EU Securitisation framework – June 2025 proposals

On 17 June 2025, the European Commission (the "Commission") proposed a package of measures to make the current European Union ("EU") securitisation framework simpler and more fit for purpose (the "June 2025 Proposals"). The proposed measures seek to facilitate increased securitisation activity in the EU while continuing to safeguard financial stability.

Key Points

Amendments to the EU Securitisation regulatory framework

1. Amendments to the Liquidity Coverage Ratio (the "LCR")¹

Arguably the most interesting development is the Commission announcing a consultation on targeted amendments to the LCR, which details the liquidity coverage requirement for credit institutions – potentially making securitisations more attractive to bank treasury investors.

As a quick reminder, the LCR requirements exist to regulate and characterise assets which may be used by credit institutions to meet their short-term liquidity buffer requirements. It is an important lever available to regulators in assisting the securitisation market, as a more favourable characterisation of securitised assets within this framework is expected to increase bank treasury demand for asset-backed securities.

Currently, credit institutions are mandated to hold “high quality liquid assets” ("HQLA") that will cover their net liquidity outflows over a 30 days stress period. Certain securitisations are eligible as "assets of high liquidity and credit quality" (described as Level 2 Assets), though no securitisations qualify as "assets of extremely high liquidity and credit quality" (described as Level 1 Assets). The securitisations qualifying as Level 2 Assets (in this case Level 2B) are AAA rated STS tranches, and these have haircuts of between 25% and 35% depending on asset class (so higher than Level 2A Assets (15%) and Level 1, where, in respect of both, no securitisations qualify).

Under the June 2025 Proposals, the Commission has proposed that STS securitisations with AAA rated tranches right down to A- rated tranches would qualify for the HQLA. The haircut to be applied to AAA to AA- positions would be 25% and for A+ to A- it would increase to 50%. However, the Commission does propose that a lower 15% haircut (so on par with Level 2A Assets) would apply to the new category of "resilient" STS securitisations. These are senior securitisation positions that, amongst other things, are STS, have sequential amortisation (or pro rata amortisation if the transaction includes performance-related triggers requiring a switch to sequential amortisation) and the exposures in the pool must comply with a maximum concentration limit of 2%. There is also currently a requirement that HQLA qualifying securitisation positions have a remaining weighted average life of five years or less. The Commission has proposed to remove this and to expand LCR eligibility to all securitisation asset classes (so beyond the current RMBS, auto ABS, consumer and SME asset classes).

2. Simplification and streamlining of Due Diligence

Reduce burden on EU-to-EU securitisations: The June 2025 Proposals remove the duplicative obligation of investors to verify sell side compliance under the EU Securitisation Regulation"² (the "EUSR"), in cases where such sell-side party is established and supervised in the EU (but not where the sell side entity is outside the EU such as in the US). This is on the basis that such sell side parties will be subject to regulation under the EUSR in their own right.

Principle led: The June 2025 Proposals also introduce a more principles-based approach to the current requirement that investors diligence structural features of a securitisation, with the intention of making such due diligence obligations proportionate to the risk of the securitisation. The new principles-based approach replaces the current requirements, pursuant to which structural due diligence by investors required the checking of a uniform list of structural features. In addition, investor due diligence requirements are proposed to be removed in their entirety for securitisations where a Multilateral development bank holds or fully guarantees a first loss securitisation position (and such position represents at least 15% of the securitised exposures) (an "MDB Retention Position").

Secondary market relief: Finally, it appears the June 2025 Proposals are looking to give flexibility to investors, who are undertaking due diligence in respect of investments in secondary market securitisation transactions, by giving them fifteen calendar days to document their due diligence. On its face, this change does not seem to award secondary market investors more time to actually undertake their diligence, just an extension to the timeline needed to "document" such due diligence.

3. Transparency and Reporting templates

EU reporting templates for securitisations³ are set to be reviewed and simplified, targeting a reduction of 35% or more in mandatory data fields. Private securitisations will have a much lighter, supervisor-focused reporting template, while public securitisations will remain subject to more extensive disclosure. The June 2025 Proposals provide that for a securitisation to be a "public" securitisation (and therefore be restricted from using the simplified private form template), any of the following criteria shall apply:

• the Prospectus Regulation has to be drawn up for that securitisation pursuant to Article 3 of Regulation (EU) 2017/1129 of the European Parliament and of the Council [the Prospectus Regulation]; or
• the securitisation is marketed with notes constituting securitisation positions admitted to trading on an EU regulated market and/or Multilateral Trading Facility (MTFs) and/or Organised Trading Facility (OTF) or/and any other trading venue in the EU; or
• the securitisation is marketed to investors and the terms and conditions are not negotiable among the parties⁴. 

