Reform of the EU Securitisation Framework—Part 2: Proposed Definitions of "Public" and "Private" Securitisations

Background: Public and Private Securitisations

The EU Securitisation Regulation adopted in 2019 did not establish an explicit distinction between "public" and "private" securitisations within its legal text. The regulation itself does not provide formal definitions for these categories, but in practice, market participants and regulatory guidance have generally interpreted "public" securitisations as those transactions that trigger the obligation to publish a prospectus in accordance with the EU Prospectus Regulation (Regulation (EU) 2017/1129). Conversely, transactions that do not give rise to such a prospectus requirement have been informally regarded as "private" securitisations.

The Proposals

The Commission's proposed amendments introduce, for the first time, clear and comprehensive definitions of "public" and "private" securitisations within the EU regulatory framework. Under the new framework, a securitisation will be classified as "public" if it meets any of the following conditions: (i) a prospectus is required under Article 3 of the EU Prospectus Regulation; (ii) the notes are admitted to trading on an EU trading venue, such as a regulated market, MTF, or OTF (as defined in MiFID II); or (iii) the transaction is marketed to investors on a non-negotiable, take-it-or-leave-it basis. Any securitisation that does not satisfy these criteria will be considered "private."

The distinction between public and private securitisations is critical, as it determines the applicable transparency template reporting and whether this information must be made available to investors via a securitisation repository. In future client publications, we will provide a detailed analysis of the proposed changes to the transparency requirements, including the modifications and simplification of reporting templates for transactions classified as private.

Analysis of the Proposed Changes

The introduction of these definitions is expected to have a significant impact on structuring and market practice. Many transactions that were previously considered private—such as those listed on EU trading venues for technical reasons or to benefit from tax exemptions—may now fall within the scope of public securitisation, thereby triggering more onerous reporting and transparency requirements.

The rationale for broadening the definition of a public securitisation is to ensure that transactions which are, in substance, accessible to a wide investor base are subject to robust transparency and disclosure requirements. This is intended to provide investors with the information necessary for proper risk assessment and to support supervisory monitoring of systemic risk. However, the way the definition is drafted means that simply listing notes on an EU trading venue—often done for technical or tax reasons—will now bring many transactions into the scope of "public" securitisation, even if they were previously regarded as private. A further consideration is whether the proposed broadening of the "public" securitisation definition is necessary or proportionate, especially when the practical outcome may be to impose additional regulatory burdens without delivering a meaningful improvement in investor protection since, given the generally applicable disclosure requirements under Article 7 of the EU Securitisation Regulation, the private nature of a transaction does not imply a lack of transparency for investors. On the contrary, investors in private securitisations—typically institutional and sophisticated—customarily receive a comprehensive set of documents that enable them to assess the risks involved in the transaction. 

Further, the terms "marketed to investors" and "non-negotiable" leave (too much) room for interpretation. For example, are ABCP programmes considered "non-negotiable" because CP investors are faced with fixed terms and conditions of the commercial paper and only the interest rate/discount and the maturity are open to negotiation? And, taking it to the extreme, the proposed definition could now even capture syndicated deals that are negotiated between the arranger(s) and the originator at the outset and subsequently syndicated to other investors on a take-it-or-leave-it basis. This could clearly not be the legislative intention.

This shift could lead to many transactions that have traditionally been treated as private now being reclassified as public, subjecting them to the full suite of public reporting and transparency obligations. This will increase operational complexity and costs for originators and issuers, and as a result, only a small subset of transactions will be able to benefit from the new, simplified reporting template designed for private securitisations, limiting the intended relief for private deals.

Furthermore, the broader scope of public securitisation, and the associated increase in reporting requirements, may discourage issuance, potentially holding back the EU's market growth. Public securitisations must report to securitisation repositories without the confidentiality protections afforded to private deals, which could further deter issuers concerned about sensitive information being made widely available. There is a risk that market participants, such as issuers and originators, will respond by seeking to list their transactions on non-EU trading venues to avoid falling within the public securitisation definition. This could fragment the market, undermine the goal of greater EU capital markets integration, and reduce transparency and investor protection if third-country listing standards are not equivalent to those in the EU.

In addition, the broadened definition of a "public" securitisation under the proposed EU framework will subject European collateralised loan obligations ("CLOs"), including their warehouse phases where debt is often listed for tax benefits, to the most stringent reporting and transparency requirements. In contrast, U.S. CLOs and warehouses—which are typically listed outside Europe, do not require a European prospectus, and involve negotiated terms—are expected to remain classified as private securitisations, allowing them to benefit from simplified reporting templates and reduced compliance costs. The proposal does not alter the jurisdictional reach of the EU Securitisation Regulation, so CLOs listed on non-EU exchanges (such as those in the Cayman Islands or Guernsey) will continue to qualify as private. However, to preserve private status, some European CLO managers may need to consider de-listing their CLOs from EU venues or moving to third-country exchanges, which could potentially reduce their attractiveness to investors.

In summary, while the Commission's reform package addresses critical issues and introduces promising changes which are encouraging, some proposals, including the broad "public securitisation" definition, introduce new burdens and could limit effectiveness. The wider definition of "public securitisation" must be carefully assessed in light of the due diligence and transparency proposals, as it will result in greater uncertainty about the definition of "public securitisation" and could bring within scope a significant number of transactions and impose additional reporting requirements and operational costs on firms, which might otherwise benefit from a streamlined private template. The market awaits further clarity as the legislative process continues, with the hope that the final framework will achieve the intended balance between transparency, investor protection, and market growth.

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.

Sneak preview: In part three of this series, we will address the Commission's proposal regarding the concept of "resilient" securitisations.