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Has the European Commission taken a big step forward with EU securitisation?

Portfolio Managers Ian Bettney and Robert Schramm-Fuchs give some insight into the EU's proposed securitisation reforms and discuss whether the simplified regulation framework goes far enough to revitalise the market.

Ian Bettney

Portfolio Manager


Robert Schramm-Fuchs

Portfolio Manager


3 Jul 2025
7 minute read

Key takeaways:

  • The European Commission (EC) has introduced a package aimed at simplifying the EU securitisation framework to enhance investment in the economy, while also safeguarding financial stability.
  • The proposed changes could be a meaningful turning point for the EU’s securitisation market, aiming to unlock trapped savings and increase funding for investment and development, potentially providing a significant stimulus comparable to major infrastructure investments.
  • While the financial industry welcomes the balance between regulatory oversight and support for investment aimed at stimulating growth, there are concerns around higher complexity and costs, with further amendments to come and a timeline that is likely to slip.

The European Commission (EC) recently announced a highly anticipated package of measures intended to simplify the EU securitisation framework, revitalising the market, while continuing to safeguard financial stability. The view is that existing regulations can be improved and simplified, helping to channel more investments into the real economy.

The original EU Securitisation Regulation (SECR) framework in 2019 introduced a set of rules that were designed to improve safeguards for investors, ensuring transparency and stability in the market for securitised debt, which groups individual assets, such as credit card debt, mortgages or other forms of borrowing into collective assets that can be traded.

But while a strong regulatory framework is arguably necessary, the constraints that came with those regulations have been pinpointed within the industry as an impediment to growth, ultimately contributing to a significant contraction in Europe’s market for securitised debt, in stark contrast to the growth seen in the US.

Financial industry voices have long advocated for reform, and after review, the EU Commission has identified some aspects of the existing rules that they believe are hindering market developments and imposing unnecessary operational costs. The package includes a reduction to the Liquidity Coverage Ratio (LCR) that determines the volume of liquid assets originating banks must have to meet its short-term needs[i].

The targeted regulatory changes aim to address these shortcomings and ultimately boost the EU securitisation market, helping to stimulate economic growth, encourage technological and corporate innovation and, ultimately, create more jobs across the EU.

These proposed changes have ramifications across Europe, for both stock markets and the market for securitised debt, with some thoughts outlined here from our Portfolio Managers:

European equities (Robert Schramm-Fuchs)

The announced (planned) regulatory reforms represent a potentially meaningful turning point for the EU’s securitisation market.

In addition, the Joint Committee, a forum designed to strengthen co-operation between the various European Supervisory Authorities (ESAs) for the financial sector, has published its own evaluation to unlock the use of securitisations to help stimulate economic growth (with due attention to safeguarding financial stability).

The revival of the EU securitisation market has been highlighted as critical to achieve the objective of the Saving and Investment Union (SIU), a European Commission initiative aimed at improving the integration and efficiency of the region’s financial ecosystem for EU citizens and households. The report focuses on recommendations to enhance the functioning of the SECR, improving clarity over its jurisdictional scope.

What does this all mean for European equities?

Europe is still ‘savings-rich’, but for a long time has been ‘investment-poor’. Several initiatives are underway to change that, to unleash the huge volume of ‘trapped’ existing savings and channel them into productive uses. This is entirely under Europe’s own control, and the huge external (and internal) political pressures are finally leading to positive policy action, which is just not priced into European stocks.

As we have noted before, bank lending is responsible for c.80% of all European funding needs, yet the second-hand market (securitisations) that helps to recycle capital, or sell on collectivised loans, has shrunk in Europe. In 2010, when European Union GDP was €13.1tn, the European securitisation market was c.€2.0tn in size. In 2023, when European Union GDP was €17.1tn, the securitisation market had shrunk to €1.2tn, albeit with about half of that retained by originating banks for repo funding with central banks, so was not distributed to investors.

Just to get back to the nominal (not inflation-adjusted) 2010 market size would represent a €800bn stimulus to European GDP (which we estimate at approximately 4% of GDP). This is significantly larger than Germany’s recently announced infrastructure package, with potential to feed through to growth considerably quicker than Germany’s stimulus package, given the 10-year schedule for the latter to be fully deployed.

