EU securitisation reform under scrutiny

Details are surfacing from a milestone EU vote last week on key legislative proposals to revive Europe’s securitisation market. The European Parliament’s ECON Committee voted on two related legislative files amending the EU Securitisation Regulation (SECR), and the Capital Requirements Regulation (CRR).

Both proposals were adopted, clearing the way for trilogues to begin. But there is more to this story: ECON is asking for more, and industry wants more still. Our Structured Finance & Securitisation team provides a brief overview of the developments as they currently stand.

Lacking ambition?

According to securitisation rapporteur Ralf Seekatz:

‘While the Commission’s proposal goes in the right direction, it is not ambitious enough’.

The Parliament’s press release on ECON’s vote provides clues as to where MEPs want to see further change, such as:

• Strengthening the position of automotive loans and trade receivables to better support SMEs
• Easing rules for third-country issuers by replacing strict compliance with EU disclosure templates with an obligation on EU investors to verify that the information provided by third-country issuers is substantively equivalent to EU transparency standards
• Ensuring non-financial companies that issue SME loans, mortgages or consumer loans and use securitisation to fund their core business are not excluded from the market unfairly, and that they can be assessed by regulators to see if they are suitable to retain risk in a securitisation

In contrast, we may see alignment between ECON and the European Commission (EC) on proposals such as:

• Lowering capital requirements and calculating risk weights based on asset quality
• Simplifying reporting for private markets
• Simplifying due diligence for repeat transactions

Still not enough?

When it comes to industry’s emerging response to ECON’s position, the Association for Financial Markets in Europe (AFME) said its early analysis suggests that:

‘Despite some positive steps (…) the changes adopted are unlikely to be transformative in unlocking incremental financing’.

Similarly, the Investment Company Institute (ICI) observed that while the committee has made progress, ‘the overall package does not yet fully reflect the scale of reform needed to support a deeper and more competitive market’.

Sanctioning

A hot topic that has caught the attention of industry recently is the prospect of a dedicated sanctioning regime under SECR. In April, ICMA, AFME, EFAMA and others sent a joint letter to the ECON Committee ahead of its upcoming vote. They argued that investors in securitisations are already subject to sanctions under existing sectoral and national legislation and that these measures would undermine both simplification agenda and the broader objective of market expansion.

Watching brief

While industry participants may feel dissatisfied with ECON’s position, both sides still appear to be aligned on two things, that:

1. The EC’s reform proposals do not go far enough, and
2. The reforms must deliver meaningful results in reviving the market

These goals provide a good frame of reference as we watch how negotiations progress as trilogues get underway.

A final focal point to keep in sight as the EU navigates its way forward will be parallel securitisation reform proposals in the UK. Continued alignment between the UK and EU securitisation regimes is not guaranteed and both reform tracks should be monitored closely given the competitive implications of diverging requirements.

For more information and expert advice, contact a member of our Structured Finance & Securitisation team.

The content of this article is provided for information purposes only and does not constitute legal or other advice. Given the pace of ongoing developments, the position described above may continue to evolve beyond the time of publishing this article.