Reform of the EU Securitisation Framework—Part 3: "Resilient Securitisations"

Background

The EU Securitisation Regulation adopted in 2019 did not contain the concept of "resilient securitisation" within its legal text. "Resilient securitisation" positions would be senior positions in securitisations which satisfy a set of eligibility criteria that ensure low agency and model risk and a robust loss-absorbing capacity for the senior positions. The Commission's proposals introduce a comprehensive set of criteria that a securitisation transaction must meet to qualify as a "resilient securitisation". The eligibility criteria build on the Joint Committee's recommendations in its March 2025 report on the implementation and functioning of the Securitisation Regulation (JC 2025 14).

The Proposals: Key Elements of a "Resilient Securitisation"

To qualify as a "resilient securitisation", a transaction must meet a specific set of conditions, which go beyond standard STS criteria. These conditions are designed to ensure that only the most robust and transparent securitisations are eligible for the associated regulatory benefits. 

According to the Commission's proposal, these include:

1. Reduced agency and model risks. Only securitisation positions which are regarded as having reduced agency and model risks are eligible. This includes: 

• Positions by originators, both in STS and non-STS securitisation (as originators have more detailed knowledge of and control over the underlying exposures and the securitisation origination process than investors); 
• Positions by sponsors, both in STS and non-STS securitisations (as sponsors have access to more information than investors, and agency risks are smaller than risks associated with investors' positions); and 
• Investor positions in STS securitisations only (because STS criteria largely mitigate the agency and model risks). Investor positions in non-STS securitisations are excluded as the agency and model risks are not reduced;

2. Amortisation mechanism. Only sequential amortisation is allowed, or pro rata amortisation provided the transaction includes performance-related triggers requiring a switch to sequential amortisation. This aims to ensure a conservative credit enhancement for the senior position over the life of the transaction;

3. Concentration and granularity. The exposures in the pool must comply with a maximum concentration limit of 2%—i.e., exposures to a single obligor may not exceed 2% of the aggregate exposure value. A granular pool facilitates a higher-risk diversification, generally reduces the probability of correlated defaults, and better insulates the senior position from the risk of losses;

4. Counterparty credit risk (only relevant for synthetic transactions). Only credit protection supported by high-quality collateral or in the form of guarantees provided by sovereigns or supra-nationals is allowed. This reduces the counterparty credit risk associated with the credit protection to which the originator is exposed, enables the originator to quickly compensate the losses incurred in SRT structures, and contributes to the effectiveness of the risk transfer. The focus of this requirement is to protect the originator (and the originator's exposure to the senior position), since in synthetic securitisations, the senior position is usually retained by the originator; and

5. Minimum credit enhancement (i.e., maximum thickness) of the senior position. This requirement aims to ensure sufficiently thick non-senior positions to cushion the senior position against potential losses.

In practice, for STS securitisations, only two out of these five criteria would be new: The criteria relating to amortisation mechanism, concentration/granularity, and counterparty credit risk are already existing STS criteria (set out in the EU Securitisation Regulation) or "STS+" criteria for preferential capital treatment (set out in Article 243 of the CRR).

Analysis of the Proposed Changes

The introduction of this new "resilient securitisation" category is intended to deliver a range of economic and regulatory benefits. In particular:

1. For senior investors: The most significant effect of participating in a "resilient securitisation" would be the more favourable regulatory capital treatment under the proposed revisions to the CRR. Specifically, exposures to qualifying resilient securitisations may benefit from reduced risk-weighted asset ("RWA") requirements (with a floor of 5%), reflecting the lower risk profile attributed to these transactions. This could enhance the attractiveness of "resilient securitisation" senior tranches for institutional investors by improving capital efficiency and potentially increasing returns on capital. However, investors will also need to adapt to the heightened transparency and reporting standards, as well as the need to verify that transactions consistently meet the resilience criteria throughout their lifecycle. The introduction of resilient securitisations may also encourage greater market participation and diversification, as the improved risk profile could attract a broader range of institutional investors seeking stable returns and lower capital charges; and
2. For originators: The most significant effect in implementing a "resilient securitisation" is consequential to the benefit for its investors. Indeed, originators may leverage on the most favourable RWA regime applicable to a "resilient securitisation" and, on this basis, obtain more favourable conditions (in particular, in terms of costs of the financing applied on the overall transaction). Additionally, originators will need to ensure that the securitisation structures and underlying assets consistently meet the resilience criteria, which may require enhancements to internal processes, data management, and reporting systems. This could involve increased collaboration with investors and third-party service providers to maintain compliance and transparency throughout the lifecycle of the securitisation. Furthermore, by offering "resilient securitisations", originators may be able to access a wider pool of investors and potentially achieve better pricing and execution in the capital markets, thereby supporting their funding and risk management objectives.

Looking Ahead

The Commission's proposed amendments have been submitted to the European Parliament and the Council of the EU for review and approval. Changes to the current draft amendments should be expected as part of the legislative negotiation process, though it is unclear at the present stage how extensive such changes may be. There is no defined timeline for the process, though it is expected to be at least 18-24 months before the proposals would become law. The proposed amendments also give rise to certain practical issues, which might challenge the success of the legislative proposals. 

Further, it is unclear whether the United Kingdom will seek to minimise regulatory divergence by adopting similar changes to its "on-shored" version of the EU regime. Market participants are advised to conduct a thorough legal analysis of the evolving regulatory landscape, including the interplay between EU and UK regimes, to ensure compliance and to capitalise on new investment opportunities that may arise from a harmonised or divergent approach.

Sneak preview: In part four of this series, we will address the Commission's proposed amendments to the transparency regime under Article 7 of the EU Securitisation Regulation.