The Joint Committee of the European Supervisory Authorities published a report on the implementation and functioning of the EU Securitisation Regulation on 31 March 2025. The purpose of the report is to assess the extent to which the EU Securitisation Regulation has achieved its policy objectives and to provide legislative recommendations to the European Commission.
The report of the Joint Committee (the JC) (the Report) comes at an important time for securitisation in the European Union (the EU), given the various recent expressions of support for revitalising the securitisation market and the ongoing review by the European Commission (the Commission) of the securitisation regulatory framework.
The JC comprises the European Supervisory Authorities (the ESAs), being the EBA (the European Banking Authority), EIOPA (the European Insurance and Occupational Pensions Authority) and ESMA (the European Securities and Markets Authority). The Report was published pursuant to a requirement set out in Article 44 of the EU Securitisation Regulation (the EUSR) and is intended to inform the Commission as it prepares to publish its own report on the EUSR following a consultation which it launched in October 2024. The Commission’s report is expected in mid-June 2025.
The Report covers a range of topics and some of the key points are summarised below. In particular, there are significant concerns in the market about the ESAs’ views on the interpretation of the sole purpose test (as discussed in more detail below), and this is having a significant impact on some types of transactions. This was perhaps an unintended consequence, but is unfortunate given the market expectation that revitalising the securitisation market is a key objective of the review of the EUSR. The Report does not deal with regulatory capital requirements or the liquidity coverage ratio, which are also critical issues for market participants.
The JC recommended that the jurisdictional scope of the EUSR be clarified, such that it would be expressed to apply where at least one party to the securitisation, whether on the sell-side or the buy-side, is established in the EU, and in that case, the relevant EU entity must comply with the provisions of the EUSR that are applicable to it. This is broadly in line with the market understanding, but the drafting will need to be considered carefully. Of course, in addition to EU sell-side and EU buy-side parties being directly subject to the requirements that are applicable to them under the EUSR, certain non-EU sell-side parties in a securitisation may also agree contractually to comply with certain provisions of the EUSR in order to facilitate compliance by EU investors with the investor due diligence requirements under the EUSR.
The JC proposed to reconsider the distinction between “public” and “private” securitisations. Certain of the transparency requirements do not apply to “private” securitisations—i.e., securitisations which do not need a prospectus in compliance with the EU Prospectus Regulation. The proposal is that securitisations meeting any of the following criteria would be considered “public”:
This means that CLOs and some other transactions currently considered to be “private” would be re-characterised as “public”. One of the consequences of this will be that transactions that might have been able to use the proposed simplified reporting template for private securitisations will be unable to do so if it comes into effect. We expect that market participants will have some comments on this definition, and in particular, will want to try to refine it to avoid some classes of transactions which are understood to be private securitisations being captured—for example, certain transactions that obtain a listing for specific reasons without being widely marketed or distributed (e.g., for technical tax reasons).
The JC took the view that no changes are required to the current definition of securitisation in the EUSR.
Proportionality
Article 5 of the EUSR sets out certain investor due diligence and monitoring requirements. In an important development, the JC indicated that it is in favour of a more proportionate approach and noted that this principle is already established in the EUSR, albeit not specifically referenced in Article 5(1). That provision requires that an investor must, prior to investing in a securitisation, verify compliance with credit-granting and risk retention requirements, and, pursuant to Article 5(1)(e), verify that the information specified in Article 7 (which sets out disclosure requirements for originators, sponsors and SSPEs (securitisation special purpose entities)) will be made available to it.
The JC expressed the view that lack of guidance on how to achieve adequate and proportionate due diligence may result in unduly burdensome due diligence processes. It also noted that investors find the requirements of Article 5(1)(e) disproportionate and too prescriptive in securitisations with non-EU sell-side parties. Consequently, the JC considered that investors should receive the relevant information in substance but without having to receive it in a particular form.
The UK Securitisation Framework (the UKSF) revised the equivalent investor due diligence requirements from the previous wording deriving from Article 5(1)(e) of the EUSR, delinking this investor due diligence requirement from the Article 7 disclosure requirements. Instead, under the UKSF, an investor must obtain sufficient information to enable it independently to assess the risks of holding the securitisation position and verify that the originator, sponsor, and SSPE has committed to make further information available on an ongoing basis. The UKSF sets out a list of minimum required information but does not require the information on the underlying exposures or the investor reports which a UK investor has to obtain to be in the form of specified reporting templates.
