The European Commission’s (2024) consultation on the securitisation framework that closed on December 4th has sparked critical discussions about how this market can better serve the EU’s broader economic objectives. Securitisation holds promise as a tool to unlock bank balance sheets, improve market liquidity, and channel funds toward vital areas like SMEs and the green transition. Yet, to realise its full potential, the regulatory framework must strike a balance between fostering growth and maintaining market discipline. We at Accuria responded to the consultation with particular focus on three key pillars: transparency and risk weights for private securitisations and the role of public-backed securitisation programs. A comparison with the responses of leading industry associations and the critique by Finance Watch (2024) reveals an insightful debate on the future of the market.

Transparency: The Foundation of a Thriving Market

Transparency is the cornerstone of a well-functioning securitisation market. It instils confidence among investors, facilitates informed decision-making, and ensures market discipline. The current transparency regime under Article 7 of the Securitisation Regulation has achieved significant progress, particularly for public securitisations. Standardised loan-level reporting and access to data through securitisation repositories have created a foundation of investor trust and market clarity that is unprecedented internationally.

However, there remains room for improvement. We emphasised the need to expand transparency requirements to economically public transactions, such as non-performing loan (NPL) securitisations, collateralised loan obligations (CLOs) and larger significant risk transfer (SRT) transactions, which involve widespread syndication. Publicly accessible disclosures for these deals would enhance market clarity without imposing undue burdens. At the same time, for genuinely private, intra-group transactions or deals involving a single investor, we argued for a proportional approach to reduce unnecessary costs.

Private and Synthetic Securitisations: A Key Focus

Private and synthetic securitisations present unique challenges in terms of classification and disclosure. While these transactions serve critical risk transfer and funding needs, their inclusion in transparency requirements has been contentious.

We argued that reduced capital charges for securitisations must be earned through enhanced market transparency. Private securitisations overall have not met the same high performance standards as public transactions and hence should not enjoy the same preferential capital treatment. Increased public disclosures are essential to align investor confidence and market discipline with the benefits of reduced risk weights.

Industry associations share these concerns but emphasise proportionality:

• AFME (2024, the Association of Financial Markets in Europe) supported limiting mandatory repository disclosures to public securitisations as defined by clear, investor-centric criteria. They cautioned that excessive disclosure requirements for private transactions might deter innovation and add costs.
• IACPM (2024, the International Association of Credit Portfolio Managers) advocated for tailoring reporting requirements for synthetic transactions based on their complexity and investor base, suggesting that more public disclosures should accompany economically public transactions.
• TSI and GBIC (2024, the True Sale Initiative in Germany) stressed that private securitisations should retain flexibility but supported streamlined reporting for synthetic deals with multiple institutional investors.
• DSA (2024, the Dutch Securitisation Association) proposed that investors be allowed to determine their information needs within a principles-based disclosure framework, reducing the rigidity of current requirements.

Finance Watch (2024) provides a contrasting perspective, raising skepticism about securitisation’s overall utility in the EU’s economic goals. They caution against diluting the criteria for simple, transparent, and standardised (STS) securitisations, which could undermine their robustness. Finance Watch warns of the limited ability of securitisation to mobilise funding for SMEs which contrasts with the industry’s general optimism to use securitisation for funding the real economy.

Risk Weights and Capital Charges: A Debate on Fair Treatment

The current framework for risk weights and capital charges is a key area of reform. While securitisation can provide banks with capital relief, the disproportionate capital charges for securitisations is seen by the industry as a barrier to broader market participation:

Reforming Risk Weight Floors

• Both AFME and IACPM supported lowering risk weight floors for senior STS tranches, aligning them with other instruments like covered bonds. This could incentivise investment and make securitisation more competitive.
• For non-STS securitisations, associations like IACPM advocated for differentiated treatments reflecting higher risks.

Addressing Cliff Effects

• Respondents noted that minor changes in tranche attachment points lead to significant differences in risk weights. DSA suggested introducing risk-sensitive floors to mitigate these cliff effects, particularly for mezzanine tranches.

Synthetic Securitisations

• IACPM and AFME argued for reduced capital charges for credit-linked notes in synthetic transactions, citing their role in transferring risk efficiently while proposing that increased transparency accompany such reforms.

Our Position: Transparency as the Gateway

We emphasised that capital relief for securitisations must not be granted unconditionally. Public transactions with robust disclosures have historically performed better, and this precedent must guide future reforms. Private securitisations or transactions that avoid transparency requirements should not benefit equally from reduced charges whether STS or non-STS.

