securitisations and removed certain regulatory impediments to the securitisation of non-performing exposures.

Furthermore in 2024, a dedicated regime for green securitisations was introduced as part of the European Green Bond Standard Regulation (EUGBS) 17 . The EUGBS introduces a voluntary standard for securitisation bonds to be labelled as green. In order to qualify, assets in the securitisation pool have to fulfil certain requirements and originators must allocate the proceeds from securitisation to economic activities compliant with the EU Taxonomy Regulation. 

The evaluation in Annex V (section 2.2) explains the intervention logic of the current framework, i.e. the problems it intended to tackle, the solutions found and their expected and observed impacts. It assesses how the Securitisation Framework has performed over the past five years and how it can be further improved.

1.3. Political context

In response to the global financial and sovereign debt crises, the EU took multiple actions to create a safer financial sector for the EU single market, including a framework to revitalise the use of securitisation while preserving financial stability. In that context, the Securitisation Framework was an important initiative under the initial Capital Markets Union (CMU) Action Plan. Although reviving the securitisation market following the shock of the GFC was part of the general objective of the Securitisation Framework, the focus was more on making the market extremely safe, and fighting the stigma associated with securitisation. As a result, most measures that were introduced made the regulatory treatment of securitisation more conservative and aimed to primarily mitigate risks, rather than stimulate market development.

In light of several years of experience with the current rules and taking into account several recent high level political statements 18  that have highlighted the need to take additional measures to remove issuance and investment barriers in the EU securitisation market, this review aims to strike a better balance between safety and market development. Annex II provides for a detailed description of inputs received and positions of Member States, ESAs, ECB and other stakeholders.

Relaunching securitisation has also been recommended in the reports from Enrico Letta and Mario Draghi as a means of strengthening the lending capacity of European banks for the financing needs of EU priorities including defence, creating deeper capital markets, building the Savings and Investments Union and increasing the EU’s competitiveness. Finally, the need to accelerate work on all the measures developing banking and capital markets, including securitisation, was highlighted in the political guidelines of Commission President von der Leyen from July 2024, and reiterated in the mission letter to Commissioner Albuquerque. One issue, which is mentioned in the public debate, is the possibility of setting up securitisation platform(s), with various ideas being put forward on the possible characteristics and functions of such platforms (see Draghi report) 19 . Annex VI discusses the issues more in detail.

Increasing the competitiveness of the EU economy requires substantial investments for the green and digital transitions, and for funding our strategic priorities including the defence sector (see the Competitiveness Compass 20 for a more comprehensive list of the European Commission’s strategic priorities). By allowing banks to lend more, securitisation can contribute to the financing of these large investment needs. Securitisation is an additional tool to meet the financing needs of corporates and SMEs. Against this background, this impact assessment outlines the problems with the current framework based on the evaluation (Annex V), identifies areas for improvement, and explores reform options that could further enhance the EU's securitisation markets, ultimately contributing to a more resilient and integrated Savings and Investments Union.

2.Problem definition 

2.1 What are the problems and problem drivers?

As the evaluation (Annex V, section 4) has demonstrated, the current framework has served to make the EU securitisation market safer. At the same time, it has resulted in high operational costs for issuers and investors, and high prudential costs 21 for banks and insurers. Ultimately, these high costs constitute a regulatory failure, which disincentivises issuance and investment in the EU securitisation market. The evaluation shows that the specific objectives set out in the 2015 Impact Assessment (see below for a summary of this assessment) remain unmet or are only partially achieved. The Securitisation Framework has not been effective in reducing/eliminating unduly high operational costs (Problem 1 below), while it has been partially effective in removing (i) regulatory disadvantages for simple and transparent securitisations, and (ii) investor stigma. In addition, the evaluation and stakeholder feedback have identified undue prudential barriers that disincentive banks to issue and invest (Problem 2 below) and for insurers to invest (Problem 3 below) as two new problems that need to be addressed.

Table 1: Assessment of objectives from the 2015 Impact Assessment

2.1.1. Problem Tree

Figure 4 displays the problem tree, covering the three problems that were identified in the evaluation of the Securitisation Framework, as well as during the targeted consultation and in meetings with various stakeholders. They are described in the following sections, together with their problem drivers and related consequences.

The first problem groups together all issues related to the high operational costs faced by issuers and investors in the EU securitisation market. The second problem focuses on prudential factors that unduly disincentivise banks to issue or invest in securitisations. The third problem focuses on the prudential factors that act as an undue disincentive for insurers to invest in the EU securitisation market.

Figure 4:    Problem tree

External factors

Beyond the regulatory framework, there are external factors that affect financial institutions' decisions to issue and invest in the EU securitisation market. These include, among others, monetary policy, credit growth, and the availability of alternative funding sources like covered bonds. Evaluating the combined impact of these external factors on the development of the EU securitisation market since the GFC is challenging due to their interdependent nature—such as the interaction between monetary policy, credit growth, and the availability of alternative funding sources—and the significant variation in elements like credit growth and funding alternatives across different Member States. Although some of these factors were mentioned by stakeholders, they primarily focused on the impact of the regulatory framework on the securitisation market.

The impact of accommodative monetary policy on the EU securitisation market since the Global Financial Crisis is unclear. On the one hand, accommodative monetary policy (up until 2022) could have disincentivised banks to issue traditional securitisations as they had access to cheap funding alternatives: central bank funding, stable deposits and liquid EU covered bond markets 22 . On the other hand, the low-for-long interest rate environment could have incentivised banks to lend more, thus providing banks with more opportunities to transfer risk and increase their activity in the securitisation market 23 . Nevertheless, the low-interest rate environment was a common factor across many other economies and therefore may not explain on its own the slower pace of market development in the EU vis-a-vis other jurisdictions like the United States or Australia where this market has recorded much higher issuance as a percentage of GDP in the last 10 years (see Evaluation Section on Market Context for more details). 

Regarding credit growth, it is generally expected that higher credit growth would have a positive impact on securitisation activity. This is because, all else being equal, financial institutions need to fund their increasing loan portfolios and free up their balance sheets to facilitate further lending as demand for loans rises - and securitisation can fulfil both functions. Credit growth in the EU experienced varying trends since the GFC, so its impact on the market is ambiguous.

It is normal for market conditions to affect the attractiveness of financial instruments, including securitisation. Financial institutions should be able to select the instrument that best suits their needs, based on the prevailing market conditions. The objective of this initiative is therefore to focus on eliminating any unnecessary regulatory hurdles that may be holding back the securitisation market, so that financial institutions can access this tool whenever it is needed and are not constrained by undue regulatory burden.

Cross border securitisation activity is also impacted by the lack of harmonisation in regulatory frameworks outside of financial services, including insolvency 24 and taxation, which can create complexity and uncertainty for market participants trying to issue or invest in securitisations that pool assets from multiple jurisdictions. This limits the possible scale of the securitisations, as they are constrained by underlying loans structured along national legal requirements (typically mortgages).

Changes to the regulatory framework might modify incentives for issuers and investors but cannot guarantee on their own market growth. While regulatory changes can help scale up the securitisation market, market participants also have an essential role to play in developing standardised products that are more attractive to investors and facilitate the work for supervisors to approve securitisation issuances. For example, the ECB is currently developing a fast-track process for the supervisory assessment of the significant risk transfer in securitisation, in close dialogue with the European Banking Federation, which aims to substantially reduce the duration of the supervisory assessments for simple transactions meeting some requirements – this initiative is which expected to further stimulate the market 25 .

2.1.2. Problem 1: High operational costs for issuers and investors

The evaluation (see Annex V, section 4.1.3) highlights the existence of high operational costs arising from the application of the current Securitisation Framework for EU issuers and investors in securitisations, also in comparison to other asset classes. High operational costs disincentivise institutional investors 26 from investing in securitisations and prevent financial institutions from using securitisation to manage their credit risk, diversify exposures and obtain new funding. Overly burdensome and detailed transparency and due diligence requirements result in high operational costs that put EU issuers and EU investors at a competitive disadvantage relative to their international counterparts who are not subject to the same requirements. This makes entering the market particularly difficult. The current framework negatively impacts also non-EU issuers when they want to sell their securitisation to EU investors.

From a better regulation perspective, these costs link to “administrative burdens” 27 . We estimate that annual recurring operational or administrative costs currently amount to EUR 780 million for the financial market as a whole 28 . While these operational costs, may appear moderate when compared to the total market size, they accumulate annually. Apart from the annual recurring costs, one-off costs linked to the implementation of the SECR requirements represent a significant barrier to entry 29 ,Administrative hurdles therefore represent a significant obstacle for issuers and investors and have had a negative impact on the overall growth of the market.

The extent of burden reduction that can be achieved by simplifying or removing certain due diligence and transparency requirements should not undermine the policy goals of those requirements. Namely, there should remain sufficiently high levels of market transparency and investor protection to ensure that the EU securitisation market remains safe and supervisors should continue to have access to high-quality data.

2.1.2.1. Certain due diligence requirements are too prescriptive and disproportionate

Article 5 of the SECR outlines the due diligence requirements for EU institutional investors (see Annex V, section 4.1.3). It aims to ensure that EU investors conduct a thorough assessment of the risks associated with securitisation. Article 5 harmonises the due diligence requirements that were introduced by regulatory bodies in the aftermath of the GFC across various pieces of sectoral legislation governing banks, asset managers, etc. to address key lessons learned from the event. One critical takeaway from the crisis was the importance of a thorough risk assessment. Inadequate due diligence, in particular risk evaluation, led investors to unknowingly take on excessive risk, leaving them unprepared to absorb the significant losses that ultimately materialised. As a result, due diligence requirements aim to empower investors by ensuring that they are aware of the potential risks associated with their securitisation investments and are better equipped to manage those risks.

While Article 5 has helped to ensure that proper due diligence is carried out prior to investing and while holding a securitisation position, the current requirements go beyond what is needed to ensure investor protection and financial stability. The evaluation has shown that the requirements are overly prescriptive, duplicative and costly.

For example, in addition to carrying out a thorough assessment of the risks prior to holding a securitisation position, EU investors are required to verify that originators have complied with Securitisation Regulation Article 6 (risk retention), Article 7 (disclosure), Article 9 (credit granting criteria), and Articles 19 to 22 and 23 to 26 (STS criteria). These verification activities are unique to securitisation and are largely duplicative since EU supervisors are also required to check that EU originators comply with these requirements.

Moreover, stakeholders argue that the risk assessment required under Article 5(3) is not proportionate because it does not differentiate between different types of securitisation positions. For example, an investor in a AAA tranche has the same due diligence requirements as an investor in a first-loss tranche, even though the risk of the position is much lower for the senior tranche investor than the first-loss tranche investor.As a result, due diligence requirements constitute a significant entry barrier for new investors. Investors prefer to invest in other comparable products with less burdensome due diligence requirements (see Annex XII for a comparison of due diligence requirements for different financial instruments).

It is important to note that EU investors are subject to the same due diligence rules regardless of whether they invest in EU or non-EU securitisations, whereas non-EU investors in EU (or non-EU) securitisations are not bound by any of these requirements. As a result, due diligence requirements impact the level playing field to the detriment of EU investors when investing in securitisations vis-a-vis their non-EU peers.

2.1.2.2. Transparency requirements are not adapted to the needs of investors

The introduction of Article 7 of the SECR has improved market transparency in the EU securitisation market by ensuring that all investors and supervisors have equal access to all relevant information about the securitisation transaction. However, the evaluation (see Section 4) highlights several challenges. Meeting the Article 7 transparency requirements implies a significant compliance burden on issuers, with costs exceeding those for other comparable structured finance instruments (see Annex XII). This is confirmed by the feedback provided by market participants to the recent targeted consultation. A key factor driving these excessive costs is the broad scope and prescriptive nature of the transparency rules. Despite the extensive disclosure rules, the information provided does not always align with investor needs, making compliance with the disclosure requirements both costly and inefficient. As a result, the overall cost of issuance has increased, discouraging securitisation activity in the EU market.

Applying a one-size-fits-all approach is challenging given the diversity of securitisation types. In particular for private securitisations, the current disclosure framework 30 does not sufficiently account for the fact that these are typically bilateral and bespoke transactions where investors have specific information needs for their due diligence assessment. As a result, the current templates often provide information that is not useful for investors in private transactions. At the same time, the fact that investors in private transactions have specific information needs means that the prescribed templates sometimes do not meet the specific requirements of some investors and credit rating agencies. This means that originators of private securitisations often need to disclose additional information beyond Article 7 requirements, further increasing complexity and costs. As regards public securitisations, stakeholders report that the current templates provide too much information, include elements that are of limited use to investors.

2.1.3. Problem 2: Undue prudential barriers for banks to issue securitisations

The evaluation (Annex V, section 4.1) shows that existing prudential (capital and liquidity) rules act as a disincentive for banks to issue securitisations (or invest in the senior tranches of good quality securitisations). Bank capital requirements set out in the CRR are insufficiently risk sensitive and overly conservative, resulting in unduly high levels of capital requirements that banks need to comply with for their securitisation exposures. Based on ESAs estimates, the revised securitisation prudential framework has led to significant increases in banks’ capital requirements for securitisation exposures (+114% for bank originators, +77% for bank sponsors and +105% for bank investors across the market, with large variations in the impact depending on the composition of the tranches held), compared to the previous regime. Senior tranches of securitisations have experienced an increase of more than 100% in capital requirements, while mezzanine tranches have experienced an even greater increase of capital requirement, with a median increase of 281%. On average, the required capital for securitisations is approximately double the capital required for the capitalisation of the underlying pool of non-securitised assets. 

These significant increases fail to accurately recognise the important risk mitigants implemented in the EU securitisation regulatory and supervisory frameworks which have significantly reduced the agency and model risks embedded in securitisation transactions, as well as the good credit performance of EU securitisations. The model and agency risks have been reduced in recent years, notably with the introduction of STS criteria, the multi-year Targeted Review of Internal Models by the SSM, the multi-year IRB Repair programme by the EBA, the introduction of the output floor in the banking package, the risk retention requirement, and the banning of re-securitisations. As regards the credit performance, default rates of EU securitisations have been significantly lower than those of US securitisations. Also, very few senior tranches of EU securitisations have ever suffered any losses. Data over a 30-year time period show that the default risk and ratings transitions of European securitisations across tranches rated AAA to BB are commensurate with default and ratings transitions data for other fixed income asset classes, such as European corporate bonds or global sovereign bonds, rated the same level, reflecting the strong credit performance of securitisations.

The evaluation therefore assesses the adequacy of the capital requirements from two dimensions. First, the risk mitigation measures that reduce the ‘agency’ and ‘model’ risks of securitisation transactions should be recognised in the requirements, where appropriate. Second, as supported by data on default rates, the structural credit performance of EU securitisations has been very good over the past 20+ years.

These two dimensions, reinforced with examples provided in the evaluation, demonstrate that the current capital requirements for banks are disproportionate and go beyond what is necessary to ensure a proper and prudent capitalisation of the securitisations by banks. While the presence of non-neutrality of securitisation capital requirements – as one of the main defining elements of the securitisation capital framework for banks - is justified, the magnitude of the non-neutrality seems no longer 31 . In addition, there are significant discrepancies in the capital requirements for securitisations among banks using different approaches applicable to their calculation (in particular the standardised approaches, used by small-to-medium sized banks, are too conservative, resulting in overly conservative capital requirements in absolute terms as well as relative to capital requirements under the internal ratings-based approaches, used by large banks).

The issue of insufficient risk sensitivity limits the attractiveness of securitisation: securitisations are seen as too ‘expensive’ which limits their use as a credit risk and balance sheet management tool for banks. Consequently, the lack of risk sensitivity acts as a prudential impediment that disincentivises EU banks from engaging in the EU securitisation market. Overall, the securitisation capital requirements currently represent only 1.5% of the EU banks’ total risk-weighted asset volume (EBA, as of December 2024). Also, small-to-medium sized banks are not participating in the securitisation transactions.

The fact that banks cannot easily issue (originate) securitisations in the EU is an important issue because banks play a critical role in the financing of the EU economy and limiting securitisation issuance ultimately limits banks’ ability to lend more to the real economy. Banks are natural users of securitisation transactions for their funding, capital, and credit risk management practices. As shown in Figure 5 below, EU banks are primarily originators (i.e. issuers) and, to a smaller extent, sponsors of securitisations, whereas in other jurisdictions banks are primarily investors 32 . Therefore, barriers to banks’ origination (i.e. issuance) of securitisation might have a disproportionately high impact in the EU relative to other jurisdictions. The current prudential set-up does not allow banks to maximise the potential that securitisation can provide for their funding, capital and credit management strategies, and which could be beneficial for the EU economy as a whole.

Figure 5: Banks’ role in securitisation (exposure measure)

Source: BCBS Dashboard

As shown in the evaluation, existing bank capital requirements fail to reflect the robust credit performance of the EU securitisation market over the last years and decades. The EU-issued securitisation market’s resilience has now been tested through multiple economic and financial cycles and periods of stress, including the GFC, the euro area sovereign debt crisis, the COVID-19 pandemic, the aftermath of the Russian invasion of Ukraine, and during the 2023 banking turmoil. This suggests that the good credit performance of the EU-issued securitisation market is of a structural, rather than cyclical, nature.

Besides the level of capital conservativeness, the evaluation has shed light on a number of additional issues related to the framework for SRT embedded in the CRR and the liquidity treatment of securitisations embedded in the LCR, which pose barriers for the banks’ participation in the securitisation market. The rules governing the SRT 33  have several structural limitations which may impede a transfer of risk in some transactions. In addition, the rules have in some instances led to excessively costly and complex supervisory processes and inconsistent supervisory assessments of individual securitisation transactions. This has constrained banks in their capacity to issue securitisation and to use it as a capital optimisation tool and risk transfer tool.

In addition, the narrowness of the eligibility rules for securitisation in the banks’ liquidity buffers under the LCR has reduced demand by bank treasuries for senior tranches of publicly offered STS traditional securitisations and lowered the level of diversification in the LCR liquidity buffer. This has reduced banks’ investments in these high quality securitisations and has limited banks’ contribution to the securitisation market liquidity.

All in all, the existing framework reduces the attractiveness of securitisation as an effective instrument to address banks’ funding needs, manage capital and balance sheets, and redistribute risks across the wider financial system. The assessment calls for greater confidence in the quality and resilience of well-regulated and supervised securitisation transactions and puts forward the reduction of undue prudential barriers for banks as originators or investors as a new objective.

2.1.4. Problem 3: Undue prudential costs for insurers to invest in the EU securitisation market

The evaluation (Annex V, section 4.1.2.2., sub-section b) shows that the existing prudential rules for insurers result in high prudential costs that act as a disincentive to invest in the EU securitisation market.

Insurance companies are subject to SII which regulates how much capital insurers should set aside to cater for the risks arising from their investment activities. While larger insurers generally use their own modelling of risks (‘internal model’) which is more tailored to the specificities of their risk profile, smaller insurers use the so-called ‘standard formula’ which clearly prescribes capital requirements on investments. Insurers using an internal model are relatively free to determine how to assess market and credit risks (subject to prior supervisory approval). Market data confirms that internal model insurers invest more than twice as much in securitisation as those using the standard formula. Insurance companies which use the standard formula have no discretion when it comes to computing capital requirements. In general, standard formula capital requirements for securitisation are higher (slightly higher for senior STS securitisation, significantly higher for non-STS securitisation) than those applicable to other fixed income securities such as corporate bonds.

SII capital charges for non-STS securitisation investments are generally deemed ‘punitive’ by financial stakeholders. To illustrate the problem more concretely, investing in a non-STS securitisation would likely require an insurer to fund more than half of the value of the investment with capital. The evaluation provides several pieces of evidence supporting that the prudential treatment for non-STS securitisation, which dates back from 2013, is overly conservative. For example, under SII, it is more costly to invest in the best rated senior tranches of non-STS securitisation (which would imply an amount of capital exceeding in general 50% of the investment amount) than in riskier asset classes like unlisted equities or in equities from emerging markets, and this raises issues of coherence. This finding also holds when comparing with the capital requirements that are applicable to insurers using their own internal model.

In addition, the capital charges for securitisation under SII are not sufficiently risk sensitive. The framework assigns the same capital charge for all non-STS transactions, regardless of their seniority. This means that insurers are required to hold the same amount of capital whether they invest in a risky first-loss tranche or whether they invest in the most senior protected tranche in a non-STS transaction. All else equal, this lack of risk sensitivity incentivises insurers to invest in the most complex and most junior assets to obtain a higher return since the prudential cost of such investments would be the same as the one applicable to more senior and less complex non-STS securitisations with the same rating. Ultimately, such risk seeking behaviour could endanger policyholder protection by lowering the risk-bearing capacity of insurers.

Such elements demonstrate that the current insurance capital requirements for non-STS securitisation goes beyond what is strictly necessary to ensure financial stability.

Unlike for banks where STS capital charges are still an issue, for insurers the core problem is the non-STS segment of securitisation. The current capital requirements on senior tranches of STS securitisations are very close to those applicable to corporate bonds. Therefore, it is difficult to claim that prudential rules play a major role in the limited level of insurers’ investments in senior tranches of STS securitisations 34 . In fact, insurers’ investments in senior tranches of STS securitisations represent only 6% of total investments in securitisation. As for non-senior tranches of STS securitisations, the evaluation concludes that they are usually largely oversubscribed by various types of investors (i.e. much more demand than supply) and the capital requirements under Solvency II are coherent with those applicable under banking rules.

The evaluation also identified factors other than undue prudential rules which can discourage insurers from investing in securitisation. According to EIOPA’s 2022 advice on securitisation 35  insurers typically focus on the ‘financial risk / return profile’ of an investment (and not the ‘prudential cost / return profile’). Their investment strategies prioritise asset-liability management, particularly for insurance products with long-term liabilities and fixed cash flows. This applies not only to life insurers but also to many non-life insurers offering liability insurance. To manage risk, insurers may favour long-term, fixed-rate investments that protect them from fluctuations in interest rates and irregular cash inflows, both of which could weaken their capital position. The perceived complexity of securitisation as an asset class which requires extensive due diligence is another relevant factor.

There is however evidence that these factors should not be overstated. A Bank of America paper, drawing on market research, presents long-term data on investment portfolios of EU and US insurers and concludes that EU insurers were more active in the securitisation market before the Global Financial Crisis, which suggests that they saw value in these investments 36 . Moreover, US insurers are still significantly investing in securitisation, particularly for long-term annuity products with regular cash outflows - securitisation represents on average 15% of their investment portfolio 37 . In addition, all consultation activities reported in Annex II point to both the willingness of insurers to ramp up their participation in the securitisation market and the hurdles generated by prudential rules. This contradicts the statement that securitisation is not appropriate to match long-term liabilities.

2.2. What are the consequences? How likely is the problem to persist?

The problems outlined in Section 2.1 have resulted in a relatively small and unduly constrained EU securitisation market. High operational costs, driven by complexity, as well as due diligence and transparency costs, create a barrier for new issuers and investors to enter the market. As a result, only a limited number of issuers and investors that can afford these costs continue to operate. This limited investor base leads to fewer transactions, resulting in low market liquidity, which disincentivises issuers from using securitisation. In turn, limited supply makes the securitisation market unattractive for new investors to come in. Furthermore, as the prudential requirements associated with securitisation continue to be higher than those of other asset classes, prudentially regulated financial institutions are disinclined to issue or invest in securitisations.

Together, these high operational and prudential requirements reduce the competitiveness of the actors in the EU securitisation market. Financial institutions, businesses and households therefore do not fully reap the benefits that securitisation could offer in terms of risk diversification, capital market development and additional lending.

In the absence of regulatory action, it is difficult to envisage a change in the issuance and investment behaviour of financial institutions. In general, issuers and investors will continue to prefer financial instruments with lower operational and regulatory requirements. Banks’ current strong preference for alternative, lower-cost instruments, such as covered bonds, is unlikely to change, and the issuance of traditional securitisation will likely remain subdued.

