On 9 October 2024, the European Commission launched a targeted consultation (the “Securitisation Consultation”) on the current EU securitisation framework. The Securitisation Consultation looks for feedback from stakeholders on the EU securitisation framework and seeks to identify potential areas for improvement.
Who should be interested in the Securitisation Consultation?
The Securitisation Consultation is of interest to a wide group of stakeholders, including the following:
- Institutional investors in securitisation transactions;
- Issuers and originators of securitisation transactions;
- Sponsors and arrangers of securitisation transactions; and
- Retail investors in securitisation transactions.
Context for the Securitisation Consultation
The EU securitisation framework was introduced in 2019 with the core objective of reviving an EU securitisation market that helps finance the economy without creating risks to financial stability. Amongst other matters in this framework, the EU Securitisation Regulation introduced common rules on due diligence, risk retention and transparency, and created a category of simple, transparent and standardised (“STS”) securitisation products.
The Eurogroup of EU Finance Ministers (the “Eurogroup”) issued a statement (the “Eurogroup Action Plan”) on the Capital Markets Union (“CMU”) on 11 March 2024 – you can read more about this here. The Eurogroup identified three priority areas for action and thirteen specific measures which they view as necessary to improve the functioning of European capital markets. In the context of securitisations, the Eurogroup requested that the European Commission comprehensively assess all the factors negatively impacting the development of the securitisation market in the EU. This assessment should include considering the adequacy of the regulatory framework, including the prudential treatment of securitisations for banks and insurance companies as well as the transparency and due diligence requirements in the EU Securitisation Regulation. The Eurogroup further requested that the European Commission should then consider coming forward with corresponding proposals, taking into account international standards in this space.
On 9 September 2024, the European Commission published a significant report authored by Mario Draghi and entitled ‘Future of European Competitiveness’ (the “Draghi Report”). The Draghi Report calls for the CMU to be completed – including by reviewing the current regulatory framework on securitisations.
There have also been other calls to relaunch the European securitisation market, encompassing regulatory and prudential changes. The Securitisation Consultation constitutes the first step by the European Commission to address these requests for change, including the requests contained in the Eurogroup Action Plan and the Draghi Report.
Content of the Securitisation Consultation
In the introductory section of the Securitisation Consultation, the European Commission writes that the size of the European securitisation market has decreased significantly since the 2008-2009 global financial crisis while the securitisation markets outside the EU have fully recovered and surpassed pre-crisis records. The European Commission points out that the current EU securitisation framework has improved transparency and standardisation in the securitisation market. However, the European Commission also acknowledges that some originators and investors have argued that issuance and investment barriers in the EU securitisation market 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.
The Securitisation Consultation asks general questions of stakeholders under the following headings :
- The effectiveness of the securitisation framework : the focus is on whether the original policy objectives of the EU securitisation framework have been achieved or not;
- Impact on SMEs : the focus is on the impact of the EU securitisation framework on SME financing;
- Scope of application of the EU Securitisation Regulation : covers jurisdictional scope, the definition of a securitisation transaction and the definition of sponsor; and
- Additional general questions : the questions relate to 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.
The Securitisation Consultation also asks more specific questions of stakeholders under the following headings :
- Due diligence requirements : including questions relating to the costs incurred by investors in complying with the due diligence requirements set out in the EU Securitisation Regulation;
- Transparency requirements and definition of public securitisation : including questions relating to potential amendments to the definition of public securitisation and separately to potential amendments to the transparency requirements applicable to private securitisations;
- Supervision : including questions on streamlining supervision by national competent authorities to ensure more coordination and supervisory convergence;
- The STS standard : including questions on how to increase the attractiveness of the STS label for both originators and investors;
- Securitisation platform : the focus is on the potential establishment of a pan-European securitisation platform;
- Prudential and liquidity treatment of securitisation for banks : including questions on the conditions to be met for synthetic risk transfer (SRT) tests as framed in the EU Capital Requirements Regulation;
- Prudential treatment of securitisation for insurers : including questions around whether the prudential rules in the EU Solvency II Directive contain disincentives to investments in securitisation for insurers; and
- Prudential framework for institutions for occupational retirement provision (IORPs) and other pension funds : including questions around whether the EU IORP II Directive contains provisions which restrict IORPs’ ability to invest in securitisations.
What happens next?
The Securitisation Consultation closes on 4 December 2024. The European Commission has indicated that the responses to the Securitisation Consultation will provide guidance to the European Commission when preparing, if considered appropriate, a formal legislative proposal. We may see such a legislative proposal as early as H1 2025.
We are continuing to keep a close eye on developments in this area and will publish further updates as matters progress. For further information on the Securitisation Consultation and the CMU, please contact Turlough Galvin, Alan Keating, Maireadh Dale, Christian Donagh, Vincent McConnon, Michelle Holligan, Emily Ashford or your usual Matheson contact.
This article is provided for general information purposes only and does not purport to cover every aspect of the themes and subject matter discussed, nor is it intended to provide, and does not constitute or comprise, legal or any other advice on any particular matter.