It is not clear from the Report to what extent the information to be obtained by an EU investor will need to match the substance of the ESMA reporting templates—i.e., whether an investor will have to obtain all the information that would be required under those reporting templates, but just not in that form, or whether there will be some leeway in terms of what information needs to be obtained. We anticipate that investors would prefer a more principles-based approach to the information they would have to obtain, since they may not be able to obtain every piece of information required under the ESMA reporting templates, particularly in the case of transactions with non-EU issuers. We note that in ESMA’s recent consultation on a simplified reporting template for private securitisations, the proposed simplified reporting template was stated to apply only to securitisations where all the sell-side parties were in the EU. If this were the case, then it could mean that an EU investor would need to obtain more detailed information for a third-country deal than for an EU deal, which would be a strange outcome. For further information on that ESMA consultation, please see our prior LawFlash: ESMA Publishes Consultation Paper on a Simplified Reporting Template for Private Securitisations.
Helpfully, the JC did state that references to Article 7 and Article 9 (which sets out certain requirements with respect to credit granting) should be removed from Article 5(1). Furthermore, the JC stated that the sufficiency of the information to be received by an investor should be commensurate with the particular risks to which that investor is exposed.
In considering this, investors could take account of the type of transaction (e.g., whether it is bilaterally negotiated or publicly placed, and whether it is ABCP or non-ABCP), the seniority of the tranche, the structural features, the type of underlying exposures, whether the transaction has been verified as being STS (simple, transparent and standardised) by a third-party verification agent, and whether it is a repeat deal.
Secondary Market Investors
For investors in the secondary markets, the JC proposed to allow a period of up to 15 calendar days for the investor to document its due diligence assessment (on the condition that the assessment is carried out before investing).
Delegation of Due Diligence Obligations
The JC took the view that investors should be able to delegate their due diligence obligations to another entity, provided that the investor would remain ultimately responsible, except in the case of fraud, negligence, or misconduct.
Sanctions
The JC recommended expanding Article 32 of the EUSR—which required EU member states to establish sanctions and remedial measures in the case of certain breaches of the EUSR—to ensure that any infringement of the investor due diligence and monitoring requirements contained in Article 5 could be sanctioned.
Sole Purpose Test
Under Article 6 of the EUSR, it is stated that an entity will not be considered to be an originator if it has been established or operates for the sole purposes of securitising exposures. This is known as the “sole purpose test”.
In a move that was unexpected by market participants, the JC indicated that the meaning of certain words which appear in the EU risk retention regulatory technical standards (the RTS) with respect to the sole purpose test should be clarified. This arose from a concern about third party origination vehicles in some CLO transactions. While this aspect of the Report is focused on CLOs, there is a statement that “While CLO-specific issues are highlighted in this report, similar challenges might manifest in other securitisation types, ensuring broader applicability”. Unless further clarification is provided by the regulators, this suggests that the interpretation provided by the ESAs should apply to all transactions within the scope of the EUSR with risk retention by an originator, since that originator would have to pass the sole purpose test.
The RTS contain wording which was developed by the EBA in relation to the sole purpose test, and which we understand to be principles-based. The relevant provision of the RTS states that “[a]n entity shall not be considered to have been established or to operate for the sole purpose of securitising exposures… where all of the following applies:
The JC expressed the view that the word “predominant” should be interpreted to mean a threshold of more than 50%—in other words, that the proposed originator’s revenues deriving from the exposures to be securitised, retained interests or proposed retained interests should not be more than 50% of its total revenues in order for the relevant entity to pass the sole purpose test. The JC stated that it was its view that, going forward, supervisors should apply this interpretation to new issuances. The JC invited the Commission to clarify the wording in the EUSR, and said that, alternatively, it could be clarified in the RTS by the EBA if the RTS are revised.
The above conclusions have caused considerable disruption, consternation and confusion in the market.
For transactions being entered into following the Report, the conclusions may be problematic, and the parties will need to consider the sole purpose test, any representations in relation thereto, and risk factors and disclosure with respect to the risk retainer in offering documents very carefully on a case-by-case basis.