The continued operation of the EU securitisation market below its full potential represents a missed opportunity for Europe for funding strategic priorities and deepening the EU's capital markets. This, in turn, hinders the efficient financing of EU businesses and households. In addition, the securitisation market's potential to expand the universe of investable securities for institutional investors is not being fully utilised, ultimately limiting the depth and development of EU capital markets.

Investment needs will continue to grow, driven by digitalisation, decarbonisation, and defence spending. To meet these demands, the EU's investment-to-GDP ratio will need to return to levels last seen in the 1960s and 1970s. To meet the objectives set out in the Draghi report: “[T]he financing needs required for the EU to meet its objectives are massive, but productive investment is weak despite ample private savings. A minimum annual additional investment of EUR 750 to 800 billion is needed, based on the latest Commission estimates, corresponding to 4.4-4.7% of EU GDP in 2023” 38 .

The benefits of securitisation, such as increased funding and capital market development, depend on how financial institutions choose to utilise the benefits brought by the instrument. A bank may use the additional balance sheet capacity gained through securitisation to increase lending, and deepen the capital market, or it may retain them for other purposes. Ultimately, this decision lies with the issuing bank. Regulation should not dictate a specific outcome. That being said, lending to the real economy is a core business of banks and a key driver of their profits. Therefore, it is reasonable to assume that, all else being equal, a well-functioning securitisation market will incentivise banks to increase their lending to the real economy.

Quantifying the exact impact on the real economy from releasing bank capital through securitisation is, however, a challenging task. One respondent to the targeted consultation estimated that every EUR 10 bn risk-weighted assets that banks can securitise, rather than keep on their balance sheet, allows them to provide additional lending of EUR 15-20 bn. There are also several studies that show that there is a positive relationship between banks’ released capital and loan supply. For instance, one study 39 provides evidence that banks' use of capital buffers can benefit both the real economy and banks themselves, without a negative impact on the banks’ resilience. Capital buffers are extra capital that banks hold above the minimum regulatory requirements and include buffers which are designed to be released at times of economic adversity. Banks’ willingness to use the capital buffers increases lending and GDP and lowers credit losses. The study shows that, in stressed scenarios, a broad-based use of capital buffers could increase lending to the real economy by more than 3%, and GDP by over 0.5%.

All in all, the goal of the regulatory framework is not to limit the choices of issuers to a particular outcome, but rather to remove obstacles that might hinder the use of securitisation in its various applications. A more accessible securitisation market offers financial institutions enhanced opportunities to increase the financing capacity for key EU initiatives. Conversely, a failure to address the above shortcomings is likely to perpetuate and perhaps even aggravate the problems and barriers outlined in Section 2.

3.Why should the EU act?

3.1. Legal basis

The regulatory requirements for the Securitisation Framework are already set at EU level. Consequently, the legal basis for the review will remain the same as the legal basis of the original legislative acts, namely Article 114 TFEU for SECR, Articles 111(1)(c) and 135(2) of the SII Directive empowering the Commission to adopt delegated acts on the prudential treatment of investments, including securitisation, Article 114 TFEU for the CRR and Article 460 of CRR for the LCR Delegated Regulation.

3.2. Subsidiarity: Necessity of EU action and Added value of EU action

The purpose of the review is to make the EU Securitisation Framework less burdensome, more principles-based, more proportionate and more risk-sensitive. In particular, the review examines certain provisions on due diligence, transparency and prudential (capital and liquidity) requirements. Only action at EU level can ensure that going forward, these regulatory provisions are applied uniformly and guarantee the existence of the well-established regulatory framework regarding the taking up and the pursuit of securitisation-related activity, including issuance and investment, across the Single Market.

The ability of Member States to adopt national measures is limited, given that the existing EU Securitisation Framework, already provides for a harmonised set of rules at EU level and that changes at national level would conflict with Union law currently in force.

4.Objectives: What is to be achieved?

4.1. General objectives

The general objective of the Securitisation Framework, as expressed in the impact assessment of 2015 accompanying the Commission’s proposal was: “to revive a safer securitisation market that will improve the financing of the EU economy, weakening the link between banks’ deleveraging needs and credit tightening in the short run, and creating a more balanced and stable funding structure of the EU economy in the long run.” The evaluation (Annex V, section 5) finds that this general objective has been only partially achieved because while the securitisation market is safer, the initiative has not been sufficient to revive the market or improve financing opportunities. Indeed, most of the measures that were introduced in the current framework aimed first and foremost to mitigate potential risks associated with securitisation, rather than support market development. Going forward, the objective is to strike a better balance between safety and market development. For this reason, most of the policy options presented below focus on developing further the EU securitisation market by making the framework more proportionate and risk-sensitive. This is the main difference with the approach taken in the 2015 Impact Assessment where safety was the main focus.

Addressing the unattained objective of reviving the securitisation market will contribute to creating a more balanced and stable funding structure to increase the available financing for the EU economy. The achievement of this general objective requires the pursuit of several more specific policy objectives, such as transparency requirements for issuers, due diligence obligations for investors, and prudential requirements.

This initiative does not seek to achieve a specific target for the size or growth of the securitisation market, also not in comparison taking as reference the situation in other jurisdictions. Instead, it focuses on creating an ‘enabling framework’ by removing regulatory barriers, allowing the market to develop in a more sustainable and resilient way without the risks of rigid issuance targets. Comparing the EU securitisation market to those in other regions can be misleading due to key differences in regulatory frameworks, particularities of financial markets, historical developments and structural characteristics 40 . Using other markets as a benchmark may overlook these important differences, leading to inaccurate conclusions or ineffective policy decisions. Each market has its unique characteristics and challenges requiring bespoke analysis and approaches.

Last but not least, the objective focuses on removing undue barriers, instead of channelling funds for a specific purpose (i.e. allowing for bank capital relief only on the condition that they provide additional lending for specific purposes or to specific sectors of the economy). Prudential regulation is designed to ensure the stability of banks, insurers and the financial system, and to ensure an appropriate reflection of risks through proper capitalisation. Prudential regulation is not intended to serve as an instrument to promote the development of specific industries or branches of economic activity (for example tax policy – outside the scope of this initiative – is better suited for supporting specific sectors, activities, or purposes but tax policy is outside the scope of this initiative).

Introducing a conditions-based system is also technically very complex and challenging and would require in depth monitoring and compliance, which could deter banks from engaging in the securitisation activities to prevent charges for potential non-compliance. Introducing a conditions-based system is also technically very complex and challenging and would require in depth monitoring and compliance, which could deter banks from engaging in the securitisation activities to prevent charges for potential non-compliance. Setting up such a monitoring system would also require additional reporting, which would run against the idea of reducing the burden for market participants.

Overall, introducing such conditionality in the banks’ prudential framework could prove to be counterproductive and could negatively impact the effectiveness of the current initiative, in the end potentially defeating its primary objective. Considering the above, the current initiative does not aim to stimulate or impose constraints on banks’ specific activities but focuses instead on economic incentives through removing undue prudential and non-prudential barriers. Also, naturally, the more risk sensitive and better calibrated framework will impact different types of securitisations differently. For example, a more risk sensitive prudential framework should make securitisations of low risk assets more attractive, as these would receive a better capital treatment.

Overall, it is by means of a more risk-sensitive, more proportionate and better calibrated framework, that we aim to create conditions and environment for greater lending to the real economy. A well-functioning securitisation market will incentivise banks to be more active in the market ultimately also making them lend more to the economy.

4.2. Specific objectives

The following specific objectives aim to address the three problems identified in Section 2:

·Reduce undue operational costs for issuers and investors balancing with robust and proportionate standards of transparency, investor protection and supervision (linked to problem 1).

·Adjust the prudential framework to better account for actual risks and remove undue prudential barriers for banks and insurers when issuing and investing in securitisations while at the same time safeguarding financial stability and consumer protection (linked to problem 2 and 3).

5.What are the available policy options?

5.1. What is the baseline from which options are assessed?

In the baseline scenario, the current EU rules on securitisation would remain unchanged.

In terms of non-prudential regulation, the SECR would continue to require investors to carry out a costly due diligence process. Similarly, it would continue to impose high costs for issuers to disclose when issuing a securitisation. As explained in the Evaluation, this translates into high operational costs (currently estimated annual recurring administrative costs of about EUR 780 million) that will continue to act as a deterrent for issuers and investors to be present on this market. The scope of the STS standard would remain unchanged in terms of the applicable qualifying criteria as well as the types of securitisations that it applies to. Other important requirements (which this initiative does not consider modifying), that require issuers to retain a share of the risk, to apply adequate credit granting criteria and that limit complexity by banning re-securitisations would continue to apply. We do not expect the number of market participants to increase, and it is possible that their number may decrease, with activity shifting to other markets with more favourable regulatory treatment.

In terms of the prudential regulation, there would be no change to the current framework determining the amount of capital that banks and insurers should set aside for the securitisation positions they hold. While the framework would continue to differentiate between the capital treatment of STS and non-STS securitisations (allowing lower capital for STS securitisation compared to non-STS securitisation), the capital requirements would continue to be overly conservative and not sufficiently sensitive to reduced risk levels that have been observed in the post-crisis period.

The rules governing the transfer of risk through securitisation (so-called ‘Significant Risk Transfer’ framework) would continue to feature some structural deficiencies and be accompanied with lengthy supervisory processes. In addition, there would be no change to the current strict rules on eligibility of securitisations as high-quality liquid assets for the calculation of banks’ liquidity coverage ratio, and banks would continue to be disincentivised to use the securitisations to diversify their liquidity buffers. As explained in section 2.3 where we discuss in detail the consequences of the current framework and its problems, the baseline scenario is not expected to achieve the objectives of the Securitisation Framework, will discourage the use of securitisation and will not allow securitisation to contribute to the development of the SIU.

The impact of external factors on the development of the market in the absence of regulatory changes is uncertain (see section 2 for a more detailed explanation). In its monetary policy statement on 17 April 2025 , the ECB lowered the three key ECB interest rates by 25 basis points, easing financial conditions in the euro area. They explain that while the euro area has been building resilience to global shocks, the outlook remains uncertain due to rising trade tensions which can negatively affect confidence among households and firms. This heightened level of uncertainty can suppress investment and consumption, and thus negatively affect securitisation activity.

5.2. Description of the policy options

Figure 6: Overview of policy options

All the options that are presented require legislative changes. Options 1.1 and 1.2 require amending the Securitisation Regulation. Options 2.1, and 2.2 require amending the Capital Requirements Regulation and the Liquidity Coverage Ratio Delegated Regulation. Options 3.1, 3.2, and 3.3. require amending the Solvency II Delegated Regulation.

5.2.1. Measures to reduce high operational costs

Two options are considered to reduce high operational costs for issuers and investors in the EU securitisation market (Problem 1). Even though reducing high operational costs was also an objective in the previous impact assessment, the approach taken to achieve this objective in this impact assessment is not the same as before. While the previous impact assessment tried to reduce operational costs by putting all requirements in one legal framework, this impact assessment focuses on simplifying burdensome requirements as much as possible while respecting the principles behind their introduction.

Option 1.1 is based on the idea that the current due diligence and transparency framework for securitisation is generally sound but can be refined through targeted adjustments. By contrast, option 1.2 is based on the premise that existing measures to ensure market transparency and investor scrutiny are ill-suited to improve the situation in the securitisation market meaningfully. It therefore proposes a more fundamental change by eliminating specific due diligence requirements for securitisations and making disclosure to investors principles-based. These two distinct approaches were reflected in the responses to our targeted consultation, with some stakeholders advocating for tweaks to the existing framework and others arguing for more significant changes.

5.2.1.1. Option 1.1. Targeted measures to reduce high operational costs

Option 1.1 seeks to reduce operational costs for both issuers and investors by simplifying and removing certain due diligence and transparency requirements. This option would maintain the same level of market transparency, investor protection, and data quality for supervision, while reducing costs.

For investors, operational costs would be reduced by simplifying those current due diligence requirements that are deemed redundant or overly prescriptive. This would include: (1) removing all verification requirements in Article 5(1) and 5(3)(c) of the Securitisation Regulation where the responsible sell-side party is established and supervised in the EU 42 , (2) allowing for a tailored risk assessment depending on the type of securitisation position (i.e. less intensive due diligence for low risk tranches and repeat transactions), and (3) give investors in secondary market transactions (where a securitised tranche already held by one investor is sold to another investor) more time to document their due diligence. As EU competent authorities can enforce the Securitisation Framework on EU issuers, but not on non-EU entities, verification requirements would continue to apply to non-EU securitisations. For the same reason, investors would be required to verify transactions issued by unsupervised EU entities.

For issuers, operational costs would be reduced by optimising the transparency framework. The disclosure templates for public transactions would be streamlined to reduce the number of obligatory data fields. This means carefully scrutinising the existing disclosure templates and removing fields that provide limited benefit to investors. To safeguard market transparency, the definition of public securitisations would be widened to capture e.g. transactions that do not involve issuing a prospectus but are admitted to trading. Under this option, private transactions would be required to report to securitisation repositories, using a simplified template. This would improve supervisory monitoring and market transparency. However, to maintain the confidentiality of private transactions, data from these transactions would not be publicly disclosed.

This approach would remove redundant and burdensome requirements, allowing for more tailored due diligence, while maintaining high standards of risk assessment and market transparency.

5.2.1.2. Option 1.2. Significant measures to reduce high operational costs

Option 1.2 comprises a broader set of measures to yield a more significant reduction in operational costs. This approach would introduce a more substantial change to the current framework that would entail accepting greater risks in terms of investor protection, market transparency and quality of supervision.

Under this option, mandatory securitisation-specific due diligence requirements would be removed for regulated investors (banks, insurers, UCITS and AIFMs), thus eliminating additional operational requirements and costs for regulated investors imposed by the SECR. This would not relieve regulated investors of the need to carry out due diligence, since the due diligence requirements under their respective sectoral legislations would still apply. In essence, removing the specific due diligence regime for securitisation transactions would mean that requirements for securitisations would be the same as for all other asset classes. Investors that do not have due diligence requirements under their own sectoral legislations would still be required to apply those requirements set out in the SECR.

For issuers, under this option transparency requirements would become principles based. The SECR would only specify the key information principles that securitisation disclosures should abide by. Instead of prescribing Commission-specified disclosure templates applicable to all securitisations, the method for disclosing information to investors and potential investors would be left to the discretion of market participants. A simplified reporting template would be retained for all transactions (private and public), for supervisory purposes only. As in Option 1.1, private transactions would also be required to report to securitisation repositories providing a safeguard for market transparency.

5.2.2. Measures to reduce undue prudential barriers for banks

Two options are considered to address Problem 2. It is important to note that unlike the previous impact assessment that proposed to increase capital requirements across the board for all securitisations, the current impact assessment proposes to reduce these requirements for securitisations for which risks have been mitigated in the post-crisis period. As such, the approach taken in the previous impact assessment is different from the one taken now. The reason being that while the primary focus of the previous impact assessment was on making the market safer, the current impact assessment tries to strike a better balance between safety and market development.

5.2.2.1. Option 2.1 Targeted changes to the existing prudential (capital and liquidity) framework for banks

Option 2.1 entails introduction of targeted changes to the existing prudential (capital and liquidity) requirements applied to banks. It contains a set of measures that require amendments to both CRR and LCR.

Targeted changes to the CRR would ensure that:

·banks can calculate the minimum capital they need to hold for their securitisation exposures in a more risk sensitive manner, meaning that the amount of capital could be adapted/reduced for securitisations where crucial risks driving the capital needs, such as agency and model risks, are mitigated, as evidenced in the evaluation; and

·the framework used by supervisors for assessing the transactions and endorsing the capital relief (the SRT Framework) is clearer, more robust and results in more efficient and coherent processes.

Targeted changes to the LCR would address inconsistencies in the existing requirements that securitisations need to comply with, to be eligible for inclusion in the banks’ liquidity buffer (while maintaining the existing scope of eligible securitisations, limited to senior tranches of STS traditional securitisations only).

The overall aim of option 2.1 is to reduce the main undue barriers for banks’ issuance of securitisations stemming from the existing banking prudential rules, without resorting to a significant restructuring of the framework as a whole and limiting the scope of divergences from the international Basel standards. It focuses on those elements of the prudential framework that are assessed to have the most prominent effect on achievement of the above goal.

5.2.2.2. Option 2.2. Radical overhaul of the exiting prudential (capital and liquidity) framework for banks

Option 2.2 entails a set of measures that introduce a fundamental reorganisation of the current framework, specifically:

•Re-design of the existing capital framework, resulting in introducing entirely new formulas and methods that banks would need to follow when calculating capital for their securitisation exposures;

•Removal of the existing complex requirements for supervisors to check securitisation transactions and to endorse the capital relief (resulting in banks merely self-assessing their securitisations, without the need for checks by supervisors);

•Significant relaxation of the requirements that securitisations need to comply with to be eligible for inclusion in banks’ liquidity buffers, including extension of the scope of eligible securitisations for liquidity buffer purposes also to (senior tranches) of non-STS traditional securitisations.

The overall aim of option 2.2. is to significantly reduce the barriers for banks’ issuance of securitisation, by means of substantial restructuring of the existing rules and loosening a number of existing requirements. The option 2.2. would result in material divergences from the international Basel standards.

5.2.3. Measures to remove undue prudential costs for insurers to invest in the EU securitisation market

In order to remove the existing disincentives for insurers to invest in the EU securitisation market, three options are presented, all of which propose to reduce capital requirements for insurers. This would be done by amendments to the Solvency II Delegated Regulation 43 . The first and second option focus on non-STS securitisations only, while the third option applies to all securitisation transactions. In the context of this review, one may question whether such continued focus on reducing capital requirements is justified, considering the moderate effect of the previous attempt to reduce capital requirements for STS securitisations (even if we still noted an increase of more than 50% in such investments between 2019 and 2023). Our assessment – as outlined in the evaluation – leads us to conclude that reducing capital requirements (in particular on non-STS securitisations) can help change insurers’ investment behaviour for the following reasons:

•There is evidence that insurers using an internal model – which results in general in lower capital requirements than under the standard formula – invest more than twice as much in securitisation than companies using the standard formula. While other factors can explain such a situation – in particular the average size of insurers using an internal model is larger than the average size of standard formula insurers – there are also very large standard formula insurers (for instance, insurance subsidiaries of large banking groups use the standard formula) which still invest negligible amounts in securitisation. Therefore, the comparison implies that it cannot be precluded that capital requirements do play a role in insurers’ investment decisions;

•In all consultation activities conducted by Commission services a majority view from stakeholders has been that capital requirements under Solvency II are perceived as an obstacle to investments in securitisations despite an appetite to increase exposure to this asset class;

•Capital charges in the previous framework for simple and transparent securitisation were high, but not as high as the current capital charges for non-STS securitisations. As a result, the impact of reducing capital charges for non-STS securitisations is likely to be more significant than the one already observed for STS after the last initiative.

•Non-STS securitisations represent a bigger share of the EU securitisation market. Consequently, decreasing capital charges for these types of securitisations will have a broader and more substantial impact on the market in absolute amounts.

5.2.3.1. Option 3.1. Removing prudential barriers to investments in all non-STS securitisations

Under option 3.1, non-STS capital requirements would be decreased, removing the excessive level of prudence embedded in the current framework. The decrease in risk factors could be between 25% and 40% depending on the credit rating. By reducing the cost of investing in non-STS securitisation, this option would make investments in non-STS securitisation more attractive than under current rules.

5.2.3.2. Option 3.2. Improving risk sensitivity and removing prudential barriers to investments in the safest tranches of non-STS securitisation

Under option 3.2, capital requirements on non-STS securitisation would be made more risk sensitive by differentiating between senior and non-senior tranches, as is the case for STS securitisation. The calibration approach would aim at some consistency with the banking calibrations.

The level of capital requirements for non-senior tranches would remain broadly in line with the current capital charges applicable to non-STS securitisation, whereas the capital requirements for senior tranches would be reduced by a factor of up to 5 depending on the credit rating of the senior tranche 44 . Reducing the capital requirements applicable to senior tranches of non-STS securitisation would remove the existing prudential disincentives to investments in this market segment.

5.2.3.3. Option 3.3. Overhauling the prudential treatment of securitisation in order to make all securitisation investments relatively more ‘attractive’ than under current rules

Under option 3.3, the framework for securitisation (STS and non-STS) would be overhauled to lower all capital requirements for securitisations. Stakeholder responses to the targeted consultation argued that the very low default probability of securitisation justifies lower capital requirements across the board. However, under the current rules, capital requirements for insurers capture spread risk (i.e. the exposure to volatility in market price of securitisation investments), which can be driven by several factors 45 , only one of which being default risk. Option 3.3 would therefore change the current framework to focus only on default risk. Since default risk is in essence a subset of spread risk, this overhaul would imply a significant reduction in risk factors (by up to 80% depending on the securitisation type and rating 46 ) for all (STS and non-STS) securitisation investments.

5.3. Options discarded at an early stage

The identified options in the previous section have been defined based on stakeholder feedback received through our consultation, as well as our own evaluation of the framework. All the presented options are realistic and comprise elements of changes proposed by stakeholders. We did not assess extreme options that would risk compromising market integrity and financial stability, like strong deviations from the international Basel agreement. 

Regarding operational costs and banking prudential requirements, the options considered in the previous section cover the full spectrum of possible plausible options to address the problems identified. For each of the three problems, both ‘targeted’ and ‘more radical’ options are listed.

Regarding insurance prudential requirements, it was decided to discard the possibility to increase the granularity of the STS category by introducing a dedicated prudential treatment for ‘mezzanine’ tranches. First, the evaluation shows that there is limited evidence that amending the prudential treatment of STS securitisation is an urgent need in view of the oversubscription of non-senior STS issuances 47 . In addition, this would add significant complexity (how to define ‘mezzanine’ in an objective manner, and set out harmonised characteristics in terms of tranche thickness) and inconsistency with banking rules where there is no explicit treatment for mezzanine tranches.

6.What are the impacts of the policy options and how do they compare?

6.1. Measures to reduce high operational costs

6.1.1. Option 1.1 Targeted measures reduce high operational costs

6.1.1.1. Benefits

Simplifying the due diligence requirements, as outlined in option 1.1, would substantially lower the additional costs imposed by the SECR on investors by eliminating the verification requirements for regulated investors when investing in securitisations originated by entities subject to supervision in the EU. Verification requirements were consistently cited by investors as a key driver of the costs imposed by the SECR.

Removing the requirement for investors to verify that an STS securitisation complies with the STS criteria would reduce the due diligence cost for investing in such transactions. This is expected to increase the price that investors would be willing to pay for an STS securitisation, thereby increasing the attractiveness of using the STS label for issuers. Even though investors would no longer be checking that a transaction complies with the STS criteria, the integrity of the label is not undermined as supervisors would still be checking this as is currently required under the Securitisation Regulation. Moreover, originators and sponsors are liable for sanctions in case they misleadingly or erroneously label a transaction as STS and they can also rely on the services of external third-party verifiers of STS compliance.

In addition, making the risk assessment principles-based would ensure that investors still analyse the key structural features and risk characteristics of a securitisation transaction while at the same time providing them with sufficient flexibility to look at those structural features and risk characteristics that are most relevant for the type of transaction they wish to invest in. This would be beneficial for investors that primarily invest in low-risk senior positions, allowing them to carry out a lighter and more targeted risk assessment than for investors that invest in high-risk first loss tranches 48 . 

Finally, simplified requirements for repeat securitisations 49 would incentivise standardisation, as it would be less costly to invest in a series of transactions with similar characteristics issued by the same originator. Simplified requirements for secondary market transactions would make it easier to invest in the secondary market 50 , thereby increasing market liquidity.

