EU Proposes Major Reforms to Securitisation Regulations to Boost Lending

On June 17, 2025, the European Commission proposed significant reforms to the European Union's securitisation regulations, aiming to stimulate bank lending and enhance the bloc's economic competitiveness. The proposed changes include reducing capital charges for banks and streamlining regulatory requirements, particularly for high-quality, securitised assets that meet the "simple, transparent, and standardised" (STS) criteria. These adjustments could lower capital requirements for banks by up to 50%. Additionally, the Commission seeks to ease due diligence and reporting requirements for investors and issuers to reduce costs and attract more investment. The proposal reflects longstanding industry complaints that the EU regime is overly stringent compared to other markets like the U.S., whose securitisation sector remains significantly larger. The package now awaits approval from EU member states and the European Parliament. (ft.com)

Securitisation involves the process where banks and other credit institutions package loans into securities and sell them to investors. This mechanism allows banks to transfer the risk of certain loans, freeing up capital to issue new loans and support economic growth. However, if not properly regulated, securitisation can amplify vulnerabilities within the financial system, as evidenced during the U.S. subprime mortgage crisis that began in 2007.

In response to the 2008 financial crisis, the EU implemented a securitisation framework in 2019 to promote a market that finances the economy without compromising financial stability. This framework includes the Securitisation Regulation, which introduces common rules on due diligence, risk retention, and transparency for all securitisations, and creates the STS category for products meeting specific criteria. Additionally, amendments to the Capital Requirements Regulation (CRR) make the capital treatment of securitisations for banks more risk-sensitive and introduce preferential treatment for STS securitisations.

The European Commission's recent proposal includes several key changes:

• Reduction of Capital Charges: The proposal suggests lowering capital requirements for banks by up to 50% for high-quality, securitised assets that meet the STS criteria. (ft.com)

• Streamlining Regulatory Requirements: The reforms aim to simplify due diligence and reporting obligations for investors and issuers, thereby reducing costs and encouraging more investment in the securitisation market. (ft.com)

• Addressing Industry Concerns: The proposal responds to longstanding complaints from the financial industry that the EU's securitisation regulations are more stringent than those in other markets, such as the U.S., where the securitisation sector is significantly larger. (ft.com)

The proposed reforms have several potential implications:

• Stimulating Bank Lending: By reducing capital charges and simplifying regulatory requirements, banks may be more inclined to engage in securitisation, thereby freeing up capital for additional lending to households and businesses.

• Enhancing Economic Competitiveness: A more active securitisation market could provide alternative financing options, supporting economic growth and making the EU more competitive globally.

• Balancing Financial Stability: While the reforms aim to stimulate the market, they must also ensure that financial stability is not compromised, learning from past crises where poorly regulated securitisation contributed to systemic risks.

The EU's securitisation market has been underdeveloped compared to other regions. In 2024, investors from large asset management firms and insurers called for significant reforms, arguing that stringent regulations established post-2008 have stifled the market. While securitisation in Europe amounted to €245 billion in 2024, this figure was vastly overshadowed by the €1.5 trillion issued in the U.S. (ft.com)

In March 2025, the European Supervisory Authorities (ESAs) published an evaluation report on the EU Securitisation Regulation, recommending reforms to simplify the framework while safeguarding investor protection and financial stability. Key recommendations included clarifying the scope of the regulation, broadening the definition of public securitisation, and introducing proportionality in due diligence requirements. (eiopa.europa.eu)

The proposed reforms are now subject to approval by EU member states and the European Parliament. The outcome will determine the future landscape of the EU's securitisation market and its role in the broader financial system.

The European Commission's proposed reforms to the EU's securitisation regulations represent a significant step toward revitalising the market and enhancing economic competitiveness. However, careful implementation will be crucial to balance the benefits of increased lending and investment with the need to maintain financial stability.