European securitisation (Ian Bettney)

From the perspective of the securitisation investment community, the European Commission’s proposed measures offer a promising direction for the market. They strike a balance between maintaining regulatory oversight and fostering growth, which many industry stakeholders have welcomed. However, while the proposals do address some existing limitations, they ultimately fall short of delivering the comprehensive changes that some have anticipated.

The Commission emphasises the broader benefits of securitisation, not just for banks but for investors seeking high-quality opportunities. This aligns with the goals of the SIU, showcasing a focus on economic growth rather than solely banking interests. The package reflects an understanding of the market as an ecosystem, aiming for recalibration rather than deregulation, though its reliance on enhanced supervisory oversight might be overly optimistic.

Key positives:

  • Simplified due diligence: The proposals reduce mandatory due diligence requirements, adopting a principle-based approach that lowers standards for senior tranches and repeat transactions. Specific obligations for EU-supervised issuers are removed, easing processes for market participants.
  • Simplified reporting: By making 35% of existing reporting templates voluntary, the need for new IT expenditures for originators is reduced, and the elimination of loan-by-loan disclosure requirements for certain highly granular pools is a welcome change.

Key concerns:

  • Complexity in risk sensitivity: The introduction of risk-sensitive categories, such as ‘resilient’ senior tranches, adds complexity to the existing framework, potentially complicating prudential requirements.
  • Cost implications for reporting: Expanding the definition of public securitisations and requiring comprehensive reporting may increase costs and create disparities with other market sectors, possibly shifting activity away from public securitisation.
  • Expanded sanctions: Concerns arise with the broader scope and increased severity of sanctions related to due diligence compliance, particularly given the removal of the ability to delegate that liability.

Awaiting clarification:

  • European insurers: Associated amendments have yet to be announced to Solvency II but are expected to follow. This large European investor base currently has negligible exposure to securitised assets due to the excessively penal capital charges, in comparison to US insurers where securitised assets are treated less harshly and so comprise a material exposure.

In summary, the timeline for the proposals to become law is likely extended, potentially not before mid-2027 following a lengthy consultation and negotiation period.  While the amendments are a positive step toward revitalising the European securitisation market, they may not be ambitious enough in their current form to drive significant market recovery or advance the SIU’s objectives decisively.

 

[i]  The package includes a reduction to the Liquidity Coverage Ratio (LCR) that determines the volume of liquid assets banks must have to meet its short-term needs.

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Glossary:

Originator banks: The entity that initiates or creates the underlying assets that are packaged and sold as securities, such as a bank issuing mortgages, or a financial company offering loans for car purchases.  

Public securitisation: Refers to a securitization transaction that involves issuing securities that are offered to the public and typically traded on a regulated market or exchange. This type of securitisation is characterized by the issuance of securities that are available to a wide range of investors, including institutional and retail investors.

Repo: A short-term loan, using collateral, where one party sells securities to another with the agreement to buy them back at a later point, at a pre-determined price. The difference between the sale and repurchase price represents the interest (or repo rate) paid for the loan.

Repo funding: Lenders need to manage their cash positions to cover their repo funding obligations, to ensure they have sufficient funding to repurchase the securities at the agreed price and time.

Tranches: In securitisation, tranches refer to the different layers or classes of securities that are issued, each with distinct characteristics, primarily varying by their risk level, priority in the payment structure, and interest rates.  Senior Tranches are the highest-rated tranches, typically receiving AAA ratings. They have the first claim on the cash flows from the underlying assets, making them the least risky. Because of their lower risk, they usually offer lower yields compared to other tranches.

 

These are the views of the author at the time of publication and may differ from the views of other individuals/teams at Janus Henderson Investors. References made to individual securities do not constitute a recommendation to buy, sell or hold any security, investment strategy or market sector, and should not be assumed to be profitable. Janus Henderson Investors, its affiliated advisor, or its employees, may have a position in the securities mentioned.

 

Past performance does not predict future returns. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.

 

The information in this article does not qualify as an investment recommendation.

 

There is no guarantee that past trends will continue, or forecasts will be realised.

 

Marketing Communication.