At the moment, stakeholder feedback suggests that the additional burden imposed by the due diligence requirements in the SECR is the highest for a AAA-rated tranche with a repeat issuer in the secondary market. According to market perceptions, the due diligence costs for these transactions are up to 75% higher than what would be incurred in the regular course of business (without the requirements imposed by the SECR). On the other hand, due diligence for a new issuer is estimated to be only approx. 33% higher due to the due diligence requirements imposed by the SECR 51 . This finding shows a lack of risk sensitivity in the current framework that needs to be remedied in order to reduce costs. On average, based on information received from stakeholders we estimate a savings potential of about 44% 52 .

Due to the duplicative or redundant nature of the provisions that are proposed to be removed, no negative impacts can be expected on the ability of investors to analyse the risks of individual transactions, as well as on the possible emergence of macro financial stability risks in the securitisation market.

In the area of transparency, option 1.1 would improve the current reporting burden by reducing the number of obligatory data fields, in particular those that are redundant or that refer to the information that is unavailable or irrelevant for the particular type of securitisation. The impact of this measure might vary for different types of securitisations, depending on the number of fields that would be removed. It might be possible to achieve a higher reduction in certain templates in comparison to others, without compromising investor protection. For example, the disclosure costs for issuers of private securitisations would be significantly reduced by introducing a dedicated, simplified disclosure template for this type of deals. Both private and public securitisations would benefit from option 1.1 as it would reduce the current reporting requirements and potentially allow to securitise assets, for which certain data was uneconomical to collect.

Most respondents, however, did not specify by how much option 1.1 would reduce costs, as this would depend on the concrete details of the change that were not presented in the high-level-description in the stakeholder consultation. Of the few replies received to this question, most respondents spoke of a “minor” or “moderate” expected reduction of their total costs. This is due to the fact that established issuers already incurred the bulk of the costs in the past during the implementation of the required templates. A reduction in one-off costs will, however, be very relevant for new players that are considering entering the securitisation market and that currently would not do so due to the very high one-off costs. Respondents also estimate a reduction of annual recurring reporting costs between 15%-25% (full range with an average of 22,5%), which will be partly offset by the estimated additional costs of approximately 7 million that would result from the reporting of private transactions to securitisation repositories. 53

Furthermore, lower one-off costs would benefit all types of new issuers entering the market by making it less costly, in comparison to the baseline, to set up the reporting framework.

In widening the legal definition for public securitisations, option 1.1 would support overall market transparency, as fewer transactions would qualify as private and be eligible to use the simplified reporting regime. Moreover, removing the current exemption that allows private securitisations to avoid reporting to securitisation repositories, would facilitate the ability of supervisors to monitor the private side of the securitisation market, and thus reduce supervisory costs for this part of the market. Therefore, option 1.1 is also expected to benefit supervision as supervisors would obtain access to data for the entire securitisation market, both public and private, via the securitisation repositories.

Overall, the changes proposed to the due diligence and transparency requirements are estimated to result in EUR 310 million of cost savings per year for the EU securitisation market.

6.1.1.2. Costs

While option 1.1 is expected to have a positive impact on investors' recurring due diligence costs, there will be a trade-off in terms of the cost of supervisory efforts. Adopting a more principles-based approach to risk assessment may require supervisors to dedicate more time and resources to understanding investors' risk management practices. Moreover, removing the verification requirements for investors may require supervisors to dedicate more resources to supervise the compliance of issuers with the sell-side requirements (risk retention, transparency, credit granting standards). Option 1.1 could also result in more divergent supervisory approaches. For this reason, it may be useful to develop supervisory guidance and enhance cooperation to ensure that option 1.1 does not result in an uneven playing field.

Option 1.1 would imply one-off adjustment costs for all existing issuers due to having to adapt to new disclosure templates.

There was no sufficient evidence in the stakeholder consultation on the one-off implementation efforts to adapt to a simplified reporting as proposed in option 1.1 as stakeholders could not assess the costs without detailed and concrete proposal listing all the required data fields. However, one securitisation repository provided an estimate of their adjustment costs for the described adaptation to be about EUR 50,000-70,000. If we take this reply as a rough estimate with a conservative margin, we estimate the adaptation costs to EUR 100,000 per issuer (assuming that existing data fields are re-used to a maximum extent) and that approx. 330 active issuers in the market incur the same cost on average (there will be smaller players operating without IT infrastructure and larger players with more complex IT systems and changes), we obtain one-off implementation costs of EUR 33 million for the market as a whole.

On the one hand, private issuers will benefit from the simplified reporting template and therefore will face lower recurring reporting costs compared to the baseline 54 . On the other hand, private issuers will face additional recurring costs resulting from the obligation to report to securitisation repositories. Based on the current fees charged by securitisation repositories, those costs are less than EUR 10,000 per year per transaction 55 . For an estimated number of 700 outstanding private transactions, this amounts to about EUR 7 million annually. 56

6.1.1.3. Overall assessment: Effectiveness, efficiency and coherence

Option 1.1 will lower the recurring costs investors face when complying with the due diligence requirements in the SECR. However, the impact would not be the same for all types of securitisations. Recurring due diligence costs for EU issued securitisations would be reduced to a greater extent than for non-EU securitisations. This would be an acceptable outcome because EU transactions are supervised according to the SECR, whereas this is not the case for transactions issued outside of the EU.

At the same time, option 1.1 would not significantly change the risk assessment that an investor needs to carry out in order to invest in a securitisation. Therefore, this option would result in the same level of investor protection as the baseline.

As regards issuers, option 1.1 will reduce operational costs by reducing the amount of information that issuers are required to disclose. The long-term impact of reducing annual recurring costs will be more than sufficient to offset the impact of the one-off costs that need to be incurred by issuers to adapt to the revised type of reporting. This option is also expected to facilitate market entry as it would entail lower one-off costs for new issuers compared to the baseline.

Option 1.1 will improve market transparency relative to the baseline as a higher share of securitisations will be expected to report to securitisation repositories.

The overall impact on the cost of supervision is expected to be neutral as the need for more oversight over compliance with due diligence would be offset by lower need for resources to supervise disclosure.

Option 1.1 would continue to be coherent with the rest of the Securitisation Framework (i.e. ‘internal coherence’), as well as with other pieces of financial legislation and with international standards (i.e. ‘external coherence’).

6.1.1.4. Stakeholders’ views

In general, both the industry and the supervisors support option 1.1. Many respondents to the targeted consultation indicated that implementing option 1.1 could be expected to result in higher securitisation issuance, thereby contributing to the general objective.

Option 1.1 was preferred by many respondents under the condition that it would mean keeping the structure of the current templates that are already implemented while introducing flexibility by using the “no-data-option – ND” more extensively. For very granular transactions, i.e. transactions pooling thousands of underlying exposures such as credit card receivables, removing the requirement of loan-by-loan reporting and instead allowing for aggregate reporting could also be considered. Flexibility of the required format 57 and allowing the inclusion of additional data would also be welcomed by certain issuers to better meet the needs of investors. Some respondents pointed also to further reporting with similar content, e.g. securitisation reporting required by the ECB or national competent authorities. Alignment and data sharing between authorities could have beneficial effects for the reporting entities.

Regarding the removal of STS verification, some supervisors argue that this should be contingent on introducing supervision requirements for STS third-party verifiers (TPVs) 58 , whereas the industry seems to think that TPVs are already supervised under the SECR. Removing verification requirements, and in particular STS verification, is the main ask from stakeholders in the area of due diligence.

Regarding transparency, issuers warn that requiring private securitisations to report to the securitisation repositories would increase compliance costs for those transactions, which runs contrary to the policy goal of burden reduction. Moreover, stakeholders warn that disclosure requirements for private securitisations should take into account confidentiality and data breach risks.

Option 1.1 would not negatively affect financial stability. In terms of disclosure, option 1.1 still requires enough information about the characteristics and performance of the underlying exposure and the structural features of the transaction to be disclosed to investors so they can carry out a proper risk assessment. Regarding due diligence, option 1.1 still requires investors to meaningfully assess the risks associated with securitisation. Supervisors are still expected to pay close attention to the activities of the securitisation parties.

6.1.2. Option 1.2: Significant measures to reduce high operational costs

6.1.2.1 Benefits

Option 1.2 would remove all operational costs (recurring plus one-off) associated with the due diligence requirements in the SECR for EU regulated investors that go beyond the usual course of business and what would be required by their respective sectoral regulations in the absence of Art. 5 SECR. According to stakeholder feedback, the one-off costs to set up an investment business that would invest in securitisations, associated with the implementation of existing due diligence requirements only, are about EUR 130,000 per entity. If the existing due diligence requirements no longer apply, those costs and time-investment would no longer have to be incurred by new market entrants, which would facilitate market entry.

This would not exempt EU investors from conducting due diligence when investing in securitisations, but it would eliminate the need for investors to comply with due diligence requirements stipulated in the SECR on top of the due diligence requirements outlined in their respective sectoral legislations. In practice, investors would still need to adhere to the due diligence standards specific to their sector, just as they are required to do so when investing in other financial instruments. Investors that do not have due diligence provisions within their own sectoral legislations would still have to apply the due diligence requirements in the SECR.

The main beneficiaries from such an approach would be those investors for which the existing due diligence requirements result in an additional effort on top of their regular due diligence process. According to the result from the targeted consultation, the costs added by the due diligence requirements in the SECR vary significantly depending on the type of respondent. Some large and experienced asset managers report additional costs as low as 0%. This is the case because they already carried out similar due diligence procedures as those required under the SECR before its entry into force. For other small, regulated institutional investors that carry out different due diligence procedures than those stipulated under the SECR or for other new market entrants option 1.2 could, however, potentially save a significant amount of administrative costs.

In addition to reducing costs, option 1.2 would also lead to a level playing field between securitisations and other financial instruments that are not subject to additional specific due diligence requirements. In turn, this would incentivise EU investors to invest more in securitisations. One may reasonably expect that greater investor interest in securitisations would be followed by the emergence of a wider and more diverse securitisation offer (greater issuance), thus supporting the role of securitisation in funding the EU’s economy (see introduction section for a more detailed explanation of what securitisation is and how it can support the EU economy). This option would also benefit new EU regulated investors as it will not be necessary for them set up dedicated processes to comply with the existing due diligence requirements in the SECR.

Option 1.2 would reduce operational costs for all issuers relative to the baseline scenario. The reduction will impact start-up costs in particular, as this approach would give issuers the flexibility to customize their disclosures for each specific deal rather than having to abide by a prescribed disclosure template and format. This is expected to be less costly than the current one-size-fits-all approach, which is often reported to fail to meet the specific characteristics of securitisation transactions and unique investor needs.

Option 1.2 would not require issuers to disclose information that investors find superfluous and that they do not use when making investment decisions. Overall, this streamlined approach should make the disclosure process more straightforward and useful to certain market participants, while not adversely impacting the reporting of information necessary for supervisory purposes.

At the same time, by requiring all securitisations (public and private) to report to securitisation repositories with a single supervisory template, market transparency would be enhanced in comparison to the baseline scenario where only public transactions are obliged to report to repositories. This would allow investors, supervisors and market analysts to get a better view of the market, lowering information asymmetry, enhancing price formation and supporting the further development of the EU securitisation market.

6.1.2.2. Costs

With regard to due diligence, no significant adjustment costs are expected under option 1.2. As for supervisory costs, the impact is likely to be neutral as regards securitisations issued by EU entities as supervisors are already responsible for overseeing due diligence rules in sectoral legislation.

In the area of transparency, option 1.2 would imply some adjustment costs for existing issuers as they would have to adapt their reporting systems. These costs should be comparable to option 1.1 as the new template would build on the existing reporting requirements only with significantly fewer mandatory data fields than the current set of templates.

As regards supervisors, the reduced reliance on standardised reporting for investors would make it more costly to ensure that issuers disclose sufficient information to investors. Moreover, due diligence costs might increase as a result of option 1.2 for transparency, as investors would have less readily available information on other deals, besides the one they are directly investing in.

6.1.2.3. Overall assessment: Effectiveness, efficiency and coherence

Option 1.2 would be the most effective in reducing operational costs for all issuers and investors relative to the baseline scenario.

With regard to due diligence, however, there is a risk that this option would be incoherent with international standards, in particular with respect to the recommendation by the Financial Stability Forum (later succeeded by Financial Stability Board), to ensure stronger requirements for investors’ processes for investment in structured products 59 . In addition, reducing due diligence standards too much might also facilitate investments by inexperienced investors who might not be capable of assessing comprehensively the relevant risks of the transaction, which could put financial stability at risk.  

Regarding transparency, the reduction in recurring costs is expected to be comparable with that achieved by option 1.1. Disclosure will still be required, but the regulation will rely on the best efforts of issuers subject to market control (if investors are not happy with the disclosure, they will not invest). The primary beneficiaries would be new issuers, who would not be burdened with high one-off costs to set up the reporting framework required in the baseline scenario.

Supervisory control is improved from the baseline as private securitisations would also report to the securitisation repositories, but not to the same level as in option 1.1, as the disclosure templates will provide less information (at least for “public” securitisations).

Overall market transparency should be sufficient but may decrease from the baseline because: i) disclosure from issuers to investors may not always be visible to the entire market, ii) data would no longer be available for public transactions in a uniform and standardised format, and iii) the information disclosed via repositories will be limited.

Although Option 1.2 is more ambitious than Option 1.1, it would not lower requirements to such an extent that financial stability could be at risk. In terms of disclosure, Option 1.2 still requires enough information about the characteristics and performance of the underlying exposure and the structural features of the transaction to be disclosed to investors so they can carry out a proper risk assessment. Moreover, even if securitisation specific due diligence rules are eliminated under Option 1.2, investors will still be required to meaningfully assess the risks associated with securitisation in line with their own sectoral legislation.6.1.2.4. Stakeholder views

Regarding transparency, there is no support from supervisors for option 1.2. Some industry participants are supportive of this option, but most prefer option 1.1 (45 respondents preferred option 1.1, 12 respondents preferred option 1.2, 3 respondents did not want any changes to the current regime and 43 respondents did not answer). Many industry stakeholders warned that it is difficult to estimate the potential savings that Option 1.2 might bring. One large market player pointed out that “if the overall volume of data does not change or if data is difficult to obtain and/or highly complex …, the cost reduction could be lower than expected”.

Regarding due diligence, option 1.2 was not explicitly discussed with either market participants or supervisors. However, from the consultation responses, it appears that some industry participants think that due diligence requirements in sectoral legislation are sufficient and that specific due diligence requirements for securitisation in addition to sectoral due diligence requirements are not needed. Although option 1.2 was not explicitly discussed with supervisors, based on previous discussions on this topic, we expect that they would not favour this option since most of them seem to support the idea of having additional due diligence requirements for securitisations.

6.1.2.5. Summary

Comparative presentation of the impacts of Option 1.1 and Option 1.2.

Legend: +++ = Very positive ++ = Positive + = Slightly positive +/- = Mixed effect 0 = no effect - = Slightly negative -- = Negative --- = very negative

Impacts on stakeholder groups

Legend:     +++ = Very positive     ++ = Positive    + = Slightly positive    +/- = Mixed effect        0 = no effect    - = Slightly negative    -- = Negative         --- = very negative

Note: the summary provided in the table on ‘impacts on stakeholder groups’ is a net result of the pluses and minuses in each cell.

6.2. Measures to reduce undue prudential barriers for banks

6.2.1. Option 2.1: Targeted changes to the existing prudential (capital and liquidity) framework for banks

Option 2.1 entails targeted amendments towards a more risk-sensitive design of banks’ capital and liquidity requirements, in the CRR and in the LCR Delegated Act, where undue requirements would be limited.

The targeted changes to the CRR aim to achieve the following objectives: (i) introduce more risk sensitivity into the framework, while supporting financial stability; (ii) reduce unjustified levels of conservatism and capital non-neutrality; (iii) mitigate undue discrepancies between the standardised and internal rating-based approaches for the calculation of capital requirements for securitisation, which should also encourage greater participation of medium-sized banks; (iv) differentiate the prudential treatment for originators/sponsors of securitisations and investors; and (v) make the significant risk transfer framework more robust and predictable. This is achieved through targeted changes to the securitisation capital framework, and to the significant risk framework, in the CRR. The targeted changes to the securitisation capital framework are focused on the above mentioned two elements that have the most significant and direct impact on the capital requirements: the risk weight floor for the senior tranches and the (p) factor.

The proposed changes (and capital reductions in percentage changes) are targeted on (i) the senior tranches, where the exposures of banks are concentrated and where there is space to reduce the excessive conservativeness (the focus is less on the riskier junior and mezzanine tranches); (ii) on originator positions where agency and model risks are reduced (rather than investor positions); (iii) on STS securitisations where the STS requirements largely mitigated the agency and model risks (rather than non-STS securitisations). This focus behind the changes (i.e. away from banks investing in non-STS or away from relaxing the prudential treatment for the more risky tranches) is also consistent and in line with the objective to transfer the risk outside of the banking system towards those that may be better placed to bear those risks.

With respect to the risk weight floors for senior tranches, the current framework is not risk-sensitive, as it allows only for two risk weight floors for senior tranches (a 10% risk weight floor for STS transactions, and a 15% risk weight floor for non-STS transactions). Under this option, the risk weight floors are made risk sensitive: they are made proportional to the riskiness of the underlying securitised portfolio. A lower risk weight floor is calculated for securitisations of assets that are deemed less risky (i.e. that have relatively low risk weights), such as residential mortgages or SME and corporate exposures, in comparison to securitisations of riskier assets. To prevent excessive reductions, the risk weight floors calculated under this risk-sensitive formula will be subject to pre-defined minimum levels.

Moreover, building on the proposals in the 2022 Joint Committee Report, the concept of ‘resilient securitisations’ is introduced: securitisations which feature reduced agency and model risk, and which comply with a set of safeguards 61 that ensure the resilience of the transactions and the protection of the senior tranche. These transactions would benefit from a lower risk weight floor and lower (p) factor for the senior tranche, compared to non-resilient transactions. The resilient transactions safeguards are adjusted compared to the 2022 Report, to capture a larger part of the securitisation market, while still ensuring prudent results.

With respect to the (p) factor, under the standardised approach (SEC-SA), targeted changes are introduced to the (p) factor to address an excessively punitive capital treatment, for senior tranches. Under the internal rating-based approach (SEC-IRBA), formula-outcome scaling factors and floors to the (p) factor are lowered and caps are introduced, in particular for senior tranches.

As regards the significant risk framework, the proposed changes aim to make the framework more robust by replacing the current prescriptive tests for assessing the amount of risk transferred in securitisation, which is a precondition for the bank to benefit from the capital relief through securitisation, by the Principle Based Approach (PBA) test, as proposed by EBA in 2020. The PBA test addresses the limitations of the current tests which fail to ensure the transfer of risk to third parties in some cases, and specifically aims at the transfer of the unexpected losses of the securitised portfolio. Supervisors would maintain the flexibility to adapt supervisory assessments of transactions with complex features. The main elements of the SRT assessment and the broad design of the test would be defined in the CRR. EBA would be mandated to deliver technical standards which would operationalise the technical details of the test and would set high level principles for the supervisory process, including for a fast-track process for simpler transactions.

Before proceeding to analysis of impacts, it should also be clarified that the impact of the proposed changes to the capital and liquidity for securitisation for banks on their issuance and investment behaviour differs based on the type of securitisation transaction (i.e. whether it concerns traditional or synthetic securitisation) and the role of the bank in the securitisation transaction (i.e. whether the bank originates the transaction or invests in it). These particularities have been taken into account when designing the measures under each option and when assessing their impact on the securitisation market.

The main objective of synthetic securitisation is capital and credit risk management, as banks sell and transfer out risk and achieve SRT to achieve capital relief. The originator bank normally retains the senior tranche and sells the mezzanine tranche which contains higher risk, to achieve SRT. Banks are not investing in synthetic securitisations. Securitisation prudential rules have therefore direct impact on synthetic securitisations.

On the other hand, traditional securitisations are issued mostly for funding purposes i.e. to get access to cash/funds. This is achieved by selling senior tranches (hence, contrary to synthetic transactions, here the senior tranche is sold and is no longer capitalised). 62  Banks are important investors in the senior tranches of traditional securitisations, as the latter are eligible for their LCR liquidity buffers. Overall, in the case of traditional securitisations, the securitisation prudential rules mostly impact banks that invest in the senior tranches. The treatment of these securitisations under the LCR is considered to be the more important driver for banks’ investments in these securitisations.

The securitisation rules in the CRR apply to bank originators (i.e. to the exposures they retain in the securitisation they have originated – subject to the condition that significant risk transfer is achieved), bank sponsors (i.e. to tranches they sponsor) as well as to bank investors (i.e. to the tranches they have bought).

6.2.1.1. Benefits

Option 2.1 would make the capital requirements for banks’ securitisation exposures more risk-sensitive by reducing the amount of capital that banks are required to hold for securitisations where key risks driving the securitisation capital needs, such as agency and model risks, have been mitigated. These risks are lower, for example, from the perspective of an originator (who has more detailed knowledge and control over the underlying exposures and the securitisation origination process than an investor), or in case of STS transactions (because STS criteria largely mitigate the agency and model risks).

Revising the capital framework in a risk-sensitive manner is expected to reduce excessive overcapitalisation by better aligning the capital treatment with the underlying risks. Targeted revisions would also mitigate undue discrepancies in the capital requirements for different banks using different approaches for the calculation of their securitisation capital requirements (concretely, more coherence would be introduced between more sophisticated internal approaches and less sophisticated standardised approaches).

The proposed revisions are expected to have a positive impact on market developments, as follows:

·They should lead to an increase in issuance by banks of securitisations which achieve SRT, as a more favourable prudential treatment is expected to increase the attractiveness of securitisation as a tool for risk sharing purposes. The changes should affect mostly synthetic securitisations (which are primarily structured for SRT purposes), but it should also encourage issuance of traditional securitisations which are done for SRT purposes and where senior tranches are sold to the market.

·More banks could decide to issue, notably less sophisticated banks using the standardised approach might have better incentives to enter the market as issuers. In 2024, over 70 banks issued securitisation that achieved SRT; this number is expected to increase.

·The measures should also positively impact banks’ investments in senior tranches of STS traditional securitisations (acknowledging that the liquidity treatment of these securitisations in the LCR has a more pronounced effect on the attractiveness of the banks to invest in these securitisation). Currently, in the primary market, according to market estimates, the oversubscription for senior tranches has been on average 1.5/1.7 of investor per senior tranche on average in 2024; this number is expected to increase.

While the reduction of the capital requirements for individual securitisation transactions is expected to be potentially significant, the overall impact on the capital of banks would be quite limited, because of the very small weight of securitisation exposures in their total exposures. Indeed, the risk-weighted assets corresponding to banks’ securitisation positions currently represents only 1.5% of the banks’ total risk-weighted assets (according to EBA, as of December 2024).

As regards the use of traditional securitisation for funding purposes, the total outstanding securitisation funding represented 0.4% of EU banks’ total balance sheet as of December 2023 (compared to 63.1% of funding coming from deposits and 5.4% coming from covered bonds, for example). This means that on aggregate traditional securitisation is very scarcely used as a source of banks’ funding, although it could be an important funding instrument for some banks. It is expected that the measures under option 2.1 will increase this share but the overall impact on banks’ funding mix would likely not be substantial.

On the impact of the proposed measures, based on informal checks with supervisors and indicative figures covering a sample of anonymised existing SRT securitisations, the reductions of the risk weight floors and (p) factors are expected to result in reductions of capital requirements for senior tranches by approximately one third, on average. These estimates should be interpreted with caution as they are subject to a number of caveats (as explained below).

The measures are expected to reduce the levels of capital required for securitisation, but still in a prudent way. The overall amount of capital for securitisation would always be approximately at least 20% higher compared to the capital of the underlying exposures, based on the principle of non-neutrality and prudence (as the (p) factor would never be lower than 0.2, even for the least risky transactions).