Finance Watch offered a broader critique of securitisation’s regulatory mechanics, warning of potential capital arbitrage and financial instability from inconsistent capital treatments. They argue that reforms should align with global standards, such as Basel III, to avoid a deregulatory race to the bottom.

A Role for Public Guarantees: Unlocking Market Potential

One of the most intriguing areas of discussion is the potential for a government-backed securitisation guarantee program. Models such as Italy’s GACS and Greece’s HAPS have demonstrated how public guarantees can support the securitisation of NPLs (European Commission 2023). These programs de-risk senior tranches of securitisations, making them more attractive to investors and enabling the market to function as a more effective financing tool.

In our response, we supported an EU-wide guarantee scheme, noting its potential to create a new class of safe assets with favourable liquidity and capital treatment. Proper pricing of these guarantees, based on credit default swaps or supervisory formulas, would be essential to balance market access with taxpayer protection. We have repeatedly argued that any securitisation with direct public guarantees should be public securitisation ensuring maximal market discipline. 

While industry associations support public-backed schemes in their responses to the consultation, Finance Watch voiced strong opposition, criticising such initiatives as privatising profits and socialising risks. They warn that similar U.S. models led to significant taxpayer liabilities during the 2008 global financial crisis.

In contrast with Finance Watch, industry associations see significant potential in public-backed programs:

• AFME emphasised that public guarantees could play a vital role in reducing stigma and increasing investor confidence in securitisation products.
• IACPM shared our view and pointed to the EIF’s expertise in designing risk-sharing programs that align public guarantees with private investor incentives.
• TSI and GBIC stressed the importance of ensuring that public guarantee schemes remain targeted and scalable, focusing on areas like SME and green finance.
• DSA highlighted the potential for public guarantees to crowd-in private investment, but cautioned against overreliance on such mechanisms, which could stifle innovation.

The Road Ahead

The EU securitisation market has the potential to play a transformative role in financing the Union’s strategic objectives especially in supporting SME and green lending. Achieving this will require regulatory adjustments that enhance transparency and introduce well-designed public support mechanisms. Expanding disclosure requirements for economically public transactions, recalibrating risk weights for well-performing public securitisations, and establishing an EU-wide guarantee scheme can make the market more accessible, efficient, and aligned with the EU’s growth and sustainability goals.

The challenges ahead are significant, but the rewards—deepened capital markets, reduced funding costs, and stronger economic resilience—are worth the effort. As policymakers move forward, maintaining an open dialogue with market participants will be crucial to shaping a securitisation framework that is both robust and enabling.

 

References

Association for Financial Markets in Europe (AFME 2024)
Response to the European Commission’s targeted consultation on the functioning of the EU Securitisation Framework.
https://www.afme.eu/Portals/0/DispatchFeaturedImages/AFME%20Response%20-%20Commission%20Consultation%20(December%202024).pdf

International Association of Credit Portfolio Managers (IACPM 2024)
Submission to the European Commission’s targeted consultation on the EU Securitisation Framework.
https://iacpm.org/iacpm-responds-to-the-european-commissions-securitisation-consultation/

True Sale International (TSI) and the German Banking Industry Committee (GBIC) 2024 Joint response to the European Commission’s consultation on the EU Securitisation Framework. 
https://www.true-sale-international.de/fileadmin/tsi-gmbh/tsi_downloads/aktuelles/EU_COM_Consultation_2024_Joint_Repsonse_TSI_GBIC.pdf

Dutch Securitisation Association (DSA 2024)
Response to the European Commission’s targeted consultation on the functioning of the EU Securitisation Framework. Document ID: DSA Response EC Consultation Securitisation Framework.
https://www.dutchsecuritisation.nl/ec-consultation-eu-securitisation-framework

European Commission 2024
Targeted consultation on the functioning of the EU Securitisation Framework. 
https://finance.ec.europa.eu/regulation-and-supervision/consultations-0/targeted-consultation-functioning-eu-securitisation-framework-2024_en

European Commission 2023
Further developing secondary markets for non-performing loans: the role of securitisation. NPL Advisory Panel.
https://finance.ec.europa.eu/system/files/2023-12/2311-npl-advisory-panel-securitisation-paper_en.pdf

Finance Watch 2024
Can securitisation reboot the capital markets union?
https://www.finance-watch.org/policy-portal/stability-supervision/can-securitisation-reboot-the-capital-markets-union/