The European Commission’s long-signposted targeted consultation on the functioning of the EU securitisation framework was published yesterday, 9 October 2024.

The consultation is very detailed, but the consultation period is short: 8 weeks with a 4 December 2024 deadline for comments which stakeholders may find challenging in light of the breadth of the questions.

The key themes in the consultation are broadly as expected, against the background of:

• the recent Draghi report, which recommended that the Commission adjust the prudential requirements for securitised assets, review the “relatively high” transparency requirements for securitised assets, and consider establishing a securitisation platform;
• the Noyer report, which made similar recommendations regarding a securitisation platform, and also recommended that the prudential frameworks for insurers and banks be adjusted and that transparency rules be simplified;
• the Eurogroup’s statement on the future of Capital Markets Union, which asked the Commission to carry out a comprehensive assessment of all supply and demand factors holding back the development of the EU securitisation market (in particular, the prudential treatment of securitisation for banks and insurance companies and the reporting and due diligence requirements); and
• the Statement by the ECB Governing Council on advancing the Capital Markets Union which also encouraged a review of the prudential treatment of securitisation for banks and insurance companies, a review of the reporting and due diligence requirements, and an examination of how targeted parts of the securitisation market, such as green securitisations, could be supported.

Among the questions posed by the Commission’s consultation are whether the jurisdictional scope of the Securitisation Regulation should be more clearly set out in the Level 1 text (questions of jurisdictional scope have been a long-running theme – read our update on the ESAs 2021 opinion on jurisdictional scope, and the Commission’s responses here: Securitisation Regulation: European Commission publishes long-awaited Report – Arthur Cox LLP).  The Commission has also sought feedback on whether the definitions of “securitisation” and “sponsor” should change.

Due diligence and transparency/disclosure are the subject of a number of detailed consultation questions.

• On due diligence, as expected the Commission is looking for information on costs of compliance with the existing framework; whether the requirements should be made more principles-based / less complex, or more detailed / prescriptive, or remain the same; whether due diligence obligations should differ based on the risk of securitisation position, the risk profile of underlying assets or STS status; whether certain due diligence requirements should be removed for EU investors where the originator, sponsor or original lender is EU-established and already responsible for complying with requirements regarding risk retention, credit granting criteria, disclosure, or STS. It also seeks feedback on whether investors should be given a set period of time to document compliance with verification requirements.
• On transparency, again compliance costs are a focus. The Commission is also seeking views on whether the definition of ‘public securitisation’ should be expanded, and whether existing disclosure templates should be streamlined (for public securitisations) or simplified (for private securitisations, with a requirement to report to a securitisation repository).

The STS securitisation framework is also the subject of a number of questions (e.g. what is holding back expansion of the framework, should unfunded credit protection agreements be eligible for STS, should third-party verifiers be supervised, and are the homogeneity requirements too burdensome)?

Questions are also posed regarding the current supervisory model, whether there are divergences and whether streamlining is needed.

A specific section of the consultation also seeks feedback on a pan-European securitisation platform.

The prudential and liquidity risk treatment of securitisations for banks, and the prudential treatment of securitisations for insurers, are also the subject of detailed questions (with a further section seeking feedback on similar points in respect of IORPs).

The above gives a flavour of what is covered by the consultation, but the consultation paper itself should be reviewed promptly and in detail by all interested stakeholders, having regard to the short time-frame for returning comments to the Commission.

Output from the Commission once it has gone through the responses to the consultation is expected in Q2 2025.

Regarding related developments:

• The Article 44 report from the European Supervisory Authorities should issue shortly.  Among other matters, it’s expected to address Article 5(1)(e) (which has been the subject of combined submissions from industry bodies such as AFME and the ICMA).
• ESMA’s feedback statement on its December 2023 consultation on possible changes to its regulatory technical standards and implementing technical standards on disclosures is still awaited. This was deprioritised earlier this year pending the broader work on the Securitisation Regulation, but recent indications are that it might be published in Q4 2024.
• ESMA is expected to consult in the coming weeks on guidelines on the due diligence requirements in Article 5 of the Regulation.