Respondents to the consultation provided unverifiable estimates of the impact of changes to the securitisation framework on additional lending. One respondent wrote that every EUR 10 bn of risk-weighted assets that banks can securitise, rather than keep on their balance sheet, allows banks to provide additional lending of EUR 15-20 bn 63 . Another respondent suggests that 71% of the capital released or funding generated by SRT securitisations is currently used for further lending to the EU economy; and that this percentage would likely increase with the proposed measures. 

All these quantitative estimates should however be interpreted with caution. There is significant uncertainty in all the estimates and in modelling the outcomes of the proposed measures in general, as estimates rely on several assumptions and they have the following main limitations:

·First and foremost, static and mechanistic comparisons are limited as they do not allow to take into account the behavioural changes or the modification in the structuring of the products themselves, which makes comparability and achieving reliable and accurate estimates difficult. This is especially relevant for securitisations, where banks structure the securitisation transactions according to the applicable regulation (and hence banks would structure securitisation transactions differently under two different regulatory regimes).  

·Second, it is difficult to quantify the amount of capital that would be relieved from the banking system altogether, as there are various external variables that come into play, such as the overall number of issuer banks, the number of investors and the overall volume of issued securitisation transactions, which are difficult to predict as they also depend on wider macro-economic and interest rate environments etc.  

·Third, the quantification is complicated by the fact that it assesses the impact of a series of measures including several parameters, rather than a single measure and a single parameter (i.e. even if one could provide an estimate of the impact of the changes to the floor parameters – and this is already subject to a number of limitations as mentioned above – it is impossible to provide a reasonable quantitative estimation of the combined effect of the measures);  

·Fourth, the impact also depends on response to the incentives set by the prudential treatment for originators and investors, which are more difficult to quantify. The overall amount of released capital depends also on the impact of the SRT framework and the SRT rules on the overall issuance, which are also expected to change, under the Option 2.1. A decisive factor in this respect is also the complexity of the securitisation structures that banks might decide to use: if banks have simple standardised structures, this might ease the life of investors and supervisors and provide more relief overall thanks to the increased number of issuances, compared to individual more complex issuances which might provide more benefits only if seen in isolation. 

Taking all the above into account, the most important impact of option 2.1 is therefore qualitative, and that is that it would make the use of securitisation more attractive as a tool for risk transfer and capital relief, with smaller transaction costs (related to due diligence and transparency) and a broader investor base.

The measures under option 2.1 will help banks achieving capital relief in a more efficient way – i.e. they will allow banks to achieve the same amount of capital relief by selling less risk, or they will allow banks to increase the capital relief for the same amount of risk transferred – while still ensuring prudent levels of capital.

The estimates are even more complicated in the context of the introduction of the output floor, which will progressively change the incentives for banks to move out exposures from their balance sheet (and in a way that differs individually from bank to bank).

With respect to significant risk transfer, the proposed changes would address the structural flaws of the current SRT framework. For example, a number of transactions can pass the existing tests even though they may not necessarily transfer a sufficient amount of risk in economic terms in all cases. This structural flaw may result in a weakening of the capital position of the bank since the capital relief that is obtained is not justified from an economic perspective. The replacement of the existing tests with a new test would allow to address identified flaws and would ensure that a significant risk transfer effectively occurs, so that the capital relief achieved by the originator through that securitisation transaction is justified. This is not expected to result in increased number of supervisory objections to the SRT for specific transactions; rather, the aim is to ensure that the rules that supervisors follow when assessing the transactions before the SRT validations are clearer and more solid where possible.

In addition, the efficiency of the process of the SRT supervisory assessments would be enhanced by providing some harmonised high-level principles, allowing for a simpler and quicker supervisory assessment process for simple transactions.

The proposed changes to the SRT framework would increase the reliability and predictability of the SRT assessments, while ensuring the efficiency of the process, as well as the supervisory discretion to decide on the prudent treatment of transactions. The proposed changes are expected to result in increased market volumes and efficiencies when transferring risks from banks’ balance sheets to existing and new investors, freeing up banks’ lending capacities. All in all, an enhanced SRT framework would be beneficial for all stakeholders (originators, investors and supervisors) and for both traditional and synthetic transactions.

With respect to the liquidity treatment, targeted revisions to the liquidity framework would address some inconsistencies in the current eligibility conditions. These targeted changes would strengthen the incentives for banks to invest in publicly traded STS traditional securitisations, which would have a positive impact on the market liquidity and volume of these securitisations. It would thus deepen this segment of the securitisation market and diversify banks’ liquidity buffers and risk profiles.

6.2.1.2. Costs

By design, making the capital requirements for securitisation more risk-sensitive will reduce the amount of capital that banks hold against their securitisation exposures in some cases, but the overall level of capitalisation is expected to remain prudent and proportionate to the associated risks. Banks may incur some minor implementation costs from implementing the proposed changes, as they would need to implement limited targeted changes to their existing methods for capital requirements calculation. However, these implementation costs are expected to be lower in comparison to the benefits (i.e. estimated funding cost savings stemming from reduced capital requirements). Overall, as the measures do not propose a fundamental overhaul of the methods that banks use for the calculation of capital, they rather involve an adaptation of existing parameters and make the framework more risk sensitive - the costs will be limited and are not considered as a topic of concern by the banking industry.

Changing the SRT framework may result in implementation costs for supervisors to adapt their supervisory methodologies to the existing framework. However, the SSM, the major EU supervisor which assesses almost all SRT transactions in the EU, already incorporates a number of the proposed requirements in their supervisory assessments and processes, which should significantly mitigate the implementation costs of the proposed changes. Implementation costs may be higher for other supervisors which do not incorporate such requirements in their practice (non-SSM or non-Euro area). On the other hand, improving efficiency of SRT supervisory processes should lead to reduction of the ongoing supervisory costs.

Making the Framework more robust would necessarily mean that some of the new SRT tests may be stricter for some transactions. Increasing the robustness and solidity of the SRT framework is, however, a necessary condition to accompany the proposed changes in the capital treatment and ensure trust in the securitisation market. The proposed changes should simplify the processes associated with these supervisory assessments, reducing the overall administrative burden for both banks and supervisors.

6.2.1.3. Overall assessment: Effectiveness, efficiency and coherence 

Option 2.1 is expected to be effective in reducing undue prudential barriers for banks to issue securitisation. It is also expected to increase the risk sensitivity of the framework and economic viability of securitisation as a risk transfer tool. By mitigating some of the key barriers to entry for new EU banks, option 2.1 would make securitisation more accessible to a larger number of banks across the EU.

Overall, it is expected to give rise to a relatively moderate increase in securitisation issuance and investments by banks active in the market, in particular of simple and resilient securitisations. It is also expected to result in the entrance of new banks in the market, in particular medium-sized banks or banks in Member States with no active issuance to date.

The measures are expected to mainly increase the issuance of synthetic securitisations, but to a lesser extent also of traditional securitisations that are placed in the market (as these will become less capital and cost intensive), thus providing the bank originators with increased liquidity for lending and increased lending capacity. 64 They are also expected to increase the role of banks as investors in the senior tranches of these placed securitisations. This would help strengthen the EU banking system’s ability to provide credit to the economy and to refinance new businesses.

The measures are also expected to increase the share of securitisations in the banks’ liquidity buffers and increase the diversification of banks’ liquidity buffers. 

However, the intervention itself cannot ensure significant market growth, and the active role of market participants will be crucial as well (as noted above).  

Overall, measures under option 2.1 would support the development of the securitisation market and increase the competitiveness of the banking sector. However, they are not expected to result in an undercapitalisation of securitisation related risks or to jeopardise financial stability, and hence should maintain prudence and soundness as regards banks’ exposures to securitisation. The guiding principle is that prudential requirements are made more risk-sensitive, which in turn is actually expected to support financial stability (a risk-insensitive one-size-fits-all approach would imply that requirements are either too high or too low, relative to the actual underlying risk). This means that capital requirements will be reduced for transactions which are deemed less risky (i.e. with less risky securitised portfolios which have relatively low risk weights), while capital requirements will be increased for transactions which are deemed more risky (i.e. with more risky securitised portfolios). In addition, the SRT rules for assessing the amounts of risk transferred would be made more thorough and robust and liquidity buffers would be more diversified.

The proposed targeted changes do not represent a trade-off between the banks’ competitiveness and financial stability, as the changes aim to maintain capital requirements at a prudent level and concern a specific and narrow area of prudential regulation only (risk-weighted assets corresponding to EU banks’ securitisations currently represent only 1.5% of the EU banks’ total risk-weighted assets). The proposed changes reduce the capital surcharge for securitisations, taking into account that securitisations have suffered very low losses and defaults in the last decades, and that a number of important risk mitigants have been introduced in the EU regulatory and supervisory framework. The EBA’s advice has been taken on board in designing the measures, and the concerns as regards potential undercapitalisation have been taken into account in the design and calibration of the individual measures proposed.

It should be acknowledged that financial stability risks cannot be reliably quantified, and that there is no precise level of capital requirements below which financial stability is jeopardised and above which financial stability is safeguarded. At the same time, all in all, making prudential requirements more risk-sensitive should promote financial stability.

With respect to the risk weight floor, specifically, increasing the risk sensitivity of the existing capital framework through targeted reductions to the risk weight floors has been a central recommendation by the EBA. In their analysis, the EBA fully acknowledged the reduced model and agency risk associated with some types of transactions (i.e. tranches retained by originators) and proposed that the reduced risks should be recognised through lower risk weigh floors for these types of transactions, when accompanied by a set of safeguards ensuring their resilience. Option 2.1 goes further and introduces a new risk-sensitive formula for the calculation of the risk weight floor, extends the scope of the reduction of the risk weight floors to other specific types of securitisations, which also have reduced model and agency risks (such as STS securitisations) and adjusts the safeguards to make them more workable for the existing securitisation market.

With respect to the (p) factor, the EBA has not recommended to reduce the (p) factor, as this could lead to cliff effects (i.e. situation where small changes in the (p) factor result in large changes in the capital requirements and steep differences between capital requirements for different tranches) - due to the intrinsic nature and limitations of the existing formulas for the calculation of capital; and as this could result in undercapitalisation of banks’ exposures to mezzanine securitisation tranches in particular. To take these concerns into account, Option 2.1 limits the changes to the (p) factor to specific types of transactions only, where agency and model risks have been reduced by means of a series of regulatory and supervisory measures, also considering the solid credit performance of the EU originated securitisation market. Also, as the reductions of the (p) factor would be minimal, it would limit the cliff effects (i.e. it would limit the risk of excessive differences between the capital requirements for various tranches) and the resulting amount of capital would still be kept at sufficiently prudent levels, including for the mezzanine tranches.

Option 2.1 is coherent with the recent political statements, including by the European Council, which have highlighted the need to take measures to remove issuance and investment barriers in the EU securitisation market and which have called to look at the prudential treatment of securitisation for banks in particular.

With respect to the aspect of consistency with international standards, it should be noted that all potential changes to the prudential framework would result in a certain level of deviation from the international standards. The measures under option 1 aim to limit these deviations and maintain a high level of international consistency. Given that the materiality of the deviations from the Basel standards would be limited, we believe the proposal under option 2.1. remains largely consistent and coherent. The proposals have a targeted scope, aim to ensure a positive impact on the EU securitisation market going forward, and to support the international competitiveness of EU banks.

The proposed targeted changes, when compared to the current provisions, are expected to reduce the capital requirements in particular for less risky, robust and resilient securitisation, but are not expected to give rise to prudential concerns. They aim to correct the current overcapitalisation stemming from the current framework, which is based on best-effort calibrations rather than empirical evidence.

6.2.1.4. Stakeholders’ views

The targeted amendments towards a more risk-sensitive design of banks’ capital and liquidity requirements (option 2.1) will be welcomed by banks acting as issuers and investors as this proposal will reduce excessive conservatism in the Framework and address some of the main undesired effects. Its targeted nature may be criticised as not being ambitious enough to make the EU securitisation market sufficiently attractive. Banks have been calling for more substantial long-term amendments to revive securitisation activity.

In the consultation, a significant majority of financial industry representatives considered that the current capital framework gives rise to an undue overcapitalisation of securitisation exposures (33 respondents agree, 0 disagree, 9 have no opinion and 65 provided no answer) and they generally called for comprehensive reductions of the capital parameters. As regards the liquidity framework, a large majority of stakeholders (44 out of 131, 78 did not respond and 9 had no opinion) called for amendments to the eligibility criteria applied to securitisations eligible to the buffer for high quality liquid assets under the LCR.

With respect to the SRT rules, the respondents generally support regulatory harmonisation of rules and supervisory convergence at the EU level. With respect to the tests applied to securitisations, industry generally agrees with the conditions of the tests and do not see a need to make them more robust, although they are not opposed to targeted changes (23 agree, 19 disagree, 11 have no opinion and 78 do not answer). Supervisors on the other hand believe it is necessary to increase the robustness of the framework, in line with the EBA reports, and support the measures proposed.  

As the proposed amendments increase the risk-sensitivity of the Framework, are targeted, take into account the main prudential concerns raised by supervisors as regards the risk from banks’ exposures to securitisation, and do not constitute a major adjustment to the Basel standard, option 2.1 should constitute a pragmatic and balanced proposal.

6.2.2. Option 2.2: Radical overhaul of the existing prudential (capital and liquidity) framework for banks

Option 2.2 entails a radical overhaul of the existing prudential (capital and liquidity) framework, that results in material changes to the way capital requirements are calculated and assessed by supervisors and to the eligibility of securitisations under the liquidity framework. It contains a set of far-reaching yet conceivable policy measures that have been debated between different kinds of stakeholders. It aims to correct an undue bias towards conservativeness and overcapitalisation introduced in the previous framework, which has been detrimental to the banks’ involvement in the securitisation market.

Option 2.2 considers radical changes to three aspects of the framework: the capital framework, the SRT framework and the liquidity framework.

First, this option entails a fundamental re-design of the existing capital framework (i.e. the formulas used for the calculation of capital requirements), which would result in completely new methods for the calculation of capital requirements across securitisation tranches. Two alternatives that could be considered are the replacement of the current risk weight design with an ’inverted S-curve’ function, and the introduction of a scaling parameter to scale the KA downwards, as also analysed by the EBA. 65  

Second, option 2.2 also removes the existing core legal requirements for the significant risk transfer, notably the existing quantitative criteria/tests for achievement of capital relief, and the requirements for supervisory checks and approvals. Option 2.2 effectively results in banks self-assessing their securitisation transactions, based on high-level requirements specified in the legal text, without the need for checks by the supervisors.

Finally, option 2.2 introduces comprehensive changes to the current liquidity requirements for banks in the LCR Delegated Act, resulting in a significant relaxation of the existing eligibility requirements for securitisations to be included in the LCR liquidity buffers, which would substantially extend the scope of eligible securitisations in HQLA beyond STS traditional securitisations (such as, the extension of the eligibility to non-STS securitisations).

6.2.2.1. Benefits

As noted by the ESAs, the securitisation capital framework should ideally aim to achieve three goals -limit cliff effects, avoid an unreasonable level of capital non-neutrality, and ensure a maximum capitalisation of the junior (most risky) tranches. The structural limitations of the existing securitisation capital framework however only allow to achieve two out of these three goals and generally fails to achieve sufficient risk sensitivity. Therefore, option 2.2 provides an opportunity to reassess the importance and prioritisation of the goals of the existing framework, including the prominence of the role of the (p) factor. The redesign of the current securitisation capital framework thus has a potential to achieve more proportionate levels of capital non-neutrality, mitigate the cliff effects (and therefore mitigate the risks of the undercapitalisation of mezzanine tranches) and introduce more risk sensitivity in the calculation of capital for securitisation.

With respect to the changes to the SRT framework, option 2.2 would introduce a new approach to the way how transactions are assessed for the purpose of capital relief and would introduce a significantly higher level of flexibility in the existing framework. Significant simplification of the existing framework would help stimulate the issuance of securitisation, as it would reduce the burden on both banks and supervisors. The current SRT framework is highly comprehensive, setting out a number of specific quantitative and qualitative criteria, extending beyond the international Basel requirements. This option would allow to make the SRT framework more comparable with those of some other jurisdictions, where SRT requirements are much more lenient.

With respect to the LCR changes, relaxing the eligibility conditions to the liquidity buffer to non-STS securitisations would contribute to an increased demand for non-STS securitisations by banks to be included in their liquidity buffers, and as such could help address one of the main issues of the current securitisation market which is the lack of investors in the senior tranches. It would improve market liquidity and volumes and contribute to the diversification of banks’ liquidity buffers. A number of respondents to the targeted consultation have called for the extension of the scope of the LCR to non-STS securitisations, as considered under this option.

6.2.2.2. Costs

This option would lower the external coherence of the Securitisation Framework since it would entail significant deviations from the existing Basel standards. The ESAs acknowledged that one could in principle look for an alternative design of the existing framework, but that this should be done and agreed preferably at the Basel table. All in all, a potential fundamental redesign of the capital framework is more of a medium-term to long-term project.

Loosening the SRT framework as proposed in option 2.2 could result in further divergence and incoherence in the application of the SRT rules across banks, or even for similar transactions of the same bank. It could lead to higher heterogeneity of SRT outcomes and could increase uncertainty in the market. It could overall reduce the safety and soundness of the capital positions of the banks, and hence negatively impact financial stability.

Similarly, the changes to the LCR rules could impact the quality of the banks’ liquidity buffers, as it would also include securitisation transactions not meeting the quality criteria of the STS label. A liquidity buffer of lower quality may lead banks to face more difficulties to sell or exchange their liquid assets. This may also oblige banks to accept significant haircuts on their liquid assets in stressed environments. This would mitigate their capacity to refinance their needs on capital markets.

6.2.2.3. Overall assessment: Effectiveness, efficiency and coherence

Fundamentally redesigning the risk weight formulas that underpin the capital framework for securitisation would allow to address the limitations of the existing securitisation capital framework. There is therefore a merit in considering these proposals, which have been analysed by the ESAs and also debated by the stakeholders. However, the reformed framework would diverge significantly from the Basel standards. These considerations could therefore be developed in medium term and brought to the Basel table in due time, as also pointed out by the ESAs.

Some elements of option 2.2 (concretely changes to the SRT framework and LCR framework) would however make the framework less robust and could lead to non-prudent outcomes. They could therefore jeopardise the sound capital and liquidity positions of banks and could pose risks for the financial stability.

In sum, the overall combined impact of measures under the option 2.2 on the reduction of prudential barriers, increase in securitisation issuance and increase in banks’ competitiveness is expected to be potentially more significant than under option 2.1. However, the potential impact on financial stability is also expected to be more significant. Option 2.2. is also expected to lead to major deviations from international Basel requirements.

6.2.2.4. Stakeholders’ views

A number of respondents in the consultation (20 out of 131 agree, 4 disagree, 23 had no opinion and 84 did not answer) considered that a fundamental redesign of the capital framework merits further consideration, as it has a potential to achieve more proportionate levels of capitalisation and increase the risk sensitivity. However, they generally consider that such proposals require further analysis and should be considered in a longer-term perspective, preferably at international level. Banks would also support the possibility to further diversify their liquidity buffer and appreciate the burden reduction linked to the removal of supervisory checks in terms of risk transfer.

Supervisors support investigating alternative designs of the risk weight formulas, albeit they prefer to do it at international level. Supervisors would also disagree with the removal of core supervisory checks for SRTs and with measures that would negatively impact the quality of the banks’ liquidity buffers and the capital position of banks.

6.2.2.5. Summary

Comparative presentation of the impacts of option 2.1 and option 2.2

Legend: +++ = Very positive ++ = Positive + = Slightly positive +/- = Mixed effect 0 = no effect - = Slightly negative -- = Negative --- = very negative

Impacts on stakeholders’ groups

Legend: +++ = Very positive ++ = Positive + = Slightly positive +/- = Mixed effect 0 = no effect - = Slightly negative -- = Negative --- = very negative

Note: the summary provided in the table on ‘impacts on stakeholders’ groups’ is the net result of the pluses and minuses in each cell

6.3. Measures to remove undue prudential costs for insurers

The three options (Options 3.1, 3.2, and 3.3) considered share similarities, as they all involve revising existing risk factors to calculate capital requirements. As a result, it can be challenging for an external reader to grasp the differences and nuances between the options by examining each one in isolation. Therefore, we have chosen to present a simultaneous assessment and comparison of the options. This approach allows us to highlight how each option contributes to specific costs and benefits while clearly distinguishing and quantifying the extent of these effects. We also avoid extensive repetitions and redundant content. Although the structure is distinct, the dimensions assessed remain consistent with the previous sections.

6.3.1. Comparative impacts of Options 1, 2 and 3

Option 3.1: Removing prudential barriers to investments in all non-STS securitisations;

Option 3.2: Improving risk sensitivity and removing prudential barriers to investments in the safest tranches of non-STS securitisations;

Option 3.3: Overhauling the prudential treatment of securitisations in order to make all securitisation investments relatively more ‘attractive’ than under current rules.

All three options considered imply a reduction in the amount of capital that insurers are required to hold when investing in a securitisation. This would make it less costly (capital cost) for insurers to invest in securitisation, thus removing the existing undue prudential disincentives for insurers to invest in the EU securitisation market. The options mainly differ in terms of (1) the type of securitisations that would benefit from lowering of capital charges, (2) the extent of capital relief provided and (3) whether this implies a fundamental change to the way of assessing risks of securitisation positions. The net overall effect of these options varies mainly by degree. Still, one needs to also consider the robustness of the underlying technical rationale for changing the rules when assessing each option. The comparative features of the three options are described in the below table.

The impact on stakeholders depends on how insurers will use the capital relief. This section includes a summary table, but the topic is further discussed in Annex XI, Section A. Impacts on stakeholder groups following the implementation of the respective policy options.

Legend: +++ = Very positive ++ = Positive + = Slightly positive +/- =Mixed effect 0 = no effect - = Slightly negative -- = Negative --- = very negative

NB: the summary aims at ‘netting’ the pluses and minuses of the different sub-aspects considered.

6.3.2. Comparative benefits and costs of the three options

6.3.2.1. Benefits

As explained above, all options have in common a reduction of capital requirements so that it is less costly for insurers to invest in securitisations – hence removing undue prudential obstacles to investments in securitisations in line with the second specific objective. For this reason, they would all contribute to the general objective of this impact assessment (reviving a safer securitisation market).

The below table provides a very rough estimate of the potential total capital relief (before assuming any change in their investment behaviours). This would represent the additional capital available for insurers to make new investments (possibly in securitisation). Please note that these Commission calculations are based on a number of simplifying assumptions 66 , which are necessary as the reporting data submitted by insurers to their supervisors (and centralised by EIOPA) is not sufficiently granular.

However, each of the three options have a differentiated additional benefit:

-Option 3.1: simplicity

-Option 3.2: removal of undue incentives for excessive risk taking

-Option 3.3: preservation of Solvency II’s ability to be conducive of standardisation around the STS label.

Option 3.1 has the merits of being the simplest to implement. It merely requires changing the actual risk factors applicable to non-STS securitisation. Its implementation boils down to changing seven numbers (factors) set out in Article 178(8) of the SII DA. Although options 3.2 and 3.3 are not overly complex either, they require some additional adjustments to information systems.

Option 3.2 brings the additional benefit of making SII more ‘risk sensitive’ while avoiding undue incentives for excessive risk taking. As the capital requirements on non-senior non-STS would remain much higher than those applicable to senior non-STS tranches, the enhanced risk sensitivity would also remove undue incentives for risk taking by insurance companies. As such, option 3.2 is the most successful in achieving the second specific objective of this impact assessment, namely “enhancing the prudential framework to better account for actual risks and remove unnecessary prudential costs (…) for insurers when (…) investing in securitisations.” While EIOPA did not express specific comments on Option 3.2, it is our assumption that EIOPA would not challenge the technical rationale underlying such Option, as EIOPA does not deny that senior tranches bear less risks than non-senior ones.

