European Commission Report on the Securitisation Regulation

On 10 October 2022, more than three years after the entry into force of Regulation (EU) 2017/24024 (the Securitisation Regulation), and as announced in the 2020 Capital Markets Union action plan, the European Commission submitted its report to the European Parliament and Council on the Securitisation Regulation. As a reminder, this regulation provides a general framework for securitisation (i.e. the process of turning non-fungible loans, or the cash-flows stemming from them, into marketable securities) and establishes due-diligence, risk-retention and transparency requirements for parties involved in securitisation transactions.

For a global overview and more information on the Securitisation Regulation, please consult the articles published on the Simmons & Simmons’s website: The modernisation of the Luxembourg Securitisation Law now voted, Amendment to the Luxembourg interest limitation rules, ESG securitisation: Taking stock, The EUSR - Article 5(1)(e) and non-EU securitisation.

Securitisation Regulation’s effects on the market

The report states that the Securitisation Regulation provides a clear legal framework¹. Market participants recognise that it has been effective in achieving the objective of ensuring a high level of investor protection through risk retention and information availability.

Nevertheless, the majority of respondents did not think that the Securitisation Regulation has improved access to credit for the real economy, especially SMEs and have not witnessed a widening of the investor or issuer base during the first years following implementation.

Key elements of the report

Commission’s findings regarding Risk retention (Article 6 (7) of the Securitisation Regulation): all available retention methods are being used by the market. The lack of retention procedures normally formalised by the current RTS do not evidence that the risk retention procedures are inadequate and the Commission does not see a need to revise it.

Commission’s findings on due diligence and transparency (Article 7 of the Securitisation Regulation): regarding the proportionality of the disclosure of investors due diligence, the feedback of the consultation points out areas where the usefulness of the disclosure templates might be limited. The Commission invites ESMA to remove unnecessary fields and align them more closely with investors’ needs.

Commission’s findings on private securitisations focusing on three points:

• The disproportionate rise in the number of private securitisations: the Commission invites the Joint Committee to continue monitoring developments in the volumes of private and public transactions.
• Sufficient information for investors and supervisors on private securitisations: the Commission invites ESMA to draw up a dedicated template for private securitisation transactions tailored particularly to supervisors’ need to gain an overview of the market.
• Definition of private securitisation: the Commission considers that the definition does not need to be changed as it seems that stakeholders calling for a change to the definition are doing so only to ease the transparency requirements on private deals. The Commission believes that this issue can be tackled by scrutinising the existing rules and templates and assessing their usefulness.

Commission’s findings on STS equivalence and third-party verification STS: the Commission considers that introducing an STS equivalence regime is premature at this time. As a reminder, only the United Kingdom has a benefit of such STS equivalence. The Commission considers that the third-party verification regime works and needs not be to revised.

Commission’s findings on sustainable securitisation: the Commission agrees with the European Banking Authority that there is no case for creating a dedicated sustainability label for securitisation considering in particular the low amount of green assets available to be securitised.

Commission’s findings on Securitisation special purpose entities (SSPEs): the Commission considers that the current framework is working in an adequate manner and there is no need to complement it by establishing a system of limited-licenced banks that would perform the functions of SSPEs.

Commission’s findings on Jurisdictional scope:

• Sell-side obligations (Articles 5, 6, 7 and 9 of the Securitisation Regulation): the Commission considers that it is not necessary to amended Article 6 on risk retention which is rendered efficient through the institutional investor’s due diligence obligations imposed by Article 5. The Commission reminds that the transparency obligations for originators, sponsors and SSPE’s under Article 7 can be enforced against the EU sell-side entities, even if the designated reporting entity is established outside the EU. The Commission agrees that the obligation applicable to originators, sponsors and original lenders regarding criteria for credit-granting under Article 9 should ideally be supervised and enforced against an EU entity.
• Buy-side obligations: the Commission believes that the measures envisaged to amend the RTS that specify the transparency requirements of Article 7 could help reduce the competitive disadvantage of EU institutional investors.

Commission’s findings on supervision of securitisation: fragmentation of supervisory responsibility to a certain degree creates challenges to building up supervisory expertise and the Commission considers that it would be appropriate to evaluate the possibility of having a lead supervisory authority for the supervision of securitisation.

Commission’s findings on prudential treatment of securitisations including Significant risk transfer (SRT): the Commission will await the Joint Committee’s advice and recommendations before assessing the need of potential amendments to the securitisation prudential framework.

Conclusion & Next steps

The Commission believes that more time is needed to get a full picture of the impact of the new securitisation framework but the improvements highlighted by industry feedback could be implemented without the need to change the Securitisation Regulation. In this context, the Commission invites ESMA to implement RTS that set out the details of the transparency regime notably.

¹ Summary of responses to Question 1: Has the Securitisation Regulation been successful in achieving the following objectives?, COM(2022) 517 final report from the commission to the European Parliament and the Council on the functioning of the securitisation regulation, page 6.