• EU Commission publishes long-awaited proposal to reform the EU Securitisation Reguletion.
• The proposal is a welcome turn away from overregulation and contains several helpful improvements.
• However, important issues remain unaddressed.

Background

The current intention to revise the EU Securitisation Regulation (EU) 2017/2402 (the “SECR”) is a welcome attempt to relaunch the European securitisation market to help increase the amount of financing available to the real economy, including by increasing the lending capacity of EU banks. The SECR was conceived in the wake of the 2008 financial crisis and shaped by those experiences and is unsurprisingly strict and conservative. However, more than a decade later, the realisation prevailed that the balance between safeguards and growth opportunities must be retooled to revitalise the EU securitisation market. This is the aim of the EU Commission’s proposal for amendments to the Securitisation Regulation and the Capital Requirements Regulation from 17 June 2025 (the “Proposal”).

Who Is Impacted?

The SECR imposes certain requirements on sponsors, originators, original lenders and the securitisation vehicle of a securitisation (the “Sell-side Parties”) established in the European Union. The requirements include, inter alia, risk retention and transparency obligations (the “Sell-side Obligations”). The Sell-side Obligations are complemented on the buy-side by initial due diligence and ongoing monitoring requirements for certain institutional investors (the “Institutional Investors”) investing in securitisations. Those investments are only permitted after it has been verified that the Sell-side Obligations have been complied with, even if none of the Sell-side Parties is established in the European Union or itself subject to the SECR. Those Institutional Investors are mostly regulated institutional EU investors, but the Commission implied in a 2022 report that non-EU fund managers that market their non-EU funds in the European Union (e.g. Art. 42 AIFMD) are also considered Institutional Investors for purposes of the SECR.

Prelude—Risk Retention

The Proposal does not address or suggest any changes to the risk retention requirements (except for an exemption where a 15% first loss tranche is guaranteed by the European Union, member state governments or certain EU or multilateral development banks). Already, in the run-up to the Proposal, the European Supervisory Authorities (the “ESAs”) made headlines by using a report from 31 March 2025 to the Commission with recommendations for the Proposal to publish a new regulatory practice in respect of suitable risk retainers. The new guidance set out below received substantial negative feedback in the market. The ESAs specifically suggested the Commission should review explicitly revising the risk retention rules in that respect, but the Proposal remained silent on the issue. It is unclear whether this can be understood as support, disapproval or intention to let the ESAs handle the matter.

Sole Purpose Test

According to the SECR, an originator can only serve as risk retainer for SECR-compliance purposes if the originator is not established for the “sole purpose” of securitising exposures. The original aim was to prevent setting up a straw-man risk retainer to circumvent the SECR. Multiple criteria are relevant to performing the “sole purpose test”, including that the risk retainer’s revenues do not predominantly come from exposures to be securitised and risk-retained assets in accordance with the SECR.

These criteria were widely understood in the market as safe harbour, meaning that the sole purpose test could be passed case-by-case even if not all criteria are met. While the ESAs’ new administrative practice is not entirely clear, they seem to take the view that all originators acting as risk retainers must have revenues not predominantly derived from exposures to be securitised and risk-retained assets. That means that at least 50% of revenues must be derived from other sources (“Other Revenue”) according to the ESAs. While aimed at certain third-party CLO origination vehicles, this could have side effects on other structures in the market and has certainly introduced additional legal uncertainty.

The ESAs want to apply the new practice to all securitisations issued after the 31 March 2025. In a private statement to AFME, they have indicated that to benefit from this “grandfathering”, it would be sufficient for the securitisation to have been priced before this date, even if it had not yet been settled.