Option 3.3 is the only option which would result in capital relief for both STS and non-STS securitisations. It would therefore ensure that Solvency II remains conducive to greater standardisation around the STS label. By contrast, options 3.1 and 3.2 only focus on improving incentives for non-STS securitisation, which might reduce the relative attractiveness of STS ones.

6.3.2.2. Costs

All three options would generate limited administrative and compliance costs which would therefore not be the main guiding factor when deciding on the preferred option. The reader can find more detailed information in Annex III and Annex XI, Section B. We can expect the costs to be even lower than under banking rules, as changes to Solvency II under all three options would concern a limited number of values for one single parameter (whereas in the banking rules, several provisions and parameters are affected), and we do not envisage e.g. any meaningful change in IT systems.

None of the three options would differentiate between different types of non-STS securitisations and would apply the same capital requirements regardless of the underlying asset. This may result in underestimating or overestimating the risks underlying certain forms of non-STS securitisations. In particular, the non-STS category can prove to be very diverse, comprising some very stable and very liquid categories, as well as some other, more complex types of securitisations. Against this background, a general lowering of capital requirements for all non-STS securitisations would result in a deterioration of policyholder protection where a specific insurer would materially increase its investments in the more complex/opaque segments of non-STS securitisations.

The risk is however more contained in option 3.2, which only reduces capital requirements on the most senior tranches (i.e. those less risky and with higher credit rating). The risk of any of the three options is also dependent on insurers’ behaviours and the level of additional investment risk taken by insurers. If behaviours do not change significantly (i.e. the overall share of investments in insurers’ investment portfolio increases in a moderate manner), the risk discussed would remain moderate (though still higher under option 3.3 than under the two other options). However, options 3.1 and 3.3 have specific downsides which are not applicable to option 3.2:

-Specific downside of options 3.1 and 3.3: remaining incentives for ‘excessive’ risk taking

-Specific downside of options 3.1 and 3.2: reducing the relative attractiveness of STS securitisation

-Specific downside of option 3.3: lack of robust technical basis and significant incoherence introduced within Solvency II which can harm policyholder protection and financial stability.

Neither option 3.1 nor option 3.3 would differentiate senior from non-senior capital requirements (no improvement to risk sensitivity). This means that all else equal, insurers could still be unduly incentivised to invest in the most junior tranches of securitisations as they would be subject to the same requirements as the more senior tranches while offering prospects of higher returns (but also higher risks). This lack of risk sensitivity would be incoherent with banking rules.

Options 3.1 and 3.2, by only focusing on non-STS securitisation, would reduce the ‘prudential attractiveness’ of STS securitisation. However, Option 3.2 implies improving risk sensitivity. As such, it is not expected to ‘dilute’ the STS label, but simply to ensure that the level of capital requirements on non-STS securitisation is more commensurate to its risk, including by comparison with the risks of STS securitisation.

Option 3.3, which is not backed by any advice or assessment made by EIOPA, would be an overhaul to the current approach of calculating capital requirements:

-Under current rules, securitisation investments are treated in the same manner as government bonds, corporate bonds, loans and covered bonds. More concretely, SII requires insurers to set aside capital to cover the risk of loss in value of their investments (‘spread risk’).

-With option 3.3, securitisation investments would no longer be treated like other bonds and loans. Their risk would be assessed by looking exclusively at the risk of default 67 . Such a significant change requires either robust technical basis or sufficient evidence.

From a technical standpoint, the choice to focus on default risk can only be justified if insurers stick to their investments until their maturity (if this is the case, then insurers are not exposed to the risk of losses stemming from the early sale of their investments at a depreciated price). However, while insurers have a long-term business – in particular in life insurance – a general assumption of holding to maturity conditions is highly challengeable. In fact, only a very limited share of insurers’ assets is intended to be held to maturity, as evidenced in their accounting and financial disclosures 68 .

In addition, a preferential capital treatment cannot only be justified by a mere ‘intention’ to hold an asset to maturity. In terms of policyholder protection, what matters is whether insurers can avoid forced selling of their assets when they are facing stressed market conditions. However, the cuts in capital requirements stemming from option 3.3 would not be conditional to such demonstration. Therefore, option 3.3 does not comply with the current level of prudence of the SII framework 69 .

Thirdly, option 3.3 would affect policyholder protection the most, by introducing significant internal inconsistency within SII, as securitisation would no longer be treated like other similar fixed income securities (government bonds, corporate bonds, covered bonds) 70 . It would also create significant incoherence with banking rules 71 . option 3.3 would therefore bring additional risks to policyholder protection in comparison with options 3.1 and 3.2, by misrepresenting the actual level of risks to which insurers are exposed on their investments.

6.3.3. Overall assessment: Effectiveness, efficiency and coherence

6.3.3.1. Effectiveness

Option 3.1 is effective in reducing undue prudential disincentives to investments in non-STS securitisations.

Option 3.2 is effective in reducing undue prudential disincentives to investments in senior non-STS securitisations. It also avoids providing ‘wrong’ incentives of risk taking due to the enhanced risk sensitivity. The capital relief insurers obtain through option 3.2 is higher than under option 3.1, which implies more effectiveness in unleashing their investment capacity.

Option 3.3 is effective in reducing undue prudential disincentives to investments in securitisations – both STS and non-STS. Because it also concerns STS securitisation, the effectiveness is higher than under options 3.1 and 3.2.

For all three options, it is unclear whether the released capital would result in more investment in securitisations. The capital relief could instead be used in an opportunistic manner by insurers for higher dividend distributions or share buybacks. The risk is higher for option 3.3. in view of the higher extent of capital relief.

6.3.3.2. Efficiency

Option 3.1 would entail very limited compliance costs for insurers due to the simplicity of the amendments. Such costs are negligible in view of the level of reduction in capital costs. However, it would not improve the risk sensitivity of the Framework nor policyholder protection. In addition, it could generate financial stability risks if the lowering of capital requirements results in a significant increase in investments in the most junior tranches of non-STS securitisation. By improving the ‘prudential attractiveness’ of non-STS securitisation investments and reducing the discrepancy between non-STS and STS capital requirements, the review might the reduce relative attractiveness of STS securitisations and would not be conducive to greater standardisation around that label. Option 3.1 could actually result in less investments in STS securitisation by insurance companies (which are already quite low as shown in the Evaluation).

Option 3.2 would entail some limited compliance and administrative costs that are negligible in view of the reduced capital costs, though slightly higher than in option 3.1. In addition, option 3.2 avoids the ‘wrong’ incentives for excessive risk-taking identified in option 3.1. Option 3.2 can also be framed so that it does not hinder the objective of the initial initiative of enhanced standardisation, for instance by ensuring that capital requirements on any non-STS securitisation remain higher than those on STS securitisations (including for non-senior tranches). In other words, under option 3.2, all tranches of STS securitisations would remain prudentially more attractive than non-STS securitisations 72 . For all these reasons, option 3.2 would overall be more efficient than option 3.1.

Option 3.3 would entail some limited compliance and administrative costs that are negligible in view of the reduced capital costs (cost levels being between those in options 3.1 and 3.2). Option 3.3 does not hinder the objective of the initial initiative of enhanced standardisation as capital requirements on STS securitisations would also be reduced. However, the technical justifications supporting this approach are limited and not backed by any EIOPA assessment or advice. The lack of safeguards (requirements or criteria) allowing for such preferential treatments poses risks to policyholder protection that are materially higher than under options 3.1 and 3.2 (though the extent of such higher risks would depend on whether insurers materially increase their investments in securitisations following the implementation of this option). Indeed, the SII framework would no longer measure the risk posed by securitisation in a similar manner as for other fixed income securities with similar features. For all these reasons, option 3.3 would be less efficient than options 3.1 and 3.2 in achieving the second specific objective in view of the associated risks. This is due to the limited technical justifications and the absence of qualitative safeguards. Additionally, it presents significantly higher risks to policyholder protection, as the SII framework would no longer assess the risks associated with corporate bonds and securitisation in a comparable way, despite their similar features 73 . 

6.3.3.3. Coherence

Option 3.1 neither improves nor deteriorates the internal coherence of SII.

Option 3.2 improves the internal coherence of SII by treating in a ‘comparable’ manner STS and non-STS securitisations (both of them having differentiated capital requirements for senior and non-senior tranches).

Option 3.3 would result in an incoherent SII framework by considering different risks for asset classes with similar characteristics (spread risk for bonds, default risk for securitisation).

6.3.4. Stakeholders’ views

There is a general support from industry stakeholders to decrease capital requirements for securitisation. Stakeholders do not address concerns regarding the potential complexity of non-STS products and argue that historical risks of default remain low. However, as explained previously, options 3.1 and 3.2 would still include securitisation in the scope of market volatility risk (volatility in credit spreads), not default risk.

Historical risks of default do not necessarily imply low volatility over a one-year horizon. Market volatility not only depends on the probability of default but also the cost of a potential increase in risk of the investment (e.g. cost of a rating downgrade). It also depends on the specific context of securitisation, including the type and quality of the assets in the securitised pool, as well as the transparency of the asset (lower transparency can result in more significant ‘irrational’ market movements).

In fact, it is the understanding of the Commission services that irrespective of the technical or conceptual rationale supporting changes to insurance rules, the industry would be supportive of the most significant decrease in capital charges applied to the widest scope of securitisations (i.e. both STS and non-STS) hence favouring option 3.3. However, the main objective of these respondents is not to align insurance rules with banking rules (which would imply adopting a very sophisticated set of parameters), but to achieve significant cuts in capital requirements. Preferences between option 3.1 and 3.2 would depend on the investment strategy of each individual insurer: companies investing heavily in non-senior tranches would likely favour option 3.1 rather than option 3.2 (since the latter does not bring any changes to non-senior non-STS investments) whereas others would favour option 3.2 (which results in a more significant cut in risk factors than option 3.1.

By contrast, the insurance supervisory community, in particular EIOPA, generally does not support a decrease in capital requirements for securitisation. EIOPA claims that its current calibration (which remains the basis for currently applicable rules) remains appropriate. EIOPA does not challenge the principle of improving risk sensitivity by differentiating capital requirements between senior and non-senior tranches of non-STS securitisations (as in option 3.2). The supervisory community, in particular EIOPA, would strongly oppose option 3.3 (reclassification of securitisation in the scope of default risk) in view of the lack of technical robustness of this option, the absence of strict criteria for demonstrating a ‘hold-to-maturity’ investment behaviour, including under stressed conditions, and the internal incoherence of prudential rules which this option would entail. Finally, EIOPA doubts that targeted lowering of capital requirements would have any impacts on investment behaviours, arguing that securitised assets do not have the features that fit the insurance business model, which often requires strict matching of assets and liabilities. The complexity of the product also makes it less attractive compared to other products which necessitate less intensive due diligence. This line of thought applies to all three options.

As part of the consultation processes, stakeholders were invited to provide feedback on the impact of any decrease in capital requirements on levels of investments. However, no meaningful feedback was received, highlighting the difficulty for stakeholders to provide clarity or ‘commit’ to potential changes in investment behaviours stemming from changes in prudential rules.

6.3.5. Summary comparison and choice of preferred option

Legend:     +++ = Very positive    ++ = Positive    + = Slightly positive     +/- =Mixed effect        0 = no effect     - = Slightly negative     -- = Negative        --- = very negative

6.4 Social, environmental and fundamental rights impact

The assessment of the various policy options primarily focuses on their economic and regulatory impacts, with no direct impacts on social, environmental, and fundamental rights issues. For a more detailed analysis, please see Section 7.2.

7.Comparison and preferred combination of policy options

In the Table below we present a comprehensive comparison of the policy options, as they relate to the three problems identified in the Impact Assessment. This analysis assesses each policy option across three key criteria: effectiveness, efficiency, and coherence. Based on the analysis presented, we conclude that the following combination of policy options is the most effective, efficient and coherent: option 1.1, option 2.1 and option 3.2.

Summary comparison of all policy options

To address Problem 1 (high operational costs for issuers and investors), option 1.1 presents the most balanced outcome between reducing undue operational due diligence and disclosure costs while maintaining high levels of market transparency, investor protection and supervisory oversight. Option 1.2 has the potential to achieve higher burden reduction, but it also brings higher risks for market integrity. Addressing the risks associated with option 1.2 would make the application of that option much more challenging from a technical perspective and to a large extent nullify the potential benefit it could bring. For example, ensuring that option 1.2 does not sacrifice market transparency, and thereby the ability of investors to conduct proper risk analysis, would require supervisors to conduct thorough checks on the amount and quality of information that each originator discloses upon issuance – these checks are automated by the securitisation repositories under option 1.1.

When it comes to Problem 2 (undue prudential barriers for banks), option 2.1 is the preferred option, as it addresses miscalibrations in the capital requirements for banks in a more efficient and targeted way, only for robust and resilient transactions for which risks have been reduced. The expected impact and outcome of the policy proposals under option 2.1 is more predictable, and the calibration of the proposal is relatively more straightforward and less complex. It would allow to stimulate banks’ participation in the securitisation market without resulting in significant regulatory deviations from international standards and without jeopardising financial stability. On the other hand, option 2.2 would likely reduce the safety and soundness of the capital positions of banks and negatively impact the quality of banks’ liquidity buffers.

Under Problem 3 (undue prudential costs for insurers), option 3.2 is the most effective in removing undue prudential disincentives while avoiding undue deterioration of policyholder protection. It would remove undue prudential obstacles to investments in non-STS securitisations by addressing the current very conservative prudential treatment, while removing undue incentives for insurers to invest in the riskiest tranches.

All three preferred options are complementary, target different aspects of the Securitisation Framework and different players on the securitisation market, hence altogether provide a comprehensive solution to the core problems identified. The three preferred options are also mutually reinforcing; for example, changes in the prudential treatment of securitisation would have a much less pronounced effect on securitisation issuance if implemented on a standalone basis and if not accompanied with the adjustments to the disclosure and due diligence framework.

Solving Problem 1 reinforces the impacts of the measures to address Problems 2 and 3. Solving Problem 3 reinforces the response to Problem 2, to the extent that lack of issuance is driven by insufficient investor demand. The reverse is also true – having more supply would reinforce the impact of solving Problem 3 to the extent that insufficient supply affects investor demand. Despite their complementarity, the effectiveness of the options to address one problem does not depend on which option is chosen to address another problem. For example, the effectiveness of the measures to lower operational costs does not depend on which option is chosen to address the undue prudential barriers/costs for banks and insurers.

Against this background, the assessment concludes that there is no better combination of policy options to meet the stated objectives. Moreover, as explained above, none of the preferred policy options are expected to put financial stability at risk. Therefore, their combination also does not.

7.1. Impact of the preferred policy options on the general objective

Options 1.1, 2.1, and 3.2 present a compelling opportunity for the EU to revitalise its securitisation market, to allow securitisation to play a role in the development of the SIU and to reduce burden and compliance costs for issuers and investors. By addressing the high operational costs and undue prudential disincentives that have deterred banks and insurers from participating in the EU securitisation market, these options will contribute to the Commission's effort to reduce the regulatory burden on market participants and stimulate the use of securitisation. The pace of growth of the market would, however, depend also on factors outside the regulatory securitisation framework. At the same time, the presented options will continue to safeguard financial stability and provide an adequate level of investor and consumer protection.

Together, this package of options will directly contribute to the broader effort to establish a Savings and Investment Union. A safe and vibrant securitisation market will provide EU households and businesses with access to the necessary funds to grow and be more competitive, creating new opportunities and driving economic prosperity. Moreover, by increasing the availability of financing, securitisation can contribute to funding the EU's strategic priorities, and its fungible nature means that it can be adapted to fund a wide range of priorities, making it an important tool for financing EU's future growth and development.

While the proposed options are expected to drive market development, it is equally important to recognise that market participants also have a role to play in fostering a more robust and dynamic securitisation market. Various external factors, such as the state of monetary policy and the availability of alternative funding sources, will also have an important impact on how the securitisation market develops going forward.

7.2. Social, environmental and fundamental rights impact

The assessment of the various policy options primarily focuses on their economic and regulatory impacts, with no direct impacts on social, environmental, and fundamental rights issues. However, for all the options assessed indirect effects can be considered in each of these areas:

Social Impacts

By enhancing credit availability and facilitating more efficient risk transfer, the proposed measures can indirectly boost economic activity. This can lead to increased lending to businesses, including SMEs, thereby potentially supporting job creation and economic growth. Improved efficiency in the banking sector may lower borrowing costs and enable banks to extend credit to a broader segment of the population. This could enhance access to financial services, promoting social inclusion and helping individuals who are typically underserved by traditional financial systems.

Environmental Impacts

While the proposed measures do not explicitly target environmental outcomes, a more efficient securitisation market could support green investment initiatives by making capital more accessible for environmentally friendly projects. This could, in turn, help banks to finance sustainable projects, contributing indirectly to positive environmental outcomes. If banks decide to prioritise investments in sustainable assets or projects, the improved liquidity and credit capacity enabled by measures envisaged under this initiative could facilitate increased funding for sustainability. It should be noted that the current framework already provides for voluntary disclosure on the principal adverse impacts of the assets financed by the underlying exposures on sustainability factors for STS securitisation. Moreover, as outlined in detail in the evaluation (see Annex V), the EUGBS Regulation provides for a dedicated framework for green securitisation. The review is not foreseeing any changes in this respect. No negative environmental implications have been identified for any of the policy options. The initiative aligns with the UN Sustainability Development Goal 8.2, which involves achieving higher levels of economic productivity through diversification, technological upgrading, and innovation.

Fundamental Rights

There are no direct impacts on fundamental rights. The simplification and efficiency measures do not directly address issues relating to personal data or privacy. Nonetheless, changes to disclosure and reporting standards must comply with existing data protection laws to ensure the security and privacy of any personal data involved in the securitisation process.

The preferred combination of options is highlighted as the preferred option due to its effectiveness in reducing high operational costs and removing undue prudential barriers, while avoiding undue deterioration of protection and avoiding incentives for excessive risk-taking. This option aims to balance the need for economic stimulus with maintaining robust standards, thus minimising negative societal impacts. Overall, while the proposed measures mainly focus on financial regulation, there are potential indirect benefits that can arise, impacting social, environmental, and fundamental rights in supportive and sustainable ways. Ensuring a stable securitisation market contributes indirectly to the protection of fundamental economic rights by promoting financial stability through risk diversification.

7.3. REFIT (simplification and improved efficiency)

The presented policy options propose series of simplifications and refinements to enhance efficiency within the securitisation market. Through targeted adjustments and strategic simplification, these measures are positioned to bolster the market's capacity, attract a broader base of investors, and encourage economic growth—while maintaining a resilient and transparent financial ecosystem. The changes are expected to boost the competitiveness and sustainability of the EU Securitisation Framework, driving growth for all stakeholders involved.

By reducing compliance overhead for issuers and aligning regulatory measures with actual market practices, the reform seeks to invigorate market participation, transparency, and risk management. Ultimately, these changes address unnecessary prudential and operational costs, strengthening the market structure and its resilience for future growth.

The preferred option embeds a significant simplification of due diligence duties for businesses and a more efficient transparency framework. This would involve a streamlining of the processes companies need to follow to ensure compliance. By reducing these obligations, businesses will face lower compliance costs, enabling more resources to be allocated to core business activities.

Implementation costs are expected to be offset by long-term operational savings. While issuers may encounter some one-off costs to adapt to the revised reporting type under Article 7 SECR, the recurrent reduction in administrative burdens should outweigh these initial expenditures. By mandating that both public and private securitisation transactions report to repositories, the preferred option enhances market transparency.

7.4. Application of the ‘one in, one out’ approach

The operational costs linked to the due diligence and transparency obligations under the SECR can be categorised as administrative costs relevant for the “one in, one out” offsetting:

·The preferred option would lead to an estimated saving of total recurring administrative costs in the approximate magnitude of EUR 310 million per year.

·Meanwhile, it is expected that the preferred option will entail moderate one-off administrative costs for the implementation of amended reporting templates estimated to EUR 33 million subject to one in, one out considerations as the preferred approach intends lightening the existing due diligence and transparency requirements.

Further detail is available in Annex III.

7.5. Impact on SMEs

The preferred options would have mostly indirect, but positive, impacts on SMEs. Although SMEs are generally not directly involved in the EU securitisation market as issuers or investors, the initiative would increase banks' lending capacity and improve SMEs' access to cheaper and more diversified funding sources. Measures to simplify regulations and lower operational costs could encourage broader securitisation, including of SME loans, and promote competition through the entry of new lenders. The increased risk sensitivity of the banks’ capital framework would allow to achieve a more favourable capital treatment of SME loans (for example, the introduction of the risk sensitive risk weight floor for the senior tranches would allow to reflect the SME supporting factor in the securitisation capital treatment, which is not possible under the current framework). This could encourage the securitisations of the SME loans. While a limited number of stakeholders cited concerns regarding SME over-reliance on bank-based funding, the initiative is generally seen as supportive of SME financing, with no significant negative impacts identified.

Further detail is available in Annex VIII.

7.6. Impact on EU Competitiveness

The preferred option would strengthen EU competitiveness by reducing capital and compliance costs for securitisation market participants, thereby improving cost efficiency and aligning the EU framework more closely with international standards. This will help level the playing field for EU issuers and investors, who currently face higher operational burdens compared to non-EU counterparts. By simplifying due diligence and transparency, and making prudential requirements more risk-sensitive, the initiative enhances the attractiveness of EU securitisation products both domestically and globally. Increased securitisation activity can also free up lending capacity for banks and credit institutions, supporting greater access to finance for EU businesses, including SMEs. This is particularly relevant for advancing the EU’s strategic goals in green and digital innovation, where improved financing channels are critical to maintaining global competitiveness.

Further detail is available in Annex VII.

8.How will actual impacts be monitored and evaluated?

The Commission shall carry out an evaluation of this package of proposed amendments, four years after its entry into application and present a report on the main findings to the European Parliament, the Council and the European Economic and Social Committee. The evaluation shall be conducted according to the Commission's Better Regulation Guidelines. The evaluation will be based on a list of specific and measurable indicators that are relevant to the objective of the reform, as presented in the following table. To prepare the evaluation report, the Commission will mandate Member States, the ESAs and the ECB/SSM to collect data to calculate the indicators included in the table and report on them to the Commission.

Annex I: Procedural information (still under development)

1 - Lead DG, Decide Planning/CWP references

This Impact Assessment Report was prepared by Directorate A “General Affairs”, and Directorate D “Banking, Insurance & Financial Crime”, of the Directorate-General for Financial Stability, Financial Services and Capital Markets Union (DG FISMA).

The Decide Planning references are: PLAN/2024/1808; PLAN/2024/1929; PLAN/2024/2001.

The initiative was included in the Commission Work Programme 2025.

2 - Organisation and timing

The first ISSG took place on 23 January 2025 with the attendance of the following Directorates-General (DGs) of the European Commission: Economic and Financial Affairs, Internal Market, Industry, Entrepreneurship and SMEs; Budget; Education, Youth, Sport and Culture; Reform and Investment Task Force; Regional and Urban Policy; Research and Innovation; Justice and Consumers; Trade; Competition; Employment, Social Affairs and Inclusion; Taxation and Customs Union; Trade and Economic Security; Environment; Taxation and Customs Union; Eurostat; Joint Research Centre; Secretariat General; Energy; and Financial Stability, Financial Services and Capital Markets Union. The second ISSG meeting took place on 21 February 2025.

DG FISMA has considered the comments made by DGs in the final version of the impact assessment. In particular, DG FISMA has provided more clarity about the seriousness of the problems, the impacts of the various options, as well as further evidencing the various claims and statements made throughout the text. DG FISMA provided bilateral feedback on certain comments to provide additional background, explanation and reassurance to colleagues, particularly on comments and issues that fell outside the remit of the current initiative. The analysis of impacts and the preferred option takes account of the views and input of different DGs.

3 - Consultation of the RSB

An upstream meeting was held with the Regulatory Scrutiny Board (RSB) on 25 November 2024.

The draft report was sent to the RSB on 12 March 2025 and the hearing took place on 9 April 2025. The RSB issued a positive opinion with reservations on 11 April 2025 74 . The principal reservations (which have been addressed in this final version of the report) were the following:

(1) The report does not sufficiently substantiate the problem and its drivers. It does not clearly identify the evidence driving the conclusion that over-restrictive prudential, due diligence and transparency requirements act as a barrier to the development of the market.

(2) The report does not adequately define the key elements for each of the assessed options. It is unclear what is supposed to change in the prudential framework and due diligence and transparency rules. The report does not therefore clearly bring out the choices and trade-offs made when developing the options.

(3) The report does not adequately assess and compare the combined impacts of the options in terms of how they could affect the stability of the financial system. The report is also not sufficiently clear on whether the different options presented imply different risk levels for the financial system.

·Reports were introduced in Annex 2 of two further consultation events held subsequent to the submission of the draft report to the RSB – the closure of the Call for Evidence (stakeholders), and the Commission Expert Group on Banking Payments and Insurance (Member States).

4 - Evidence, sources and quality

The impact assessment drew on a broad range of information sources such as the results of consultations with stakeholders, reports from the ESAs, and additional desk research by the Commission services. Some of the specific sources of data used in the preparation of this impact assessment include the following:

·Evidence supplied in the context of various consultations by the Commission as described in Annex II; 

·EIOPA data extracted from quantitative reporting templates submitted by insurance and reinsurance undertakings;

·ECB Governing Council Statement of 7 March 2024; 75

·Eurogroup Statement of 11 March 2024; 76

·European Council conclusions of April 77 , June 2024; 78

·“Much more than a market”, report by Enrico Letta, 17 April 2024; 79

·“The future of European competitiveness,” report by Mario Draghi, 9 September 2024; 80

·EBA working papers and staff working documents;

·Publicly available studies, reports, position papers and other relevant documents drawn up by private and public stakeholders.

Annex II: Stakeholders’ consultation (Synopsis report)

In order to ensure that the Commission’s proposal adequately takes into account the views of all interested stakeholders, the consultation strategy supporting this initiative was built on the following components:

·A targeted (but nevertheless public and open) consultation, with detailed questions aimed specifically towards market participants with expertise in the European securitisation market, open from 9 October 2024 to 4 December 2024; 81

·Numerous ad hoc bilateral contacts with various stakeholders, either on their initiative or that of the Commission.

·Consultation of stakeholders in a dedicated day-long in-person Securitisation workshop, held on Commission premises in Brussels on 3 July 2024;

·Input from the European Supervisory Authorities within the framework of the Joint Committee Securitisation Committee and of the European Systemic Risk Board;

·Consultation of Member States’ experts through (the Financial Services Committee and Eurogroup Working Group +)

·Call for Evidence published on 19 February 2025 and running until 26 March 2025.

1 - Targeted Consultation

Given the technical nature of the initiative, a decision was taken to conduct a targeted public consultation to obtain stakeholder views on the functioning of the EU securitisation framework. The 8-week feedback period ran from 9 October 2024 to 4 December 2024. The consultation, which was conducted online via the EUSurvey platform, received 133 responses from a variety of stakeholders. 131 replies were submitted via the online form, and 2 were sent by email to a dedicated functional email inbox, managed by DG FISMA. Please note that unless specifically mentioned in the summary of the online consultation, the two email respondents were not considered in the statistical analysis of answers.

Most respondents were stakeholders from the European Economic Area (107), in addition to the US (13), UK (10) and Switzerland (2), Australia (1). Please note that unless specifically specified in the summary of the online consultation, those who did not provide a view were not considered in the analysis of answers. Responses received were from a variety of stakeholders representing individual companies, business associations, public authorities, consumer organisations, EU citizens, NGOs, trade unions and academic/research institutions.

Below is a summary of the views expressed in the targeted consultation with regard to the experience with the framework so far and to further action to improve the framework and develop the EU securitisation market. The summary is presented thematically by issue area. Any opinions expressed reflect the views of the respondents and do not reflect the position of the European Commission.

1.1. Non-prudential issues

1.1.2. Effectiveness of the securitisation framework

The following chart presents the replies to the question: “Do you agree that the securitisation framework (...) has been successful in, or has contributed to, achieving the following objectives. For clearer presentation, respondents that did not answer the question have been omitted from the graph.

1.1.3. Impact on SMEs

The majority of respondents identified SMEs as having only limited access to securitisation. More than one third of the respondents (51 out of 131, 72 gave no answer or provided no opinion) reported having come across impediments to securitise SME loans or invest in SME securitisation (8 had not, 72 gave no answer or didn’t know). They highlighted regulatory complexity, high costs, and lack of data quality as major impediments to securitising SME loans. Insufficient reliable financial data hinders risk evaluation and investor interest – relatedly, stringent due diligence requirements are burdensome and complicated, particularly with limited SME information. Unfavourable prudential treatment of securitised loans, including higher capital requirements under the Basel III framework, are highlighted as discouraging investments in SME securitisation. As such, the existing regulatory framework struggles to offer attractive access to financing options for SMEs via securitisation.

Some respondents from the industry see the potential for securitisation to facilitate SMEs' access to capital markets by providing them with a wider range of financing options and increasing their access to credit. In order for securitisation to support access to finance for SMEs, many respondent banks and banking associations stated that the regulatory framework for securitisation should be simplified and made more proportionate to make it more effective. In particular, transparency and investor due diligence requirements should be more proportionate and therefore less burdensome, and transparency and disclosure requirements should be improved.

On the other hand, consumer organisations point out that it is unrealistic that securitisation would contribute to SME financing. Consumer organisations also caution that promoting securitisation could entrench the dependence on bank financing and potentially disrupt covered bond markets. They suggest that instead of simplifying the securitisation framework, the EU should expand existing programs, such as those offered by the EIF and EIB.

1.1.4. Scope of application of the Securitisation Regulation (SECR)

Opinions were mixed amongst respondents on whether clarification was needed on the jurisdictional scope of the SECR, to establish a clearer and more consistent framework for supervising and regulating securitisations that involve non-EU entities. On the question of the need to clarify the SECR’s jurisdictional scope, 28 out of 131 respondents agreed, 32 disagreed, 24 had no opinion and 47 did not respond. Many recommend the recent UK reforms, as striking the right balance between ensuring regulatory consistency and avoiding unnecessary burdens, by allowing investors to collect the information and data they need without being forced to comply with prescriptive requirements.

In contrast, other banks and trade associations argue that the scope of application is well understood and settled satisfactorily. They suggest that any changes should focus on revising the ESMA template for third-country securitisation to ensure that institutional investors can obtain appropriate disclosure. Some also suggest that the EU should clarify the allocation of supervisory competence between national authorities.

On changing the definition of securitisation, opponents cited uncertainty and regulatory complexity that might stem from such a move, and that the existing market definition was well-understood. A few suggest harmonising it with the US definition of "asset-backed security”, which many EU market participants are also familiar with. Broadening the scope is recommended by some who believe the current definition does not capture transactions that are structured so as to fall outside the SECR’s technical scope but fulfil the same economic purpose. Conversely, respondents in favour of narrowing the definition claim its current breadth and vagueness have made market participants reluctant to participate in transactions that fall within a regulatory "grey area”.

Approximately half of those responding to this section advocated for the definition of a sponsor to be expanded to include alternative investment fund managers (AIFMs) established in the EU. The other half opposed considered that AIFMs are not set up to retain a 5% share in a securitisation transaction and such risk retention practices could give rise to possible conflicts of interest.

1.1.5. Due diligence requirements

Most respondents (84 out of 131) believe that the due diligence requirements set forth in the SECR should be reformed to be more principle-based, proportionate, and less burdensome. This sentiment stems from the notion that the current requirements are disproportionate to the risks associated with securitisations. They suggest that less stringent due diligence requirements should be applied to well-rated senior tranches. Should the Commission consider making due diligence requirements more risk-sensitive, respondents emphasize that such an approach should not result in overly prescriptive requirements, as relevant factors will vary on a case-by-case basis.

Most market participants propose the removal of verification requirements for investors that are already checked by supervisors, including compliance with the STS (Simple, Transparent, and Standardised) criteria. However, supervisors are hesitant to abolish these requirements, particularly the need for investors to verify that the originator adheres to the disclosure requirements under SECR.

Some respondents even advocate for the complete elimination of due diligence requirements for securitisations, opting to rely solely on sector-specific legislations as is the case for other investments. The consensus among respondents is that the current due diligence requirements discourage investment in the secondary market and repeat securitisations. Regarding delegation of due diligence, stakeholders have different interpretations about the applicable sanctions for non-compliance with Article 5.

1.1.6. Transparency requirements

The majority of respondents (56 out of 131, 57 did not respond and 4 had no opinion) find that disclosure when issuing a securitisation is significantly more costly than disclosure for other instruments with similar risk characteristics due to the complexity, level of detail and vast scope of the disclosure requirements.

To lower compliance costs while still ensuring a high level of transparency, the majority of respondents opted for streamlining the current disclosure templates for public securitisations and introducing a simplified template for private securitisations. However, many industry respondents advise against requiring private securitisations to report to securitisation repositories due to the associated increase in compliance costs. To further reduce compliance costs, stakeholders are in favour of cautiously moving away from the current requirement for loan-level disclosure for all securitisations.

1.1.7. Supervision

The responses (56 out of 131, 67 did not respond and 8 had no opinion) highlight widespread challenges in the EU's securitisation supervision framework. Key issues include inconsistent supervisory practices among National Competent Authorities (NCAs), leading to divergent interpretations of rules, overlapping reporting requirements, and application of criteria for Significant Risk Transfer (SRT) and STS securitisations. Concerns also stem from the treatment of non-binding recommendations, such as the EBA's 2020 SRT report, being applied as de facto mandatory requirements, exacerbating regulatory uncertainty. Harmonisation is further hindered by differences in collateral eligibility assessments.

Stakeholders propose enhanced coordination between European and national supervisors. The majority of the respondents that replied to the supervision related questions suggest setting up supervisory hubs, to a lesser extent they support the idea of having one national authority as lead coordinator in the case of one issuance involving multiple supervisors or a single supervisor.

On the added value of Third-party verifiers (TPVs) in the STS market, the vast majority of respondents (55 out of 131, 67 did not respond and 9 had no opinion) highlight their importance. Only 43 of the 131 survey participants responded on whether TPVs should be supervised: the majority of these (28 replies), including some public authorities, a suggest that supervision of TPVs is necessary to ensure the integrity of the STS standard and to promote investor confidence. However, to provide more meaningful input, most respondents highlight that more information is needed to accurately estimate the potential costs and benefits of supervision.

1.1.8. STS standard

Most respondents (65 out of 131, 46 did not respond and 7 had no opinion) think that the current STS label does not have the potential to significantly scale up the market. This sentiment is shared by many stakeholders, who argue that to achieve success with STS, the criteria must be simplified, and the prudential framework should be reformed.

Critics of the current STS criteria point to two main issues: i) homogeneity criteria, which they believe are a significant obstacle for certain transactions, such as infrastructure financing transactions and SME portfolios, and ii) the list of eligible collateral arrangements for on-balance-sheet STS securitisations. Furthermore, smaller banks face additional challenges in meeting these criteria due to their limited portfolios, making it even more difficult for them to participate in the market. Many respondents highlighted the complexity of the STS regime in general.

In addition to addressing the STS criteria, many respondents also emphasize the need for reforms in the non-STS market. They argue that relying on a targeted approach to specific segments of the market will not be sufficient to attract the necessary investment. This is because such an approach will not provide investors with the critical mass required to invest in the market.

1.1.9. Securitisation Platform

41 out of 131 respondents agree that a securitisation platform or platforms could increase the use and attractiveness of securitisation in the EU (18 disagreed, 51 did not respond and 21 had no opinion). Those in agreement viewed the objective of the securitisation platform as to facilitate standardisation, lower issuance cost and funding cost for the economy, promote better integration of cross border securitisation, and enhance transparency and due diligence.

22 respondents agreed that a securitisation platform should target a specific asset class, like green loans (6 respondents), mortgages (6 respondents), or SME loans (6 respondents). 12 did not agree that a future platform should target a specific asset class, (74 did not respond, 23 had no opinion). 21 respondents disagree that guarantees are necessary for such platform to function, while 18 agreed to the necessity of guarantees (67 did not answer, 25 had no opinion). The majority of respondents favourable to a guarantee would opt for a public guarantee provided by the EU or dedicated EU agency (like EIB or EIF). Due to potential systemic risks respondents do not believe that a private guarantee to a pan-European platform would be appropriate.

Respondents identified several challenges associated with the introduction of such a platform, like fragmented legal framework (differences in insolvency laws, contract law, and securitisation practices across EU Member States), lack of standardisation in loan contracts, securitisation structures, and eligibility criteria across jurisdictions complicates asset pooling and investor confidence. Competition with existing instruments like covered bonds could also potentially limit the platform's utility. The high development and upkeep costs, as well as costs related to pricing and valuation disparities for assets from different jurisdictions, were also cited as a challenge. Lastly, concerns about the political will to implement a unified system and debates about risk-sharing among Member States would also have to be addressed.

At the same time, nearly all the respondents agree that creation of securitisation platform is not the main issue in the market, and it should be addressed at a later stage, following comprehensive feasibility studies and consultations. Quite a few suggested to focus on improving existing schemes, such as EIB/EIF securitisation programmes.

1.2. Prudential and liquidity risk treatment of securitisation for banks

1.2.1. General comments

A substantial majority of financial industry representatives consider that the current capital framework based on non-neutrality of capital requirements 82 leads to undue overcapitalisation of the securitisation exposures (33 respondents agree, 0 disagree, 9 have no opinion and 65 provided no answer), and consider that reducing such non-neutrality would stimulate banks’ involvement in the securitisation market, while at the same time keeping the capitalisation of securitisations at a sufficiently prudent level (36 agree, 0 disagree, 8 no opinion, 63 did not answer).

The level of capital non-neutrality is considered disproportionately high relative to the current lower levels of agency and model risks embedded in securitisations, which have been significantly reduced following the financial crisis, by means of several supervisory and regulatory initiatives.

To reduce the non-neutrality, the respondents call for comprehensive reductions of two main capital parameters (the (p) factor being the main parameter driving the non-neutrality of securitisation capital, and the risk weight floors setting out the minimum capital levels for the senior tranches) - arguing the capital reductions should be applied on a non-discriminatory basis to all types of banks i.e. originators, sponsors and investors, all capital approaches and all types of securitisations (STS and non-STS). With respect to the public authorities, they raised concerns with the reductions of the (p) factor in particular against the high risk of undercapitalisation of some (in particular mezzanine) tranches.

A number of respondents (20 out of 131 agree, 4 disagree, 23 had no opinion and 84 did not answer) consider that an alternative design, involving a fundamental redesign of the capital framework merits further consideration as it has a potential to achieve more proportionate levels of capitalisation. However, they generally consider that such proposals require further analysis and should be considered in the long-term, preferably at international (Basel) level.

1.2.2 (P) factor

Supervisors have been cautious as regard the reduction of the (p) factor (out of 9 supervisors, 2 supervisors consider that the current levels of the (p) factor adequately address structural risks of securitisation, 1 is against, 1 has no opinion and 5 did not answers). In their qualitative responses, they argue that reducing the (p) factor risks undercapitalisation of mezzanine (and potentially senior) tranches and will not have any relevant effect on freeing capital and on securitisation issuance. Supervisors acknowledge the limitations of any unilateral reductions of the (p) factor and agree with the existence of limitations embedded in the current regulatory framework. They support investigating the alternative designs of the risk weight functions, at an international level.

1.2.3 Risk weight floors

A significant majority of active respondents (yes 42, no 7, no opinion 7, no answer 75) call for a comprehensive reduction of the risk weight (RW) floors, beyond those proposed by the EBA. Most respondents favour reduction of the risk weight floor for banks in all roles in securitisation, while a minority advocate for a more restrictive treatment of investors due to their having less information on the transaction. Similarly, a number of respondents view that a reduction of the risk weight floor only for STS transactions would be insufficient to revive the European securitisation market. Respondents however generally agree with distinct STS and non-STS risk weight floors.

A large majority of active respondents do not consider that safeguards proposed by EBA to accompany the reduction of the risk weight floors and to ensure the resilience of the transactions are proportionate or adequate (36 do not agree, 4 agree, 11 have no opinion, 80 did not answer).

A large group of respondents argue for a risk sensitive approach to setting the risk weight floors, so that it is proportional to the risk of the underlying portfolio. Supervisors are more reluctant to change the floors without sufficient analysis and do not support a deviation from Basel.

1.2.4. Framework for significant risk transfer (SRT)

With respect to the Significant Risk Transfer rules, the respondents generally support regulatory harmonisation of rules and supervisory convergence at the EU level. With respect to the tests applied to securitisations, industry generally agree with the conditions of the tests and do not see a need to make them more robust, although they are not opposed to it (23 agree, 19 disagree, 11 have no opinion and 78 do not answer). Public authorities on the other hand see necessity to increase the robustness of the framework, in line with the EBA reports.

With respect to the process of the SRT supervisory assessments, the financial industry and several public authorities noted that the SRT process suffers from a lack of supervisory convergence and regulatory clarity, which makes both its timings and outcomes unpredictable.

1.2.5. Liquidity treatment in the LCR

On liquidity risk requirements for banks, a large majority of stakeholders (44 out of 131, 78 didn’t respond and 9 had no opinion) call for amendments to the eligibility criteria and haircut levels applied to securitisations eligible to the buffer for high quality liquid assets under the LCR. Some of these changes are aligned with the recommendations received from the ESAs and compatible with the Basel framework. A couple of respondents consider there is not enough track record and data on the liquidity of securitisations under stress to significantly relax their eligibility to the liquidity buffer.

1.3. The prudential treatment of securitisation for insurers

1.3.1. Interest in and obstacles for securitisation investment

The majority of financial institutions and trade associations (47 respondents – among whom 16 insurers – out of 131, 67 stakeholders did not reply and 14 had no opinion) agreed that there exists a strong interest from (re)insurance undertakings to increase their investments in securitisation. However, respondents stressed the necessity of suitable risk-return profiles, appropriate risk-based capital requirements in Solvency II and reduced due diligence requirements. Some stakeholders expressed concern that improvements may not lead to a short-term increase in securitisation for (re)insurers (7 respondents). In contrast, public authorities (3 respondents) generally have no interest in such increase in securitisation investment.

Financial institutions expressed divergent views on which securitisation segments are of interest for (re)insurers: CRE debt, CLO, RMBS, CMBS, true sale and synthetic structures. Notably, some financial institutions showed a preference for senior tranches. In contrast, others indicated that the seniority of the tranche and the distinction between true sale and synthetic are not decisive factors, provided the associated risks and returns align with their investment objectives. Some trade associations added that (re)insurers typically exhibit a broad appetite for investments across various securitisation segments, provided the investment delivers an appropriate risk-return profile. Their investment decisions are predominantly influenced by key factors such as yield, credit risk, and liquidity, rather than the specific structure of the securitisation vehicle (whether a true sale or synthetic structure). Consequently, the seniority of the tranche—whether senior, mezzanine, or junior—does not pose a constraint for (re)insurers, as long as the associated risks and returns are in line with their investment objectives.

The majority of the financial institutions, trade associations and public authorities, including insurers identified significant obstacles to increase securitisation investments (53 respondents – among whom 19 insurers – out of 131, 14 had no opinion and 64 did not reply). These include, but are not limited to, ‘disproportionate’ capital requirements imposed on securitisations compared to other financial instruments with similar credit risk and asset quality, and that the European securitisation market is too small and illiquid.

Stakeholders were split on whether internal models disincentivise securitisation investments under Solvency II (29 yes, 9 no, 20 ‘don’t know’, 73 did not reply). A minority of respondents, amongst whom all public authorities, and a minority of financial institutions, believed that internal models do not have a disincentivising effect. Conversely, the majority of respondents (financial institutions and trade associations) concluded that internal models do indeed disincentivise securitisation investments under Solvency II. They pointed out that such models are subject to the same non-prudential impediments as (re)insurers using the standard formula. Stakeholders noted that supervisory attitudes can vary amongst jurisdictions and costs to maintain an internal model are high. They also add that (re)insurers using internal models may struggle to accurately capture the complexities of underlying securitisation, which can lead to overly conservative assumptions and, subsequently, higher capital charges. In addition, they identify possible model-building miscalibration on the asset side due to the use of historical post financial crisis data.

1.3.2. Senior STS securitisations

–The majority of stakeholders (40 respondents out of 131, 70 either did not reply or had no opinion), mainly financial institutions and trade associations, including insurers, indicated that the Solvency II standard formula capital requirements for spread risk is disproportionate and not commensurate with the risk of senior STS securitisation. One respondent suggests that the enhanced transparency of STS securitisation, combined with the presence of credit mechanisms such as guarantees or credit reserves, enables more accurate risk assessment, which should result in lower capital requirements. Whilst one public authority supports the view that the capital requirements are punitive, a majority of public authorities expressed a differing opinion, stating that there is no evidence to suggest that the calibration method for senior STS securitisations is inappropriate.

Stakeholders present two main views on the ‘appropriate’ calibration of capital requirements for senior STS. First, respondents argued that Solvency II’s emphasis on market risk volatility creates a burden that discourages investments in securitisations. According to these stakeholders, as (re) insurers typically adopt a hold-to-maturity approach, they suggested that capital calculations should be based on default risk, including recovery levels, and not spread risk. Second, respondents argued that risk charges for senior STS are disproportionally high, both in absolute terms and relative to equally rated bonds. To address this, a minority of respondents proposed aligning STS bonds with capital charges for other collateralised instruments (such as covered bonds) following Perraudin and Qiu (2022) 83 (6 respondents). These authors suggest a 1.3 ratio for senior STS ratio to covered bonds.

Only two financial institutions commented on the assessment of internal models and their impact on securitisation investments. Both argued that (re)insurers using internal models can adjust capital requirements in accordance with their own risk assessment, enabling more flexible management of both capital and due diligence requirements. This flexibility highlights the disparity between (re)insurers using the standard formula and those using internal models. Notably, these financial stakeholders pointed out that the standard formula’s capital requirements are less adaptable and fail to fully capture the risk reduction benefits associated with STS securitisations.

1.3.3. Non-senior STS securitisations

Again, the majority of stakeholders (39 out of 63 respondents – among whom 12 insurers – out of 131, 68 either did not reply), including all financial institutions and trade associations, indicated that the Solvency II standard formula capital requirements for spread risk is disproportionate and not commensurate with the risk of non-senior STS securitisation. The same public authority as in section 1.3.2. supports the view that capital requirements are punitive, whilst a majority of public authorities stated that there is no evidence to suggest that the calibration method for non-senior STS securitisations is inappropriate.

Respondents acknowledged that non-senior tranches do have a higher risk of default than senior tranches. Nevertheless, these securitisations are often covered by credit mechanisms, such as first loss tranches or credit reserves. Furthermore, stakeholders highlighted that investors in STS securitisations often have better visibility on the underlying assets, enabling more accurate risk assessments. As a result, stakeholders argued that capital requirements should be reduced to better reflect actual risk.

Similar to the calibration approach put forward in section 1.3.2., financial institutions and trade associations suggested that prudential requirements for non-senior STS securitisations in Solvency II should be more consistent with those for bonds and loans with the same rating (18 respondents). In support of this, respondents refer to the paper of Perraudin and Qiu (2022), which suggests a 1.5 ratio for non-senior STS to senior STS capital requirements (5 respondents).

