Securitisation: maintaining transparency and investor protection, reducing costs

EU securitisation market needs to be relaunched to increase the financing available to the real economy

Transparent structures with reduced administrative burdens and adequate supervision

Making securitisation more risk-sensitive

Packaged loans converted into securities should be subject to transparent, less burdensome reporting requirements and better supervision, to revive the securitisation market in the EU.

The Committee on Economic and Monetary Affairs voted on changes to the simple, transparent and standardised (STS) securitisation framework and on risk adequacy.

Securitisation — the process of packaging individual loans and other assets (such as mortgages, consumer loans or leasing contracts) into tradable securities — is an important source of funding that enables banks to lend more to the real economy.

Transparency and reducing costs

MEPs agreed that public securitisations — those requiring a prospectus, involving actively managed assets, or accessible to a broad range of investors — should be subject to full transparency requirements and regulatory scrutiny to ensure better market oversight.

To reduce costs, private securitisations should use a simpler reporting template than public ones, given their more limited disclosure requirements. They should, however, continue to report to securitisation repositories for supervisory purposes.

MEPs also want non-financial companies — such as those providing goods or services that issue SME loans, consumer loans or mortgages and use securitisation to fund their core business activities — to be individually assessed by a regulator to determine whether they are suitable to retain risk in a securitisation, ensuring they are not unfairly excluded.

Due diligence

Due diligence requirements should be proportionate to the risk profile of securitisation positions and streamlined to reduce unnecessary costs for investors, particularly in lower-risk structures.

MEPs proposed simplified due diligence for repeat transactions, to facilitate investor participation in well-established and transparent structures.

They also agreed that the current requirement for third-country securitisation issuers to use EU disclosure templates creates unnecessary barriers to investment and should be replaced by an obligation on EU investors to verify that the information provided by third-country issuers is substantively equivalent to EU transparency standards, without requiring formal compliance with EU templates.

Supervision

To supervise securitisation markets effectively, MEPs want the key EU financial authorities — including the banking authority (EBA), the securities markets watchdog (ESMA), national supervisors and the European Central Bank, to work closely together and share relevant information to avoid duplication and ensure a joined-up approach. To simplify the system and reduce reporting burdens, the EBA should be responsible for overseeing how the main market participants — those who create, sponsor and structure securitisation products — comply with the rules. The same authority should also oversee how detailed financial data is reported across different types of loans, such as mortgages, credit cards and consumer loans. The securities watchdog ESMA should have the powers needed to authorise and supervise independent verifiers, including the ability to request information, carry out inspections and impose penalties where necessary.

Capital treatment of securitisations

In a separate file, MEPs approved new rules on capital treatment for securitisations to increase risk sensitivity, including lower capital requirements for safer asset classes. Under the new approach, minimum risk weights for senior securitisation positions would be set using a formula based on asset quality, replacing the current fixed flat minimum.

Rafl Seekatz (EPP, DE) responsible for the new securitisation rules, said: “Securitisation is an important instrument to address Europe’s significant investment needs. Reviving the securitisation market is particularly important in the current challenging geopolitical and economic environment, in order to channel much-needed financing into the real economy. With a volume of around €1.2 trillion, the EU securitisation market offers considerable growth potential.

Our objective is therefore to promote the European securitisation market in a targeted way, while at the same time safeguarding the financial stability of our markets.

While the Commission’s proposal goes in the right direction, it is not ambitious enough and disadvantages automotive loans and trade receivables. The position of the Committee on Economic and Monetary Affairs strengthens this market segment in a targeted manner to support small and medium-sized enterprises. In this way, the securitisation market can grow sustainably and enable greater investment in Europe.”

Next steps

The new securitisation rules were adopted by 33 votes to 25, with 1 abstention. The rules for preferential capital treatment were approved with 33 votes to 25 votes. The final text will have to be negotiated with the Council, which has already adopted its position.