ECB opinion regarding EC's proposed securitisation reforms

The European Central Bank (ECB) has issued its opinion on the European Commission's proposed amendments to the EU securitisation framework, which was submitted in June. The package consists of a proposal to amend the EU Securitisation Regulation, a proposal to amend the Capital Requirements Regulation as regards exposures to securitisations and a consultation on measures to amend the Liquidity Coverage Ratio (LCR) Delegated Regulation. The ECB broadly supports the reforms aimed at enhancing the functioning of the EU's securitisation market, but makes a number of general and specific observations, including that:

• Proposed changes to synthetic securitisations require careful consideration. Although this segment is driving market growth, if not properly managed by originator credit institutions, large synthetic securitisations could amplify procyclicality through rollover risk, potentially affecting financial stability.
• Lowering capital requirements should apply only to securitisations of very high structural and credit quality, with safeguards to maintain resilience. While welcoming the concept of "resilient transactions" the ECB finds the proposed recalibration of existing requirements overly complex and excessive. It proposes specific changes concerning the recalibration of the securitisation prudential framework, including the p factor and risk weight floor.
• Proportionality and simplification in investor due diligence requirements is welcome, but the ECB urges a clearer legal basis and supervisory safeguards.
• The ECB supports risk retention exemptions for public-guaranteed tranches but suggests additional safeguards for high-risk/NPE transactions.
• Disclosure requirements may be simplified but must maintain essential data quality. To this end, the ECB insists on the retention of essential data and inclusion of climate-related indicators.
• The proposal to amend the homogeneity requirement for STS securitisations backed by loans to small and medium-sized enterprises should be complemented by additional restrictions for the remaining pool exposure.
• The proposal to broaden the eligibility criteria for credit protection agreements under the STS framework to include unfunded guarantees provided by (re)insurance companies risks increasing both concentration and counterparty risk.
• Caution should be exercised to avoid redefining "public" securitisations in ways that disrupt private market functioning.
• EU-level supervision for STS criteria is a market supervision task, not a traditional prudential task. Assigning it to prudential supervisors, like the ECB, would require additional resources.

Where the ECB recommends that the proposed regulations are amended, specific drafting proposals are set out in a separate technical working document.

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