EU Securitisation Reform: Will New EU Proposals Finally Unlock Market Growth?

The EC proposal differentiates between public (traded or prospectus-required) and private securitization, simplifies reporting and introduces risk-sensitive due diligence. The most significant change is the introduction of the resilient category of securitizations, which opens up avenues to further reduction of risk weight for the right kinds of safe and simple securitization. 

ECB breaks the proposal of the EC down into 11 specific topics, of which it agreed or partially agreed with 6, including the most substantial change, the introduction of the resilient securitization. 

The ECB disagreed with the proposed amendments to the risk weight floor and the P factor but offered an alternative change (treated in detail below). However, Council and Parliament follow the EC’s proposal with some adjustments to the parameters levels.

Finally, the ECB strongly disagreed with the amendments to the STS criteria, the revised definitions of public securitizations and of the senior securitization positions. The two latter have been rejected in Council and Parliament positions, while they are more supportive of the revisions to STS criteria.

See the table below for a breakdown of the ECB’s, Council’s and Parliament’s positions.

Table 1: Summary of ECB opinion broken down by topic

We will treat the most significant changes proposed below, these are the proposed introduction of the resilient position, the changes to the P factor and the changes to the risk weight floor. We will briefly touch on the other changes.

So what conditions actually qualify a position as resilient? For senior STS positions there is only 1 requirement in addition to the existing STS requirements, a minimum level of credit enhancement which is effectively a quantitative check on the attachment point. For SEC-SA or SEC-ERBA the following formula applies:

\(\displaystyle A \geq 1.5 \times K_a\)

where:

\(A\) = the attachment point;

\(K_a\) = defined in CRR Article 261 paragraph 2, it is the weighted average standardised capital charge of the underlying pool with an additional penalty for the fraction defaulted;

The minimum credit enhancement for SEC-IRBA is given by:

\(\displaystyle A \geq 1.1 \times (EL \times WAL + UL)\)

where:

\(A\) = the attachment point;

\(EL\) = the expected loss;

\(WAL\) = the weighted average life;

\(UL\) = the unexpected loss;

For non-STS resilient positions in addition to the quantitative criteria there are also some qualitative criteria to fulfil, found in the proposed article 243. We won’t treat these in detail.

The ECB supports the introduction of the new resilient category. By privileging the originator sponsor the agency risk is reduced, and therefore a reduction in risk weights is justified. The ECB suggests that the non-STS resilient category is removed, simplifying the framework somewhat and making resilient positions an “STS+” position. The ECB estimates that 60% of STS positions already meet the resilient criteria. This means that a significant amount of the current securitization positions will benefit from risk weight reductions as soon as the new regulation goes into effect.

The Council maintains the EC proposal for a new resilient category, for both STS and non-STS transactions. It removes the need for a continuous reassessment of the credit enhancement criterion. This criterion needs to be validated only at origination.

ECON criticizes the complexity of the resilient concept but agrees to keep it in order not to extend the delays of implementation. Parliament therefore proposes a simplification of the resilient concept and a reduction of the number of categories for calculating risk-weights. It considers the STS concept sufficient for traditional securitisations and proposes to treat all STS senior tranches of traditional securitisation as resilient, including investor positions.

As the Council, ECON also removes the need for a continuous reassessment of the credit enhancement criterion.

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The P factor is a key factor in the capital requirement for securitized positions. The EC proposal recalibrates the (p) factor in order to make it more advantageous to hold robust (STS or resilient) positions, or to have an originator position. It is a driver of the “capital non-neutrality” of securitizations. A (p) factor of 1 means that holding all tranches of a securitized pool would carry 100% more risk weight than holding the underlying pool directly. This additional risk weight is justified by the modelling and agency risks inherent to securitization.

The (p) factor is only relevant for the SEC-IRBA and SEC-SA frameworks, however the SEC-ERBA framework will be adjusted such that the level of capital requirements goes down in line with the reductions in the other frameworks. The SEC-IRBA (p) factor is calculated according to the following formula:

$$p = \min\left\{\mathrm{Cap},\ \max\left[\mathrm{Floor},\ \mathrm{SF} \times \left(A + B\left(\frac{1}{N}\right) + C \times K_{\mathrm{IRB}} + D \times \mathrm{LGD} + E \times \mathrm{MT}\right)\right]\right\}$$

where:

\(\mathrm{Cap}\) = newly introduced maximum \(p\) value, dependent on STS or non-STS, see Table 2;

\(\mathrm{Floor}\) = lower bound of the \(p\) factor, depending on the position, see Table 2;

\(\mathrm{SF}\) = scaling factor of the \(p\) factor, depending on the position, see Table 2;

\(A, B, C, D, E\) = parameters determined according to the lookup table in CRR Art. 259;

\(N\) = effective number of exposures, calculated in accordance with CRR Art. 259;

Since the introduction of the standardized risk weight floor, the importance of the (p) factor in SEC-SA is of particular importance. The currently applicable (p) factor is in fact lowered in the transitory arrangement for the output floor (CRR article 465) to 0.25 for STS positions and 0.5 for non-STS positions (from 0.5 and 1.0) respectively. 

