EU Securitisation Political Agreement: A Better Framework, But Not Yet a Market Reset

The European Union's final political negotiation on the Securitisation Regulation (SECR) produced a provisional agreement. The package should see a boost in EU issuance and may modestly improve investor access to the global securitised markets but stops short of the reset the market needs.

On 21 October, the European Parliament, Council and Commission met for the final political negotiation ("trilogue") on the Securitisation Regulation and related bank capital reforms. A provisional political agreement was reached, but technical discussions will continue in coming weeks to further refine the text before it gets formally adopted by the European Parliament and EU Member States in the Council.

The agreement marks the cumulation of more than two years of policy discussions. The Draghi, Letta and Noyer Reports all made the strong case for meaningful securitisation reform, raising hope in the market that the review process could be the reset needed to revive the EU securitisation market. PGIM¹ made the case on behalf of its clients to allow EU investors better access to global securitisation markets and increase investment limits on securitised assets for institutional investors in UCITS.

The Commission’s proposal in June 2025 significantly lowered expectations for investors and showed incremental steps rather than the leaps needed for reforms to deliver meaningful outcomes. Policy proposals have focussed largely on supply (issuers and issuance), but missed important reforms on the demand side by easing prescriptive requirements on investors.² Worse, the European Commission proposed a new investor sanctions regime that risked adding further friction and deterring investment in the asset class.

The provisional agreement reached by policymakers improves on the Commission proposal, but still leaves the EU with a significantly stricter framework than other global jurisdictions.
 

Four issues matter most for investors:

• Access to global securitisation markets. Current regulation requires EU investors to verify that non-EU issuers produce EU-specific reporting templates (so-called “ESMA templates”). This requirement puts EU investors at a comparative disadvantage by limiting access to only 30% of global securitised markets, thus limiting investment opportunities.³ The compromise removes the strict requirement of the ESMA templates but investors will still need to verify that non-EU issuers provide similar reporting to EU issuers. Details on format and content will have to be settled in further technical work in November. The 5% risk-retention requirement will also still apply to non-EU issuers. EU vehicles should gain a broader universe of global securitised assets⁴, but important barriers remain.
• UCITS investment limits. Current EU regulation limits the amount a UCITS fund can invest in a single securitisation to 10% of the total securitisation’s issuance. The limit will rise to 25% for all securitisations, which is a modest improvement to allow UCITS to take larger positions in single securitisation deals with benefits to UCITS investors.
• Investor sanctions. Earlier proposals raised penalties of up to 10% of global annual turnover for breaches of investor due-diligence requirements. Sanctions on that scale would discourage investment rather than support the market. Discussion has moved towards a more proportionate approach with more Member State discretion. Policymakers have agreed on a framework whereby Member States will implement effective and proportionate sanctions for breaches not otherwise covered. Additional technical work is expected. A proportionate regime lowers regulatory risk and removes a disincentive for EU institutional investors, particularly smaller ones.
• Issuer transparency. The aim is to cut reporting fields by at least 35%. A more streamlined regime eases cost and compliance burdens and should support more issuance across the European market. This will take shape in 2027 as European Supervisory Authorities (ESAs) conduct Level 2 work on reporting templates. These forthcoming technical standards will determine how much relief materialises.

Further changes have been made to supervision and capital requirements. Third-party verifiers are now authorised and supervised directly by ESMA. And the ESAs will have a greater role in leading supervisory convergence on issuers’ compliance, however direct supervision will be left at national level.

The reforms will also allow (re)insurers to provide unfunded credit protection for STS synthetic securitisations, enabling them to take credit risk off banks without having to post collateral, however, under strict qualifying conditions. They must meet strict eligibility safeguards on solvency, credit quality, size and diversification among others. In practice, these conditions may mean that only a small number of larger insurers can use the new framework, at least for the most favourable capital treatment. 

On the prudential side, policymakers agreed to lower the minimum capital banks must hold against securitisation exposures. The aim is to make it cheaper for banks to originate and hold securitisations, and so free up balance-sheet capacity for new lending. The relief is concentrated on STS securitisations. Their minimum risk weight for senior positions falls from 10% to 5% for the most robustly structured deals and to 7% for other STS deals. Banks investing in other types of securitisation, such as CLOs, should see a more limited benefit. The reductions have been welcomed by banks.⁵
 

Solvency II raises the stakes for insurers

A separate but related change is the revised Solvency II framework, which takes effect on 30 January 2027. Capital charges for certain securitisation investments, including senior collateralised loan obligation (CLO) tranches, fall dramatically, in some cases by nearly 80%. Senior commercial mortgage-backed securities (CMBS), non-STS residential mortgage-backed securitisation (RMBS) and asset-backed finance (ABF) structures will also benefit. Investments that were previously uneconomic become much more attractive from a capital perspective. This has already significantly increased demand for securitised credit from European insurance investors.⁶
 

The UK is moving faster and further

In comparison, the Financial Conduct Authority (FCA) is expected to adopt a more principles-based approach.⁷ UK investors should gain access to non-UK securitisations that do not meet a strict 5% risk-retention requirement, including US open-market CLOs. Moreover, UK investors are expected to no longer have to check that overseas securitisations meet detailed local disclosure requirements. This will benefit many UK institutional investors who will enjoy better access to more diversified global securitisation markets with reduced regulatory friction. The FCA's final Policy Statement is expected shortly, with rules taking effect early next year.