Summary of Some Key Proposals

The Proposal envisages multiple further amendments to the SECR. Below, we have summarised some key points:

• Due Diligence: The abovementioned obligation of Institutional Investors to verify compliance of securitisations they acquire with the SECR will be reduced where the relevant Sell-side Parties are themselves subject to the SECR (i.e. established in the EU). However, the obligation to verify would remain for securitisations with only non-EU Sell-side Parties. Additionally, the mandatory due diligence and monitoring procedures of institutional investors are supposed to become less prescriptive and more principles-based, and it is suggested to introduce further simplifications for senior tranches and repeat transactions. Institutional Investors are given additional 15 calendar days to document their due diligence in case of secondary market transactions.

• Sanctions: While the SECR already mandates sanctions for Sell-side Parties failing to comply with the SECR, now mandatory sanctions shall be introduced for Institutional Investors failing to comply with their due diligence requirements as well.

• Delegation: The Proposal clarifies that an Institutional Investor delegating the due diligence obligations to another Institutional Investor (e.g. an insurance company delegating management of its portfolio to an investment firm) does not transfer the legal responsibility to comply with due diligence obligations and remains ultimately responsible.

• Transparency: The Proposal suggests simplifying transparency requirements by streamlining the data-reporting templates that the securitisation parties must fill in and provide and that institutional investors have to obtain by reducing the mandatory fields by approximately 35%. Also, a separate, simplified template shall be drafted by the ESAs for private securitisations. While this would be a welcome relief for private securitisations, this is partially undermined by the fact that the Propoal suggests broadening the scope of public securitisations.

• Private vs. Public Securitisations: Currently, only those securitisations that also publish a prospectus under the Prospectus Regulation are public securitisations andmust make their transparency data publicly available through an approved securitisation repository. The Proposal suggests broadening the term “public securitisation” by including those securitisations that are marketed (i) with notes admitted on an EU trading venue (regulated market, multilateral trading facility, organised trading facility) or (ii) with terms and conditions that are not negotiable.

• CRR (Regulation (EU) No 575/2013): Suggested amendments to the CRR aim to reduce undue prudential capital burdens for EU banks issuing or investing in securitisations. The amendments would make the required prudential capital more risk sensitive and benefit in particular senior positions in securitisations with a low-risk collateral pool.

• Solvency II Regulation (Regulation (EU) 2015/35): Additional proposals for amendments of the prudential capital treatment for EU insurance investors are expected in the draft revision of the Solvency II Regulation, which will probably be published this July.

Non-EU Transaction

The broad international scope of the SECR had a negative effect on international cross-border transactions. This is specifically due to the obligation of Institutional Investors to ensure that even non-EU securitisations comply with the requirements of the SECR in order to be able to invest. This substantially curtails Institutional Investors’ ability to invest in non-EU securitisations because the non-EU Sell-side Parties will often not agree to the additional burden of EU-style risk retention and also, in particular, to the additional burden of EU-style transparency. Whether the new private securitisation template will help here in any way remains to be seen.

A second major impediment is the treatment of non-EU fund managers marketing in the European Union as Institutional Investors for purposes of the SECR, thereby preventing such non-EU funds from investing in U.S. structured finance transactions which could not comply with such EU requirements.

Notable Omissions

Some aspects suggested for consideration by market participants or subject to uncertainty have not been picked up. CLOs, for instance, fail to qualify as so-called “STS securitisations” that benefit from preferential treatment, in particular where certain Institutional Investors’ prudential capital requirements are concerned. STS securitisations may not have an actively managed collateral pool, which excludes CLOs. No changes have been suggested here. The suggestion to permit AIFMs to act as sponsor/risk retainer has not been taken on board either. Also, the Proposal makes no further efforts to specify the jurisdictional scope of the SECR or define the term “securitisation” any more closely. The Proposal also does not provide for a simplified reporting template for non-EU transactions as some had hoped for.

Next Steps

The Proposal will now enter the trilogue between Commission, Parliament and Council before a final version will be agreed. This procedure is expected to take at least one year.

This publication is for general information purposes only. It is not intended to provide, nor is it to be used as, a substitute for legal advice. In some jurisdictions it may be considered attorney advertising.