With respect to transactions entered into prior to the Report, market participants are taking some comfort from the fact that it appears that this interpretation is not intended to be applied retrospectively to pre-existing deals, given the reference to supervisors applying this “going forward” and the acknowledgement of the current lack of clarity. However, there have been concerns as to whether it could be applied to deals that had already priced but had not closed at the time of the Report, since at the point of pricing, the commercial terms of the relevant transaction would have been agreed but the transaction would not yet have closed. It is not clear whether the ESAs considered that it is not uncommon for some securitisations, notably CLOs, to have a price-to-close window of four to eight weeks, and consequently it is not certain how the reference in the Report to “new issuances” should be interpreted in the context of such deals.
It is worth noting that the reference to the “sole or predominant source of revenue” does not appear in the equivalent wording relating to the sole purpose test in the UKSF.
The JC suggested that the Commission could explore the option of broadening the definition of sponsor to allow regulated entities other than credit institutions and investment firms to hold the risk retention. However, this would not solve the issue in many instances.
Market participants are hoping that the ESAs or local regulators will provide some clarification in the immediate future, given the current disruption in the market. It will also be very important to see what the Commission’s view of this issue is when it publishes its report on the EU securitisation framework.
Level of Risk Retention
One piece of good news is that the JC considered that the level of risk retention should remain at 5%.
The JC suggested that it should be clarified when a credit institution or investment firm will be considered to be acting as a “sponsor” of a securitisation transaction. This is intended to address the question of whether a sponsor of an ABCP programme, which in many cases would not be identified as a sponsor at transaction level, would be required to comply with risk retention and transparency requirements. The JC proposed that it should be clarified that a credit institution or investment firm would only be considered the sponsor of a securitisation transaction if it:
In principle this is likely to be helpful but some further clarification of the wording may be required.
Revision of Disclosure Requirements
The JC took the view that proportionality should be enhanced in the disclosure requirements under Article 7 of the EUSR and that the usefulness of the data being disclosed should be improved. In order to achieve this, the JC suggested the following:
We note that ESMA recently consulted on a simplified template for private securitisations. However, as mentioned above, securitisations which are currently considered to be private and which, as a result of the new proposed definition for public securitisations, would be categorised as public, could be subject to comparatively more burdensome reporting requirements than if they had remained private.
Use of No Data Options
The JC acknowledged the usefulness of “no data” options in reporting templates. It proposed that the “no data” framework should be comprehensively reviewed, bearing in mind the diversity of securitisation markets and underlying assets, and that some “no data” options should be removed where the relevant fields are essential for the purposes of risk analysis.
Disclosure to Repositories for Private Securitisations
The JC recommended that disclosures under Article 7 be made available through a securitisation repository for private as well as public deals. This would increase the burden on, and costs for, private securitisations.
Reduction of Multiple Regulatory Reporting Requirements
Currently, there are a number of different reporting requirements for securitisation, across different regulators and with different templates. The JC was in favour of developing an integrated reporting framework across the EU.
STS
The JC considered various points in relation to STS (simple, transparent and standardised) securitisation.
The JC rejected the possibility of allowing STS for securitisations with third country SPVs. However, it supported the implementation of a third country equivalence regime for STS to enable EU investors to benefit from preferential prudential treatment for third country securitisations.
The JC indicated support for the removal of the requirement for investors to check compliance with STS criteria (given the responsibility of the originator to ensure compliance and its liability for any breach, but subject to supervision of the originator/sponsor and/or the involvement of a third-party verification agent).
The JC considered that the STS criteria could be refined, and in particular, recommended some targeted amendments to the STS criteria for synthetic securitisations. The JC also noted that no ABCP programmes have been designated as STS.
The JC suggested removing risk retention and transparency requirements from the STS criteria, given that they are covered elsewhere.
The JC considered two potential approaches to improve supervision—either to keep the status quo and try to achieve more supervisory convergence, or to transition to a centralised model with supervisory responsibilities transferring from competent authorities to the ESAs.
Market participants are hoping for some further clarification of the interpretation of the sole purpose test wording as soon as possible and are also hoping this will mean that the sole purpose requirements can be applied in a proportionate and principles-based manner. With respect to other aspects of the Report, we anticipate that those who are involved in EU securitisations will be awaiting the Commission’s report and hoping that it is supportive of the various favourable conclusions of the JC and that the Commission will propose making some further clarifications to certain aspects discussed in the Report, and some improvements to the EU securitisation regime.
Morgan Lewis is frequently called upon to advise clients on the implications of the EUSR regime for their transactions and to assist them in finding potential solutions. We are following these developments closely and would be happy to discuss in more detail.
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following: