Alert

Consultation of the European Commission of 9 October 2024 on the functioning of the EU securitisation framework

Raffaele Mollo

October 17, 2024

On 9 October 2024, the European Commission launched a targeted consultation (the “Consultation”) on the functioning of the EU securitisation framework currently in force.

The Consultation is targeted, in view of the technical nature of the relevant issues, to market participants, including data repositories and rating agencies, industry associations, supervisors and research institutions, and is aimed to identify potential areas for the improvement of the EU securitisation framework.

1. Background

The Regulation (EU) 2017/2402 sets out a general framework for all securitisations in the EU and a specific framework for simple, transparent, and standardised (STS) securitisations (the “Securitisation Regulation”) and was introduced with the core objective of reviving an EU securitisation market without creating risks to financial stability, also taking into account the 2008-2009 global financial crisis which caused a significant decrease of volumes and confidence in the securitisation market.

The Securitisation Regulation and its subsequent amendments improved transparency and standardisation in the securitisation market; however, stakeholder feedback gathered in preparation of the “Report from the Commission to the European Parliament and the Council on the functioning of the Securitisation Regulation” (published on 10 October 2022) and subsequent stakeholder engagements indicated that issuance and investment barriers remain high, impeding the EU economy from fully reaping the benefits that securitisation can offer. In particular, originators and investors argue that issuance and investment barriers are partly driven by the conservativeness of specific aspects of the regulatory framework, such as transparency and due diligence requirements, as well as the capital and liquidity treatment of securitisations.

Against the mentioned background, the European institutions took several preliminary steps:

the Eurogroup statement of 11 March 2024 invited the Commission to assess all the supply and demand factors hampering the development of the securitisation market in the EU, including the prudential treatment of securitisation for banks and insurance companies and the transparency and due diligence requirements (while taking into account international standards);
the ECB Governing Council statement of 7 March 2024 suggested exploring the use of public guarantees and further standardisation;
the European Council conclusions of 18 April 2024 reinforced this call to relaunch the European securitisation market, including through regulatory and prudential changes, using the available room for manoeuvre; and
the European Council conclusions of June 2024 called again on the Council and the Commission to accelerate work on all identified measures under the capital markets union.

Relaunching securitisation has been recommended as well in the reports from Christian Noyer, Enrico Letta and Mario Draghi as a means of strengthening the lending capacity of European banks, creating deeper capital markets, building the European Savings and Investments Union and increasing the EU’s competitiveness.

In light of the above, the Consultation has been launched, seeking the stakeholders’ feedback on a broad range of issues regarding the EU securitisation framework.

2.Scope of the Consultation

The issues included in the scope of the Consultation are hereby summarised:

effectiveness of the securitisation framework, aimed at considering whether the original policy objectives have been achieved, in full or in part;
impact on the SMEs, aimed at gathering insights into the impact of the securitisation framework on SME financing;
scope of application of the Securitisation Regulation, aimed at clarifying certain features of the Securitisation Regulation, in particular with respect to the jurisdictional scope and the legal definitions;
due diligence requirements, having regard to the resources and/or necessary infrastructure incurred by investors in complying with the due diligence requirements set out in the EU Securitisation Regulation;
transparency requirements and definition of public securitisation, aimed at achieving whether it would be useful to amend (e., widen) the definition of public securitisations under the Securitisation Regulation, as well as the transparency requirements for private securitisations;
supervision, aimed at considering the streamlining and improving supervision of the EU competent authorities in order to ensure consistency, better coordination, and a proportionate approach to avoiding divergent practices;
STS standard, seeking the stakeholders’ feedback on the use of the STS label, including how to increase its attractiveness for both originators and investors;
securitisation platform, regarding the potential setup of a pan-EU securitisation platform;
prudential and liquidity risk treatment of securitisation for banks, considering that many stakeholders consider such treatment as having a decisive impact on the attractiveness of the securitisation instrument for banks and point out to a relative disadvantage of the prudential treatment for some types of securitisations in comparison with other financial instruments;
prudential treatment of securitisation for insurers, aimed at achieving whether the Directive 2009/138/EC (Solvency II) standard formula capital requirements or other factors cause limited demand by insurance companies in securitisation positions;
prudential framework for institutions for occupational retirement provision (IORPs) and other pension funds, including questions around whether the Directive (EU) 2016/2341 (IORP II) includes provisions capable of restricting the IORPs’ ability to invest in securitisations positions;
additional questions, including some general questions on the functioning of the securitisation market and on wider aspects that may affect the securitisation activity and various segments of the securitisation market in the EU.