With regards to differentiating the Solvency II standard formula capital requirements for spread risks between mezzanine and junior tranches, views within the stakeholder groups were split (17 respondents – among whom 2 insurers – supported differentiation, 19 respondents – among whom 9 insurers – did not express interest or opposed, and 22 had no opinion out of a total of 131; 73 stakeholders did not reply). Half of the financial institutions, trade associations and public authorities opposed such differentiation.   They claim it adds unnecessary complexity (such as defining tranche thickness) and the focus should rather be on reducing overall capital calibrations for STS securitisations (9 respondents). Additionally, some respondents reiterated their previous suggestion in section 1.3.2, namely that risk should be determined by credit risk rather than a temporary risk spread (8 respondents). They believe a more balanced approach would enable insurers to evaluate securitisation holistically, integrating it into their ALM framework without being hindered by excessive capital requirements.

In contrast, the other half of financial institutions, trade associations and public authorities who supported differentiation between mezzanine and junior tranches, argue that the capital charge should reflect the risks taken. Uniform capital charges for mezzanine and junior tranches could disincentivize investment, despite mezzanine tranches offering a balanced risk-reward profile between senior and junior tranches. One respondent added that differentiation would enable (re)insurers using internal models to better understand and manage risks, making more informed investment decisions, particularly in STS securitisations where transparency is key.

Although supportive of differentiation, stakeholders put forward limited responses on how to subsequently define this mezzanine tranche, which calibration methods they deem as appropriate and why such mezzanine calibration would be justified in Solvency II (even if no dedicated treatment for mezzanine tranches is introduced in CRR). One public authority shared that mezzanine tranches should be determined through a prudent risk assessment, considering the attachment point value to avoid underestimating risk. A low attachment point can increase risk by creating a thin first-loss tranche. A trade association and public authority add that CRR does take into amount attachment and detachment points as inputs to compute the associated capital requirement (SEC-IRBA and SEC-SA methods).

         1.3.4. Non-STS securitisations

Consistent with the findings in section 1.3.2 and 1.3.3, all financial institutions (except one) and trade associations, amongst whom a significant group insurers and insurers’ associations consider the Solvency II standard formula capital requirements for spread risk disproportionate and not commensurate with the- risk of non-STS securitisation. Respondents (40 respondents out of 131, 19 had no opinion and 70 did not provide an answer) emphasized the need to stimulate the securitisation market by eliminating the disparity in risk charges between non-STS and STS securitisations, which in their view disproportionately penalizes non-STS deals. Again, the study of Perraudin and Qiu (2022) is cited as evidence of a substantial miscalibration of capital charges relative to historic volatility data (6 respondents).

In contrast, 2 respondents (one financial institution and one public authority) argue that there is no evidence to suggest that the calibration method for non-STS securitisations is flawed. The same public authority as in section 1.3.2 and 1.3.3.) posits that the non-STS class, with fewer safeguards and including non-EU based originators, sponsors, and SSPEs, justifies the inclusion of post-financial crisis data in the calibration. The authority argues this implicitly accounts for additional risks such as agency and model risk, through the capital charges.

When asked to identify specific sub-segment of non-STS securitisation for which evidence would justify lower capital requirements, financial institutions and trade associations suggested no industry wide segment or specific class which fits a ‘uniform’ insurance model. The following segments for recalibration are put forward: granular pools (3 respondents), CLO (3 respondents), CRE debt (3 respondents) and RMBS (1 respondent).

A majority of respondents (39 respondents among who 14 insurers, out of 131, 17 respondents had no opinion and 71 did not provide an answer), in particular financial institutions and trade associations support differentiating the Solvency II standard formula capital requirements for spread risks between senior and non-senior tranches of non-STS securitisations. They argue that the current framework is insufficiently risk-based and that more granular approach, with ‘tranche thicknesses’ is needed. However, apart from references to Perraudin and Qiu (2022), no other concrete suggestions for calibration were provided through the public consultation responses.

In contrast, respondents opposing such differentiation, amongst whom one financial insurance institution and a majority of public authorities, argue that the focus should be on the type of securitisation rather than just the seniority. They also caution that introducing differentiation would add unnecessary complexity, in addition to uncertainty about the effectiveness of this measure.

1.4. Prudential framework for institutions for occupational retirement provision (IORPs) and other pension funds

Note: Respondents to this section represented a diverse range of stakeholders, with only 2 identifying themselves as IORPs. The remaining limited number of respondents comprised a mix of banks, associations for financial markets, NCAs, etc representing the interests of (non)-IORPs.

1.4.1. Interest for investments in securitisation

A total of 12 respondents out of 131 expressed a view with regards to their interest in securitisation investments (94 out of 131 didn’t respond and 25 had no opinion). Of these 12 respondents, a majority (11 out of 131, amongst whom 2 IORPs), expressed a general interest to increase IORPs’ investments in securitisation to diversify their portfolio. However, they emphasized the need for a more liquid market, with high quality securitisations to make investment more appealing. A limited number of respondents (2 replies out of 131, amongst whom no IORPS) identify the segments of interest to these pensions’ institutions, including synthetic on-the-balance-sheet securitisations and senior and mezzanine tranches. No further details were provided by stakeholders. Notably, only one respondent, a public authority, reported no interest from both IORPs and non-IORPs in increasing their investment in securitisation.

1.4.2. Obstacles for investments in securitisation

A total of 8 respondents expressed a view with regards to obstacles to securitisation (98 didn’t respond and 25 had no opinion). Out of these 8 respondents, a majority (6 out of 131, amongst whom no IORPs), indicated that the IORP II Directive does not contain provisions that restrict IORPs’ ability to invest in securitisations. Out of these 8 respondents, a majority (6 out of 131, amongst whom no IORPs), indicated that the IORP II Directive does not contain provisions that restrict IORPs’ ability to invest in securitisations. They argued that the Directive is based on minimum harmonization, allowing for sufficient flexibility in investment decisions as long as the fiduciary duty and the prudent person principle are respected. Out of the 8 respondents, a minority of disagreed (2 out of 131, amongst whom 1 IORP) and, argued respondents disagreed with the majority view, arguing that the Directive contains indirect restricting provisions. They presented two key concerns. First, they noted that securitisation structures can exhibit a wide range of risk profiles, which may not be compatible with the conservative investment strategies often employed by IORPs. As a result, even in the absence of explicit restrictions, the regulatory framework and internal policies governing IORPs' investments can create significant barriers to investing in securitisations. Second, they highlighted the potential existence of indirect barriers in Article 19 of the Directive setting out the ‘prudent person rule’.

Generally, stakeholders agreed that national legislations or supervisory practices do not unduly restrict IORPs’ and non-IORPs’ ability to invest in securitisation (8 out of 131, 97 didn’t respond and 24 had no opinion). Furthermore, respondents refrained from answering whether there are any wider structural barriers preventing pension funds from participating in the market. Nevertheless, two respondents out of 131 challenged this latter view, suggesting that overly restrictive and prescriptive due diligence and disclosure requirements act as an obstacle for investor participation. They argued that these requirements increase complexity and costs associated with securitisations, compared to other asset classes. To address this issue, they recommend reviewing the due diligence requirements, to introduce proportionality and simplifications, while maintaining overall prudence.

1.5. Additional questions

Section 12 of the Consultation covered general and wide-ranging questions covering respondents’ views for the future direction of European securitisation, the international competitiveness of the EU securitisation market, the relative potential for different market segments to contribute to the Capital Markets Union, which regulatory measures could best stimulate issuance and investment, how to address the concentration of the EU securitisation market, and so forth.

Nearly half of the respondents (55 out of 131, 74 didn’t respond or had no opinion) agree that the EU Securitisation Framework impacts the international competitiveness of EU issuers, sponsors and investors, whereas only two respondents answered that there is no impact on the competitiveness.

Several respondents (25 out of 131, 76 did not respond) identified the different national legal and regulatory regimes, and the resulting higher costs as the main obstacles for cross-border securitisation. 17 respondents point to the STS homogeneity requirements as an obstacle for cross-border securitisations. Other obstacles to cross-border securitisation were listed as IT requirements or an uncertain regulatory approach. Several respondents (28 out of 131, 83 did not respond) agree that the EU's regulatory framework for cross-border securitisation needs improvement, and suggest measures such as replacing complex templates, establishing a pan-European securitisation vehicle, and streamlining STS criteria.

Several respondents (32 out of 131, 80 did not respond) identified regulatory, market and liquidity factors as the main obstacles to increasing securitisation activity in EU Member States. To address these issues, a few respondents (19 out of 131, 80 did not respond) suggested simplifying and harmonising regulatory frameworks, enhancing transparency and reporting standards, and promoting securitisation in smaller countries. Stakeholders’ views are split regarding the effectiveness of regulatory changes in stimulating securitisation activity, with some arguing that changes are necessary and others being sceptical.

Several respondents (23 out of 131, 79 did not respond) think that the EU's securitisation framework for green transition financing can be improved by simplifying the regulatory framework, creating tax and financial incentives.

Approximately 10 respondents, principally large multinational asset managers or their interest representatives, criticised the 10% acquisition limit under Article 56 of the UCITS Directive, which they claim is triggered more easily for securitisation products than corporate debt. Critics of this provision argue that this limit, which aims to ensure diversification of risk and delimit excessive investor concentration, is unsuitable to securitisation investments, which are intrinsically diversified compared to bond issuances. These respondents emphasised the need for exemptions or adjustments to facilitate more competitive and diversified portfolio strategies for EU investors. Stakeholders disagree on which type of securitisation (traditional vs. synthetic; STS vs. non-STS) can most significantly contribute to the achievement of CMU.

A number of respondents (21 out of 131, 79 did not respond) agree that the current regulatory review should promote a comprehensive framework, rather than targeting certain segments. A minority of respondents (43 out of 131, 81 did not respond) believe that the principal reasons for the slow growth of the placed traditional securitisation are low returns due to high capital charges and operational costs, as well as difficulties in placing senior tranches.

There is no consensus on why alternative instruments such as covered bonds are preferred funding instruments in the EU. However, there is a consensus that a combination of targeted measures can stimulate traditional securitisation issuance, and that there is no “silver bullet” to singularly revitalise the market. Furthermore, in the view of 22 respondents, simplifying due diligence and transparency requirements would be beneficial, while only one respondent (a major asset manager) viewed that the due diligence and transparency requirements were not a cause for concern.

Finally, as far as securitisations of consumers loans and specifically mortgage loans are concerned, consumer organisations reiterated their concern that the securitisation severs the link between lenders and borrowers, making forbearance and loan restructuring more difficult to apply to the detriment of borrowers.

1.6. Additional or late feedback

Stakeholders were offered the opportunity to make an attachment to their contribution to cover any topic or provide any complementary information that they would deem useful. 57 stakeholders provided such inputs. Most of them aimed at expanding or clarifying the stakeholder’s point of view on certain areas of the consultation.

2 – Call for Evidence

A call for evidence was opened between 19 February 2025 and 26 March 2025 84 to request feedback from stakeholders on the review of the Securitisation Framework. Stakeholders were asked to provide views on the Commission's understanding of the problem and possible solutions, as well as provide relevant information, including on the possible impacts of the different options. 34 respondents replied to the call for evidence and presented their views. 85 Out of those 34 respondents, 26 86 had also replied to the targeted consultation with their views remaining broadly the same as outlined in the sections above. Points made by first-time respondents – outlined is greater detail below - were also consistent with the targeted consultation feedback received earlier. Taken together, views submitted in response to the Call for Evidence are already reflected in the reasoning informing the Impact Assessment and do not necessitate any change to the problem definition, choice of options and assessment of impact, as informed by previous feedback.

The views of the 8 other respondents can be summarised as follows:

1. One of the two EU citizens who responded raised concerns about market fragmentation and advocated for the creation of a government agency structure, akin to that of the United States, to promote securitisation and eliminate agency risk and moral hazard. They disagreed that AIFMs should be subject to the same capital rules as banks (to be noted that the capital rules for AIFMs are outside of the scope of the current initiative). The matter of public guarantees for securitisation structures is considered in Annex VI: Securitisation Platform(s). The other citizen respondent made a general argument against government economic intervention; however, these points were not specific to securitisation or the instant initiative.

2. The two business associations represented securitisation market participants and were broadly supportive of the review. One called for greater clarity on the scope and definitions of the SECR and argued that AIFMs should be granted risk-retention and subject to the same capital rules as banks. Scope and definitions are considered in the Impact Assessment Section 5.2.1, Measures to Reduce High Operational Costs. The other respondent advocated for a simplification of transparency and due diligence requirements. This concern is addressed in the above Impact Assessment, see Section 7, Comparison and Preferred Combination of Policy Options.

3. One company was in favour of introducing more risk-sensitive prudential rules, including recalibrating securitisation capital charges for banks and insurers. They highlighted the need for capital rules that reflect the actual risks of securitisation exposures, to facilitate grater investment, particularly for the climate and digital transitions. This concern is addressed in the above Impact Assessment, see Section 7, Comparison and Preferred Combination of Policy Options. Another company made the point that debtors must be given the first chance to repurchase their securitised loans at the same price.

4. The NGO respondent pointed out that while increased securitisation might free up additional lending, this may not necessarily benefit green or sustainable investments, but may rather be channelled towards polluting activities. It therefore called for mandatory rules for green securitisations, and the establishment of environmental safeguards to avoid securitisation being used for fossil fuel assets. Section 7.2 above discusses the current framework for green securitisation.

5. A respondent identifying as “Other” (though representing companies in the investment and pension fund sectors), called for a review of SECR and IFRS 9 to change how institutional investors’ fund investments are treated, as current rules increase balance sheet volatility and discourage investment. Any review or amendment to IFRS 9 is beyond the scope of this current initiative.

3 - Bilateral contacts with stakeholders

A wide range of bilateral contacts were held with various stakeholders during the preparation of this initiative, mostly by videoconference. Consulted parties included issuers, investors, sponsors, servicers, arrangers, third-party verifiers, data repositories, rating agencies, industry associations, and competent authorities. For the most part, the stakeholders with whom the Commission engaged bilaterally also responded to the targeted consultation, and their written response to the survey captured or repeated the main messages they had previously conveyed in the bilateral meetings.

4 - Stakeholder Workshop

On 3 July 2024, the Commission hosted a Securitisation Workshop, which invited 28 representatives of EU securitisation participants to an in-person event on the Commission’s premises in Brussels, to share their views. The day-long discussion was split across three panels: (i) EU securitisation market developments: focus on the issuers’ perspective; (ii) Balancing safety and effectiveness of securitisation exposures: prudential requirements for banks and insurers; and (iii) Decrypting the demand side: zooming into STS and due diligence. Amongst attendees were representatives from the banking industry/associations, Ministries, European Supervisory Authorities, the SSM, EIB, insurers, asset managers, and pension funds. A summary of the main takeaways by topic is presented below.

Improvements in disclosure and due diligence are nice to have, but changes in prudential treatment for banks and insurers are a must-have. With the withdrawal of the ECB from the market, participants reported a lack of senior investor base, leading to the market struggling to absorb bigger transactions. Issuers reported that when it comes to placing a deal, the biggest issue is finding investors for the senior tranche due to its size and low yield. Senior investors are primarily banks and insurers which are weighted down by capital requirements which often make investing in senior tranches unattractive compared to the yield. The absence of insurers among senior investors was highlighted. UCITS regulation (the 10% issuing entity limit) also seems to limit the ability of UCITS to participate more strongly in the market.

With regard to the prudential treatment for banks, some respondents called for a holistic approach and suggested the following measures:

·Introducing a risk-sensitive risk-weight floor was favoured by the floor as an idea that can be introduced relatively quickly (quick-fix), could incentivise the securitisation of low-RW assets and does not seem controversial.

·Revising the p-factor, on the other hand, would require more work (not a short-term solution as it ideally has to go through Basel) and it might not have the desired impact as it could incentivise banks to buy into riskier tranches.

·LCR treatment is an important factor but there does not seem to be consensus that ABS positions are sufficiently liquid to deserve an upgrade in the LCR buckets. Nevertheless, improvements could be made in this area, namely addressing the haircuts that apply to ABS positions in the LCR buckets and the ratings cliff.

On the topic of prudential regulation for insurers, insurance industry representatives acknowledged that due to the nature of their business, securitisation would remain a niche investment in their portfolio. They argued that the impact of the Solvency II formulas on securitisation investment is stronger than what supervisors perceive, even for internal-model users which can be asked to justify significant deviation from standard formulas parameters. The capital treatment of holding non-STS securitisation was viewed as both punitive and not reflecting risk.

The Securitisation Framework’s due diligence requirements were listed as a barrier for smaller investors to enter the market. Compliance costs were reported as unduly high due to lack of proportionality (e.g. repeat transactions with the same issuer and from the same programme require the same due diligence).

On transparency disclosure, various, sometimes conflicting, points were made from different market participants. For synthetic and other private securitisation investors, the standard templates were not seen to be useful, and investors reported that they obtain the necessary transparency information through bilateral negotiation rather than relying on the standard templates. Other investors viewed access to standardised information as important: the more information available via the repositories, the better. A supervisor highlighted that the templates should better reflect investor’s basic needs and should be more developed in cooperation with the industry.

Participants requested that synthetic securitisation not be neglected in any forthcoming review of the Framework. While they highlighted the importance of reviving the cash segment, synthetic transactions also contribute toward financing the real economy. No obvious avenues were highlighted to increase the use of Simple, Transparent and Standardised (STS) securitisation or to scale up the market through the use of STS.

While participants reported investor demand for SME/corporate loan securitisation, access to the right information for due diligence was cited as a challenge. Investors tend to be more comfortable when the securitised portfolios involve long-standing clients of the originating bank(s). SME loans were viewed as more likely to be securitised synthetically. Finally, some respondents pointed out that as SMEs are part of all market segments (trade receivables, leases), incentivising securitisation across the board will also benefit SMEs (e.g. an SME that borrows using real estate as collateral will not appear on the banking book as an SME loan but rather as a mortgage loan).

The Commission services invited workshop participants to provide their views through the targeted consultation that would follow, which would be duly considered in the preparation of the impact assessment and any ensuing legislative proposal.

5 - Input from the ESAs and ESRB

The ESAs were consulted and carried out important analytical that fed our analysis. In particular, the 2021 Art. 44 Joint Committee report on the implementation and functioning of the Securitisation Regulation 87 which focused on the implementation of the general requirements applicable to securitisations, including the risk retention, due-diligence and transparency requirements as well as on the specific requirements related to STS securitisations. The Joint Committee has been working on its second report due for publication by early 2025. The expert discussions that took place in the preparation and drafting of this document have also informed our reasoning. Another important contribution came from the findings of the ESAs opinion on the jurisdictional scope of the Securitisation Regulation 88 and the compliance challenges that such jurisdictional scope posed for market participants.

Another important input has been the ESAs’ Joint Committee advice on the review of the securitisation prudential framework 89 , which was published in December 2022 in response to the call for advice from the European Commission of October 2021. The Joint Committee report assessed the performance of the rules on capital requirements (for banks, insurance and reinsurance undertakings) and liquidity requirements (for banks) with respect to the framework’s original objective of contributing to the sound revival of the EU securitisation framework.

Finally, the insights from the 2022 European Systemic Risk Board’ report “Monitoring systemic risks in the EU securitisation market” 90 on the financial stability implications of the EU securitisation market have also helped the assessment.

5 - Input from Member States

National authorities were consulted in the framework of the Eurogroup Working Group+ (EWG+), and the Council Financial Services Committee (FSC). Several Member States also replied to the Targeted Consultation above through their finance ministries or central banks (FI, FR, IT, ES, DK, NL, BE, PL).

Overall, Member States (expressing their views in the FSC and the EWG+) showed general willingness to reduce the operational costs for issuers and investors. They are more split as regards their appetite to reconsider prudential requirements for banks and insurers, and generally are unwilling to deviate materially from the Basel standards. Member States reported an openness to explore the potential benefits of a securitisation platform(s) as a measure to facilitate standardisation of the market, but most expressed opposition to a platform based on public guarantees (as in the US, where a significant part of the securitisation market is guaranteed by Government-Supported Entities or GSEs, such as Fannie Mae and Freddie Mac).

During the session of October 2024, the FSC discussed the issue of securitisation under the agenda item: “Follow up on the future of CMU”. COM and ECB representatives introduced a COM non-paper with a factual comparison of the securitisation frameworks in some selected jurisdictions, that was developed at the rest of the FSC. There was overall a very extensive debate, with almost all Members taking the floor, and commenting not only on the content of the COM and ECB presentations, but also on what should be the focus of the upcoming reforms on securitisation. The Members seem to be open to introducing proportionality in transparency and due diligence requirements, and supporting the standardisation of the transactions, some are open to look into Solvency treatment. Many Members suggested examining the demand side as well (i.e. call for increasing the investor base in securitisation). Others expressed caution with respect to changes in the prudential treatment. Some Members highlighted the reforms should not endanger financial stability.

Many Members also commented on the issue of platform: generally, Members supported platforms that support standardisation of the securitisation transactions, but were more cautious as regards the platforms involving the state guarantees. Some Members highlighted it is important to define target and objective of the reforms. The Chair concluded that some areas may be more important than the prudential treatment and may have bigger impact on the EU market (transparency, due diligence, supply and demand issues, standardisation etc), also because of the specificity of the EU market where we have many synthetic transactions.

During the FSC session of February 2025, the Commission shared preliminary feedback on the results of the consultation on the Securitisation Framework, as set out in the Section 1 of this Annex. Overall, views were expressed on both the conservative and ambitious side of where to set the “cursor” for the ambition of the initiative. There was a clear consensus on the need for action on the Framework, with Member States emphasising that any measures must be evidence-based and balanced. On the platform and public guarantees, the issue needs further analysis and the different approaches – national, EU-wide, or private – merit further discussion. No clear picture emerged from respondents favourable or opposed to guarantees – many large financial institutions on both sides of the debate, alongside NGOs and MS.

During the session of 28 November 2024 EWG+ there was a high degree of convergence on the issues to tackle: prudential regulation, reporting requirements, the need to simplify, to correct an excessive reaction in previous round of legislation. On the Platform, preliminary discussions at the EWG+ indicated very few Member States would favour a pan-European platform with guarantees (national, supplemented by EU-level). For most Member States, however, attaching public guarantees to securitisation issuance is a controversial topic. One MS appeared to favour a market-led structure without guarantees.

Annex III: Who is affected and how? 

1 - Practical implications of the initiative

This Annex summarises the costs and benefits of the preferred options, which address the following problems identified in chapter 2 :

·Problem 1: High operational costs for all issuers and investors

·Problem 2: Undue prudential barriers for banks to issue and invest in securitisation

·Problem 3: Undue prudential costs for insurers to invest in the EU securitisation market

In order to address the identified problems, a combination of three policy options is chosen (see Section 5 for a detailed description and Section 6 for an assessment): Option 1.1 targeted measures to reduce high operational costs, Option 2.1 targeted changes to existing prudential (capital and liquidity) framework for banks, and Option 3.2 improving risk sensitivity and removing prudential barriers to investments by insurers in the safest tranches of non-STS securitisation.

Under option 1.1., issuers (originators, sponsors and SSPEs) would have to disclose information for their securitisations using simpler templates than under the baseline. Consequently, issuers would have to adapt their reporting systems. Investors would carry out lighter and more proportionate due diligence on their securitisation investments.

Under option 2.1 banks would be subject to more risk sensitive capital requirements for securitisation positions. In addition, banks would be able to hold a broader set of securitisations for their liquidity buffers. Finally, option 2.1 banks would be able to benefit from faster and more coherent process of supervisory assessment of transactions’ eligibility for capital relief.

Under Option 3.2, insurers would apply differentiated capital requirements for their investments into senior and non-senior tranches of non-STS securitisations.

2 - Summary of costs and benefits

The figures below summarise first the costs and benefits of the preferred option:

·Figure 7: Provides an overview of benefits of the preferred combination of policy options.