Similarly to ECB, the Council removes the cap for the p-factor under SEC-IRBA. It also aligns the treatment for STS positions for originator and investor positions, so that investors will also benefit from the reductions for senior positions. 

Parliament retains the cap for the p-factor under SEC-IRBA but proposes reduced values compared to the EC proposal for senior positions. It also aligns the treatment for originator and investors for both STS and non-STS. 

The EC proposes to make the risk weight floors more risk sensitive, and to lower them. 

The current flat risk weight floors of 10% for STS and 15% for non-STS are replaced by new floors proportionate to the riskiness of the underlying exposures, based on K_IRB or K_A, and subject to minimum levels depending on the STS and resilient nature.

Council follows the EC proposal in terms of risk-sensitivity and keeps the reference to KIRB and KA, only adjusting the factors and minimum levels in a way that is more beneficial to low-risk securitizations.

Parliament also follows the EC proposal of risk-sensitive risk weight floors with a more aggressive reduction of the factors and minimum levels. Parliament also introduces caps of 10% for STS and 15% to the risk weight floors for non-STS in SEC-SA in order not to reach floors higher than under the current framework.

The proposed changes go well beyond the quantitative changes described so far. The changes include principle-based requirements adjusted by tranche seniority, exemptions for EU-supervised originators, lighter checks for multilateral development bank (MDB)-guaranteed positions, and waivers for first-loss tranches of at least 15% backed by public entities (e.g., governments, central banks, MDBs).

The proposal introduces greater flexibility in risk retention rules: the standard 5% minimum requirement can be waived entirely if the securitization includes a first-loss tranche of at least 15% of the nominal value of the securitized exposures that is guaranteed or held by specified public entities (such as governments, central banks, multilateral development banks, or promotional institutions).

For the Simple, Transparent and Standardized (STS) framework, the rules are eased for securitizations backed by SME loans: the homogeneity requirement is relaxed, so a pool is deemed compliant if at least 70% (instead of the current 100%) of the underlying exposures consist of SME loans. The Council tightens somewhat those rules and adds additional safeguards although overall supporting the changes proposed by the EC while the Parliament proposed a more radical simplification of the homogeneity requirement.

 Additionally, eligibility for unfunded credit protection as credit enhancement is expanded to include qualifying (re-)insurance undertakings under Solvency II. Despite the concerns of ECB, Council and Parliament are supportive of this change, only adding additional requirements based on credit rating.

To improve supervisory consistency, the proposal establishes a new sub-committee on Securitization reporting to the Joint Committee of the European Supervisory Authorities (ESAs). This committee will promote harmonized supervisory practices across the EU and enable the designation of lead supervisors for cross-border securitizations.

On the prudential side, CRR changes shift Significant Risk Transfer (SRT) to a more principle-based approach. The junior tranches must absorb lifetime EL, with at least 50% of unexpected losses transferred to third parties. Originators can self-assess and submit to national authorities. The new category of resilient securitization positions qualifies for preferential treatment. 

During the remainder of 2026, the proposals will be subject to Trilogue negotiation  between the European Commission, the European Parliament and the Council with the formal adoption expected in late 2026 or early 2027. Some uncertainties hope to be resolved by end of 2026 when the final agreement is reached by the end of the Irish presidency.

The overall view of the ECB is more conservative than the proposal of the EC. It is the view of the ECB that a move away from significant-risk-transfers (SRT’s) to wards true-sale securitization (traditional securitizations) would best accomplish the goals of the European commission. While both true-sale and synthetic securitization move the credit risk away from the loan originator, the synthetic securitizations lack the funding component and therefore contribute significantly less to the new lending. The ECB is overall slightly skeptical about the amount of securitization that will be created just by regulatory changes, and points out that Government Sponsored Enterprises in the US, rather than a different regulatory climate, are responsible for the sizeable US securitization market.

Overall, the package promises meaningful relief: lower costs, clearer rules, better capital efficiency, and alignment with market requests. Were the amendments implemented, it could boost issuance and support economic growth via improved funding channels, without undermining safeguards. The ECB’s opinion of the proposal is more conservative, erring on the side of resilience rather than risk sensitivity. Whether the new CRR and SECR will look more like the ambitious reforms the EC proposes, or look like the more measured stance by the ECB one thing is certain: securitizations will increasingly play an important role for European banks.

Do you want to know how securitization can help free up capital at your bank? How to structure deals today to profit from additional capital relief in the future? At Finalyse, we have engaged with bulge-bracket banks in Europe to support their securitization journey with our proprietary solutions. 

Our consultants bring hands-on experience across regulatory, risk, and operational dimensions of capital optimization and securitization projects, enabling institutions to move from concept to execution with confidence.