Public securitisation data will be accessible to investors and potential investors, while private securitisation data will be restricted to supervisors. For the former, access should be granted free of charge to the European Supervisory Authorities ("ESAs"), European Systemic Risk Board, competent authorities, and the Commission on request, as well as the potential or actual investors.

In addition, for securitisations of “highly granular pools of short-term exposures” (credit card and certain consumer loan securitisations), the June 2025 Proposals indicate the Commission is comfortable with originators providing information on the securitised portfolio on an aggregate basis rather than loan level disclosure being required as per current requirements.

4. Risk Retention

Where an MDB Retention Position (see above) is present in a securitisation, risk retention requirements will be waived.

5. Simple, Transparent and Standardised ("STS") requirements

The facilitation of the securitisation of SME loans in the euro-zone, has long been a stated aim of European regulatory authorities. In this regard, the June 2025 Proposals seek to increase the ability of SME securitisations to use the STS designation (with the consequent impact on increasing attractiveness to investors) by adjusting the STS "homogeneity" requirement in respect of SME securitisations. The proposed adjustment would amend the homogeneity requirement to stipulate that a securitisation where at least 70% of the underlying pool of exposures consist of SME loans are deemed to comply with that requirement. Currently, the underlying pool of exposures must consist of 100% of SME loans, which some market participants have fed back is often difficult to achieve in practice, in order to reach an appropriate portfolio size to contemplate a securitisation.

On the synthetic securitisation side, the June 2025 proposals allow unfunded credit protection to be eligible for STS treatment, subject to certain requirements such as solvency diversification, risk measurement and minimum size of the protection provider.

6. Amendments to the Capital Requirements Regulation ("CRR")⁵ 

As expected, the June 2025 Proposals seek to address some of the prudential barriers to bank issuers of securitisations. Perhaps the most notable proposal in this regard would see capital treatment of a securitisation exposures (as currently prescribed in the CRR) be more risk sensitive in order to more closely track the specific risks associated with a particular securitisation transaction and remove undue costs. The current risk weight floors for senior positions (10% and 15% for STS and non-STS respectively) would be removed under the proposals and replaced with a more tailored and appropriate floor that is proportionate to the risk profile of the underlying pool of assets/exposures comprising the securitisation. There are also targeted amendments proposed to the "(p) factor" which is a parameter driving the current ‘non-neutrality’ of the securitisation capital requirements for securitisation exposures held by credit institutions ("non neutrality" meaning the point that the current approach may have the effect that the amount of capital that credit institutions need to hold against securitisation positions is higher compared to holding the underlying exposures directly, if they were not securitised).

Timings

The EUSR amendments and CRR amendments have been adopted by the Commission and submitted to the European Parliament and council for consideration.

The amendments to LCR are subject to a 4 week public consultation via the "Have Your Say" platform. The deadline for responses is 15 July 2025, following which responses will be considered and the regulation adopted.

The Commission will carry out an evaluation of this package of proposed amendments, five years after its date of application and present a report on the main findings to the European Parliament, the Council and the European Economic and Social Committee.

Final Thoughts

• The June 2025 Proposals are generally positive and address a number of issues that have been raised by market participants as potential barriers to the further growth of the European securitisation market and its ability to provide further support to real economy lending in the EU. The proposed prudential adjustments, in particular, have been welcomed and the proposals specified in the LCR consultation have the potential to unlock further investment in securitisations by European bank treasuries.
• On the proposed streamlining of due diligence requirements, there may be concerns that remain that this is limited to the position where the sell side is located in the EU. Hence for non-EU securitisations, this may still leave EU investors in such deals being at a competitive disadvantage to investors in other jurisdictions.
• Some points would benefit from further clarification, including what type of "consumer assets" will permit originators to provide investor reporting on an aggregate basis rather than loan level disclosure. In general, we expect the market will keep a close eye on how the European regulators follow through on the reporting template simplification process.
• A consultation is expected to be commenced by the Commission in July in respect of potential amendments to Solvency II⁶, which will be keenly watched by the market given the potential to unlock further investment by European insurers.
• In April, the joint ESA report on the EUSR expressed the view that “predominant” in the so called "sole purpose test" applying to originators⁷ should be interpreted to mean a threshold of more than 50% — in other words, that the proposed originator’s revenues deriving from retained exposures should not be more than 50% of its total revenues in order for the relevant entity to pass the sole purpose test. This hardwired test has caused concern in the market that it captures a number of originators that, from a principle perspective, should be beyond the mischief that the regulators were targeting in the report (i.e. a mismatch between buy side and sell side for certain originators whose revenue is largely derived from retained positions it holds in securitisations, such as collateralised loan obligation (CLO) retention vehicles), however this finding is not referred to by the Commission in the June 2025 Proposals.
• Divergence between the EU and UK regime continues. The FCA and the PRA will consult on the UK framework in the second half of 2025 and it is always possible that they may go further than the EU.