·Figure 8: Summarises the costs of the preferred combination of policy options

·Figure 9: Summarises the administrative cost changes of the preferred combination of policy options for the one-in-one-out calculator

·Figure 10: Summarises the costs and benefits of the baseline scenario of the current Securitisation Regulation (based on the Evaluation)

·Figure 11: Shows how the preferred combination of policy options might impact the sustainable development goals

Figure 7:    Overview benefits of the preferred combination of policy options

*Some elements are not quantifiable due to various reasons, such as (i) it is difficult to assess behavioural changes of market participants as a result of the changed framework; (ii) the options include a series of measures including several parameters, rather than a single measure; and (iii) a number of measures are qualitative (i.e. increasing the quality of the rules).

(1) Estimates are gross values relative to the baseline for the preferred option as a whole (i.e. the impact of individual actions/obligations of the preferred option are aggregated together); (2) Please indicate in the comments column which stakeholder group is the main recipient of the benefit;(3) For reductions in regulatory costs, please describe in the comments column the details as to how the saving arises (e.g. reductions in adjustment costs, administrative costs, regulatory charges, enforcement costs, etc.;);.

Figure 8:    Overview costs – preferred option

Estimates (gross values) to be provided with respect to the baseline; (2) costs are provided for each identifiable action/obligation of the preferred option otherwise for all retained options when no preferred option is specified; (3) If relevant and available, please present information on costs according to the standard typology of costs (adjustment costs, administrative costs, regulatory charges, enforcement costs, indirect costs;).

Figure 9:    Application of the ‘one in, one out’ approach – Preferred option(s)

(*) Net administrative burdens = INs – OUTs;

(**) Adjustment costs falling under the scope of the OIOO approach are the same as reported above. Non-annualised values;

(***) Total administrative burdens = Net administrative burdens for businesses + net administrative burdens for citizens.

3 - Details of costs and benefits

1.Status quo & Overview of costs and benefits identified in the evaluation 

The below tables reproduce the conclusions of the Evaluation (Annex V), to demonstrate the full scale of the benefits (e.g. the administrative cost savings) of the preferred option, in comparison to the administrative and substantive cost burdens that are incurred in securitisation transactions under the status quo.

Figure 10:    Costs and benefits of the current Securitisation Regulation (based on the Evaluation)

2.Size of the market for securitisations

The following figure overviews the approximate size of the securitisation market, which is relevant for the later extrapolation of costs and benefits.

As the securitisation market is very diverse, no single data source describes the market as a whole. Data for the public market is drawn from the Association for Financial Markets in Europe (AFME). Less data is publicly available for the private market, however the EBA is collecting data in their Common Reporting Framework (GL). EBA data can show only that part of the private market where a bank is involved in least on one side of the transaction (investor or originator/sponsor/original lender). To our knowledge, no data is available for the private market without any bank involvement.

The below cost estimation uses the latest available data (end-2023) for both public and private market segments. 

Figure 11:    Market data on EU securitisations (end-2023)

3.Nature of duties due diligence requirements (Article 5)

The due diligence requirements of Article 5 SECR oblige institutional investors to perform a risk assessment of the securitisations they invest in. These requirements are designed to protect investors, to assure regulatory compliance and to ensure that all parties involved in the securitisation transaction have access to accurate and timely information concerning the underlying assets, securitisation structure, and associated risks. The main due diligence requirements apply to investors and include:

1.Verification requirements prior to entering into a securitisation position:

oVerification of credit granting standards (only if the originator is neither an EU investment firm nor an EU credit institution or if it is located outside of the EU)

oVerification of risk-retention

oVerification of fulfilment of disclosure obligations required by Article 7 by the originator or sponsor or SSPE

oVerification of sound selection procedure and pricing for non-performing exposures

2.Risk-assessment prior to entering a securitisation position including:

oAssessment of risk characteristics of the individual position and of the underlying exposures

oAssessment of the structural features of the securitisation that can materially impact the performance of the securitisation position, including the contractual priorities of payment and priority of payment-related triggers, credit enhancements, liquidity enhancements, market value triggers, and transaction-specific definitions of default;

oSTS verification: checking the compliance of that securitisation with the STS requirements provided for in Articles 19 to 22 or in Articles 23 to 26, and Article 27

3.Ongoing monitoring of the risk characteristics after entering a securitisation position including 

opercentage of loans more than 30, 60 and 90 days past due,

odefault rates,

oprepayment rates,

oloans in foreclosure,

orecovery rates,

orepurchases,

oloan modifications,

opayment holidays,

ocollateral type and occupancy, and

ofrequency distribution of credit scores or other measures of credit worthiness across underlying exposures,

oindustry diversification

ogeographical diversification,

ofrequency distribution of loan to value ratios.

4.Ongoing stress-testing after entering a securitisation position:

oregularly perform stress tests on the cash flows and collateral values

oor stress test loss assumptions.

5.Ongoing reporting, both internally and to authorities:

oThe securitisation transaction must be backed by a homogeneous pool of exposures, such as pools of residential loans or corporate loans. The underlying exposures should not include transferable securities.

However, sell-side parties support this due diligence process, e.g. by performing due diligence sessions where they guide investors through all relevant questions that need to be answered over the course of their due diligence process.

4.Cost drivers for Article 5 costs and separation of incremental costs from business-as-usual costs: 

Investors perform due diligence activities in their regular course of business. These costs that are linked to business-as-usual due diligence activities (“BAU costs”) are not relevant for the cost assessment, which focusses on “incremental costs”, i.e. costs that businesses would not incur in the absence of the EU Securitisation Framework. In the stakeholder consultation, securitisation investors pointed to the following costs that go beyond what those incurred in the regular course of business:

·Verification beyond the assessment of the risk characteristics and the structural features of the transaction

·Due diligence on originators that are regulated entities and that therefore can be assumed to have originated their assets based on sound-credit granting standards

·Elaborate due diligence for secondary market transactions that have already been checked by primary investors or are in the end of their life cycle with a high collateral to outstanding asset-ratio and hence with very low risk

·Due diligence on repeat issuers that are already familiar to the investor

·STS verification

·Elaborate due diligence on low-risk transactions

·Certain activities that are considered duplicative in nature, e.g. secondary or tertiary real-estate price valuations

·Repetition of due diligence activities that have been performed by another party in the process (e.g. the asset manager) 

5.Classification of due diligence costs from a better regulation perspective

Given that the substantial due diligence requirements extend largely to checking whether originators having fulfilled their duties in the credit origination and transparency process (which is an inspection duty performed on behalf of public authorities), as well as to internal reporting, it is reasonable to classify these as administrative costs for purposes of the better regulation process and to consider them in the One-In-One-Out calculation. 97

6.One-off costs due diligence

To establish appropriate due diligence procedures, investors in securitisations incur one-off efforts to adapt their due diligence procedures to the requirements of Article 5 SECR. Such one-off efforts involve familiarisation with the new rules, potentially obtaining legal advice for the correct interpretation of the rules and adapting internal procedures and guidance. It was not possible to obtain information on one-off implementation costs from the stakeholder consultation. Several large asset managers mentioned that they had already similar procedures in place before the legal framework was put into place, so there was no implementation effort. Other respondents mentioned that they had spent significant efforts, but that their processes adapted slowly over time and the exact costs of this effort cannot be accurately estimated.

The business association AFME estimated for new businesses the time necessary to understand and implement due diligence procedures to be 2-3 months out of the approximately 9 months required to set-up the whole securitisation business and has collected a cost sample for due diligence costs of that constitutes about 20% of asset managers investing in European securitisations, representing about 50% by ABS assets under management. They estimated the one-off start-up costs for a securitisation business to about EUR 400 000, with about 30% due to Art. 5 due diligence requirements, i.e. approx. EUR 130 000. AFME estimates the total number of asset managers investing in securitisations in the European market to be less than 20. In addition, the EBA estimates the number of bank investors to 55-127, where the lower bound are banks with the role “investor” only and the upper bound includes also banks with the role “originator”, “original lender” or “sponsor”. This means that the upper bound includes also banks that invest only in the retained tranches of their own securitisations, which are not acting as investors into third-party transactions in the market. To isolate market investors only, we assume that about half of the bank investors invest only inhouse, which corrects the range of bank investors to about 55-90 institutions. In addition, to get an indication of non-bank investors, we refer to published data of the ESRB that estimates the holding share of banks in securitisations to 84% 98 , which implies an estimate of about 25 investors including an estimate of 11 investment firms 99 . in total about 80-115 investors, this amounts to about EUR 10 to 15 million.

7.Recurring costs due diligence

While due diligence requirements apply mainly to buy-side parties/investors, the consultation process has shown that sell-side parties (originators, original lenders, sponsors) take also a role in this process by supporting investors, e.g. by performing due diligence sessions where they guide investors through all relevant questions that need to be answered over the course of their due diligence process. Furthermore, for certain transactions due diligence activities are performed by asset managers acting as intermediaries as well as end-investors. The table below provides an estimation of the costs that apply at all levels of the due-diligence process and yields in total ab EUR 660 million p.a.

(1) The observations for synthetic securitisations rely on the submission of the International Association of Credit Portfolio Managers (IACPM) that has collected a sample of observations among their members.

(2) The due diligence support of originators in the synthetic SRT segment has been translated in basis points (i.e. 1/100 of a percentage point) by dividing absolute values of costs in EUR p.a. per transaction by the estimated average pool size of a synthetic transaction.

(3) For the investor side, for synthetic SRT transactions the costs for 1-3 investors per transaction are assumed 100 and the mid-range (2 investors) is shown. To translate the cost values in EUR per transaction p.a. in basis points (i.e. 1/100 of a percentage point), the pool size has been used (not the secured amount/investment ticket size) in order to be able to scale up the cost to the market size that is expressed in outstanding underlying asset volumes.

(4) The share of 12% has been taken as assumption for the share of market involvement of asset managers in the investment process of non-synthetic transactions and is based on a ESRB publication on asset manager involvement in securitsation transactions (with a correction to exclude banks holding their own retained shares only) 101 .

(5) The classification as investor vs sell side of the replies received in the stakeholder consultation is as follows: If in the reply to question 0.16 “involvement role” was one of the following (no buy-side role and: “investor in synthetic securitisations” or “Investor in synthetic securitisations”) or in a follow-up with the stakeholder it was clarified an investor role or if both roles were selected and the principal activity (question 0.13) is “Investment Management”.

(6) The classification of the replies received in the stakeholder consultation as sell-side has been performed if exclusively sell-side roles were selected, i.e. “originator of synthetic securitisations”, “originator of traditional securitisations”, “sponsor” or “arranger” or it was explicitly stated in a follow-up interaction.

(7) Three observations were obtained in the traditional sell-side segment with a full range of 1.5-2.5 bps and the mid-value of 2.0 bps has been selected as representative value..

(8) Observations from stakeholder consultation and related follow-up interactions. If reply showed absolute annual cost value per transaction, , a ticket size of EUR 10 million has been assumed – reflecting the median size of a median market transaction of approx. EUR 400 million and typical investor numbers per public transaction of 30-50 investors, which implies an average investment ticket size of EUR 10 million) – to translate into relative costs expressed in basis points. If explicitly stated in the reply, the ticket size of the respondent has been taken into account to obtain the relative costs.

8.Benefits of moving to a more principles based and proportionate due diligence approach

Stakeholders responding to the public consultation almost unanimously welcomed the proposal of Option 1.1, i.e. a more principles based, less complex and proportionate due diligence approach (95% - i.e. 81/86 respondents to that question. Only 2 preferred to make the requirements even more detailed and prescriptive, and 3 would like to keep the regulation unchanged; an additional 45 respondents had no opinion).

One of the major benefits that respondents see in a more principles-based approach is the possibility to focus on risk areas of the transaction. For some transactions respondents would prefer lower due diligence requirements as the risks involved would not justify certain efforts.

Transactions with repeat issuers were frequently mentioned. AFME estimates the share of repeat issuance to about 67% of the public market. 102 Apart from being dissatisfied with performing controls that are in other jurisdictions performed by public authorities, e.g. verifying EU issuers’ compliance with risk retention requirements, the repetition of such checks for several transactions with the same issuer in a short period of time is seen as superfluous and unduly costly.

Secondary market transactions were another frequent example in this context, where due diligence requirements could have a prohibitive effect as the time window available to give an offer (e.g. 1-2 days) was insufficient to perform all due diligence tasks. These can take (according to the consultation replies) up to 10 days. As a result, non-EU investors are reported to benefit by getting easier access to the securitisation investments in the secondary market, while certain EU investors are excluded. Furthermore, given that the underlying exposures amortise over time, the remaining time to maturity is much shorter and the relation between collateral and exposure much more favourable than for the initial primary transaction, hence the remaining risk is significantly reduced while the due diligence requirements remain unchanged. To our best knowledge, there was no publicly available market data on the share of primary vs. secondary transactions, but one experienced asset manager estimated the relationship between secondary to primary market transactions as about 50%:50% in the traditional securitisation market. In the synthetic market investments are usually held to maturity or until it can be called, i.e. they are not relevant for secondary market transactions.

Low-risk transactions in the AAA or investment grade segment are another frequently mentioned example for transactions that require in the eyes of most investors a lower degree of due diligence activities. Investors would therefore prefer setting certain priority areas for their due diligence activities in line with the risk characteristics of the underlying collateral and the structural features of the transaction.

While banking and insurance investors can offset the costs of additional STS compliance checks through preferential capital treatment, investment firms have no additional benefit and regard the label therefore rather as a “nice-to-have”. Transactions designated as STS are subject to additional checks which considered as particularly burdensome.

Hence, an AAA transaction with a repeat issuer in the secondary market could be considered the heaviest in terms of regulatory burden and the perceived excess burden of such transactions can be up to 75%. Based on the replies received in the stakeholder consultation, we estimate the savings potential as follows:

Figure 12: Estimated savings recurring annual due diligence costs

(1) In line with the observations of annual recurring due diligence costs, the submission of the association IACPM that was the only submission explicitly referring to synthetic securitisations and with a sample collected among their members has been taken as representative for the synthetic market segment.

(2) Observations for the traditional market segment have been taken from the stakeholder consultation.

(3) Weighted average savings potential, which results on the sell side from 83% of respondents stating a savings potential of 0%-25% (avg. 13%) and 17% of respondents estimating savings of 25%-50% (avg. 38%)..

(4) Median savings potential

(5) 0.3 basis points * 17% + 0.3 basis points * 16% = 0.1 basis points. While this seems small, it has to be taken into account that in the synthetic market segment only about 8% of the underlying asset value are securitised (or invested). 103 In relation to the invested tranche the savings potential is about 1.3 basis points. Initial values from the section above on recurring due diligence costs.

(6) 2.0 basis points *36%+2.8 basis points *50%. Initial values from the section above on recurring due diligence costs.

We obtain a savings potential of about EUR 290 million for the EU securitisation market, due to the duplicative or redundant nature of the provisions that are proposed to be removed in the preferred combination of options. These savings come without expected negative impacts on the risks of individual transactions as well as the securitisation market as whole and EU macroeconomic financial stability.

Another frequently mentioned point linked to the due diligence requirements is a barrier to entry resulting from the magnitude of the due diligence duties. The barrier to entry is cited in over 40 replies to the stakeholder consultation. AFME estimates that setting-up a new EU securitisation investment business requires about 9 months of start-up with 2-3 months alone to understand and implement the due diligence rules. They show for the example in the Figure 13 below that an AAA STS asset management business requires about 40 months to reach profitability. The reason is that for low-yield products, the management fee is correspondingly low, therefore it takes long time as well as a very large pool of assets (estimated to about EUR 1,5 billion) to break even. This effectively excludes certain market players. This applies in particular to low yield high grade AAA products that are regarded as cash-equivalents by investors and that are quickly divested once cash is needed, which makes it more difficult to keep a sufficient investor base for such products. AFME estimates the universe of asset managers active in the public securitisation market to be below 20 players. For a comparable covered bond business, the number of players is significantly higher: AFME found alone 160 investors in a single covered bond product. As a result, simpler and more proportionate due diligence requirements could lead to an investor base 5 to 10 times larger than today’s. More investors could significantly improve the liquidity in this market.

Figure 13:    Estimated time to break-even for new market entrant building a business for a AAA STS securitisation

9.Nature of duties transparency requirements (Article 7)

The Transparency Requirements of Article 7 SECR oblige issuers of securitisations: originators, sponsors or SSPEs, to provide investors with information in a structured, comparable and reliable way. In contrast to other comparable instruments that require reporting on an aggregate level, securitisations require reporting on a loan-by-loan basis, including for granular exposures, such as credit card receivables. The main reporting obligations include among others:

·Transaction documentation to be made available before pricing: The originator and sponsor must make available the contractual documents (e.g. asset sale agreement, derivatives and guarantee agreements, collateralisation arrangement) and for public transactions, the prospectus, for STS transactions, the STS notification as well as additional information on the static and dynamic historical default and loss performance with a sample of the underlying exposures subject to verification by an external third party (“third party verification” or “TPV”) as well as in case of residential loans, auto loans or leases additional information on the environmental performance of the assets.

·Ongoing disclosure on underlying exposures: The originator and sponsor must make available on a quarterly basis (for ABCP on a monthly basis but only in aggregate form) information on the underlying exposures of a securitisation including the credit quality, performance, data on the cash flows generated and risk retained as well as event-triggered information (e.g. use of inside information or breach of obligations, change of structural features or risk characteristics). For STS transactions there are additional requirements to make available data on static and dynamic historical default and loss performance, such as delinquency and default data, for substantially similar exposures to those being securitised. Public securitisations are obliged to report to a Securitisation Repository and private securitisations via a private website following ESMA templates, which require a high number of datapoints compared to other financial instruments.

10.Drivers of transparency costs and separation of incremental costs from business-as-usual costs: 

As the main cost drivers for the transparency regime, stakeholders mentioned:

·The high level of detail required by ESMA templates and the lack of consultation of market participants in the templates’ creation, meaning that the templates often did not match investor needs and relevant information has to be obtained separately.

·The requirement of granular reporting, which can be very challenging for small exposures like credit-card, trade or leasing receivables. For comparable instruments like covered bonds, aggregate reporting is sufficient.

·The additional burden linked to STS reporting (such as default history) and verification

Hence, the incremental costs of Article 7 reporting result mainly from the granularity and unsuitability of templates, level of detail as well as from STS-specific reporting.

11.Classification of transparency costs from a better regulation perspective

As the transparency requirements of Article 7 clearly link to disclosure and reporting they are classified as administrative costs from a better regulation perspective and are to be reported for One-In-One-Out purposes 104 .

12.One-off costs transparency

At the time of the introduction of the Securitisation Framework, issuers (originators and sponsors) of securitisations incurred one-off implementation costs to adapt to the new disclosure infrastructure. Such implementation activities included (but were not limited to) familiarisation with the new transparency requirements (Level 1 regulation, Level 2 RTS, ITS and FAQ), sometimes involving legal advice, and IT implementation. Depending on the underlying exposures and issuers, the latter could require the opening of several relevant IT systems, e.g. for mortgages, corporate loans etc., adding to those systems data fields that were not previously covered. Furthermore, a reporting interface would need to be set up to provide disclosures in the required format. For small issuers, without such an extensive IT infrastructure, such disclosures might have been set-up in simpler ways, e.g. in Excel templates. In this context the number of asset classes covered (e.g. RMBS or corporate loans) is an important cost driver as each asset class requires individual reporting templates.

Consultation respondents reported one-off costs in the range of EUR 27 000 to EUR 4 000 000, with an interquartile range of EUR 400 000 to EUR 1 300 000 and a median of EUR 900 000. Based on data provided by the European Data Warehouse we estimate approximately 260 public market issuers (originators and sponsors) 105 and based on EBA COREP data about 150 private market issuers (originators and sponsors) that had to incur costs during the period 2019 to 2025 to set up a transparency regime. Of these 410 originators, we estimate about 330 to be still active. 106  

Taking the median value for implementation costs, i.e. EUR 900 000, we estimate the one-off implementation costs for the EU securitisation market to be approximately EUR 370 million.

These costs apply to businesses. Citizens were not directly affected by Securitisation Framework and hence incur no costs.

13.Recurring costs transparency

On the recurring transparency costs, we have collected the following information:

Figure 14: Estimated market transparency cost

* Due to a very small number of observations for each transaction type, information reported from business associations with a broad base of contributing institutions has been taken as representative value. For most segments the values reported by business associations are within the range of values reported by individual contributors.

**The estimated transaction number is derived from the market volumes by segment as shown in Annex 3 and obtained from the AFME market data report Q4 2023 and the EBA. The market volume has been divided by average transaction sizes for the relevant market segment, where the average transaction size for public non-ABCP Transactions has been obtained from the European Data Warehouse; the average transaction size for private ABCP transactions from the association True Sale International in collaboration with the German Banking Association 107 ; and it has further been assumed that private traditional transactions have a comparable average size as public traditional and private synthetic SRT transactions. The average transaction size of CLO transactions for 2024 has been obtained from the The Alternative Credit Investor Magazine (March 10 2025).

Consultation respondents considered transparency costs for EU securitisations to be significantly higher by stakeholders than the costs for comparable instruments like covered bonds, credit default swaps, credit linked notes, or non-EU securitisations (29 replies). Only 2 respondents assessed the costs as similar or moderately lower. The main reason for the additional costs is the required granularity (loan-level data) and the high number of data fields required by the templates.

There might also be opportunity costs in the sense that the reporting requirements prevent certain assets from being securitised. Some respondents mentioned that they were not able to collect or report certain datapoints for legacy transactions and therefore were not able to securitise them. However, such opportunity costs were not quantifiable by respondents.

14.Impacts of the preferred policy option

The preferred policy Option 1.1 (“Streamline the current disclosure templates for public securitisations. Introduce a simplified template for private securitisations. Require private securitisations to report to securitisation repositories”) was the preferred choice of 76% of respondents to this question in the targeted consultation (54//71). 13 respondents preferred option 1.2 (“Remove the distinction between public and private securitisations. Introduce principles‑based disclosure for investors without a prescribed template. Replace the current disclosure templates with a simplified prescribed template that fits the needs of competent”). 4 respondents favoured “no change”, while 63 additional respondents had no opinion on this question.

Option 1.1 was preferred by many respondents under the condition that it would mean retaining the current templates while introducing flexibility by using the “no-data” option more extensively. Removing the requirement of loan-level reporting for granular transactions, and instead allowing for aggregate reporting was also favoured. Some replies called for greater flexibility in the required format, e.g. allowing disclosure in Excel format (rather than .xml). To meet the information needs of investors allowing the inclusion of additional data would also be welcomed. Some respondents pointed also to the benefits of alignment and data sharing between authorities (ECB, NCAs) for the reporting entities.

Most respondents, however, refrained from estimating the quantitative effects on the costs of the preferred option as they would depend on concrete details of the proposed change. Of the few replies received, most respondents envisaged “minor” or “moderate” costs, mainly as the bulk of the costs has been already incurred in the implementation of the existing templates. A change as in Option 1.1 of keeping the templates while increasing the flexibility could lead to moderate one-off IT adjustment costs and a reduction of on-going reporting costs of up to 15%-25% (with an average value of 22.5%). Applied to the currently estimated EUR 120 million annually, this could correspond to a cost saving of EUR 26 million annually.

The securitisation repositories estimate the adjustment costs for the described adaptation to about EUR 50 000-70 000. If we assume that the approx. 3 3 0  active issuers have comparable cost and adding a margin of conservatism, we estimate about EUR 100 000 per issuer for an IT adaptation (there will be smaller players operating without IT infrastructure and larger players with more complex IT systems and changes and assuming that as many existing datapoints will be utilised as possible), we obtain one-off implementation costs of about EUR 33 million.

Furthermore, the potential requirement of private transactions to report the data (that is already collected today under Article 7) to securitisation repositories, would result in at least approx. EUR 10 000 p.a., which translates for an estimated market transactions volume of 660 transactions to about EUR 6.6 million or EUR 7 million (rounded).

15.Summary

Figure 15: Summary due diligence and transparency costs and impacts of preferred combination of options