 

Glossary

 

 

 

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  • An issuer of a bond (or money market instrument) may become unable or unwilling to pay interest or repay capital to the Fund. If this happens or the market perceives this may happen, the value of the bond will fall.
  • When interest rates rise (or fall), the prices of different securities will be affected differently. In particular, bond values generally fall when interest rates rise (or are expected to rise). This risk is typically greater the longer the maturity of a bond investment.
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  • If a Fund has a high exposure to a particular country or geographical region it carries a higher level of risk than a Fund which is more broadly diversified.
  • The Fund may use derivatives to help achieve its investment objective. This can result in leverage (higher levels of debt), which can magnify an investment outcome. Gains or losses to the Fund may therefore be greater than the cost of the derivative. Derivatives also introduce other risks, in particular, that a derivative counterparty may not meet its contractual obligations.
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  • When the Fund, or a share/unit class, seeks to mitigate exchange rate movements of a currency relative to the base currency (hedge), the hedging strategy itself may positively or negatively impact the value of the Fund due to differences in short-term interest rates between the currencies.
  • Securities within the Fund could become hard to value or to sell at a desired time and price, especially in extreme market conditions when asset prices may be falling, increasing the risk of investment losses.
  • The Fund involves a high level of buying and selling activity and as such will incur a higher level of transaction costs than a fund that trades less frequently. These transaction costs are in addition to the Fund's ongoing charges.
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The Janus Henderson Fund (the “Fund”) is a Luxembourg SICAV incorporated on 26 September 2000, managed by Janus Henderson Investors Europe S.A. Janus Henderson Investors Europe S.A. may decide to terminate the marketing arrangements of this Collective Investment Scheme in accordance with the appropriate regulation. This is a marketing communication. Please refer to the prospectus of the UCITS and to the KIID before making any final investment decisions.
    Specific risks
  • Shares/Units can lose value rapidly, and typically involve higher risks than bonds or money market instruments. The value of your investment may fall as a result.
  • Shares of small and mid-size companies can be more volatile than shares of larger companies, and at times it may be difficult to value or to sell shares at desired times and prices, increasing the risk of losses.
  • If a Fund has a high exposure to a particular country or geographical region it carries a higher level of risk than a Fund which is more broadly diversified.
  • The Fund may use derivatives with the aim of reducing risk or managing the portfolio more efficiently. However this introduces other risks, in particular, that a derivative counterparty may not meet its contractual obligations.
  • If the Fund holds assets in currencies other than the base currency of the Fund, or you invest in a share/unit class of a different currency to the Fund (unless hedged, i.e. mitigated by taking an offsetting position in a related security), the value of your investment may be impacted by changes in exchange rates.
  • When the Fund, or a share/unit class, seeks to mitigate exchange rate movements of a currency relative to the base currency (hedge), the hedging strategy itself may positively or negatively impact the value of the Fund due to differences in short-term interest rates between the currencies.
  • Securities within the Fund could become hard to value or to sell at a desired time and price, especially in extreme market conditions when asset prices may be falling, increasing the risk of investment losses.
  • The Fund could lose money if a counterparty with which the Fund trades becomes unwilling or unable to meet its obligations, or as a result of failure or delay in operational processes or the failure of a third party provider.
The Janus Henderson Horizon Fund (the “Fund”) is a Luxembourg SICAV incorporated on 30 May 1985, managed by Janus Henderson Investors Europe S.A. Janus Henderson Investors Europe S.A. may decide to terminate the marketing arrangements of this Collective Investment Scheme in accordance with the appropriate regulation. This is a marketing communication. Please refer to the prospectus of the UCITS and to the KIID before making any final investment decisions.
    Specific risks
  • Shares/Units can lose value rapidly, and typically involve higher risks than bonds or money market instruments. The value of your investment may fall as a result.
  • If a Fund has a high exposure to a particular country or geographical region it carries a higher level of risk than a Fund which is more broadly diversified.
  • The Fund may use derivatives to help achieve its investment objective. This can result in leverage (higher levels of debt), which can magnify an investment outcome. Gains or losses to the Fund may therefore be greater than the cost of the derivative. Derivatives also introduce other risks, in particular, that a derivative counterparty may not meet its contractual obligations.
  • If the Fund holds assets in currencies other than the base currency of the Fund, or you invest in a share/unit class of a different currency to the Fund (unless hedged, i.e. mitigated by taking an offsetting position in a related security), the value of your investment may be impacted by changes in exchange rates.
  • When the Fund, or a share/unit class, seeks to mitigate exchange rate movements of a currency relative to the base currency (hedge), the hedging strategy itself may positively or negatively impact the value of the Fund due to differences in short-term interest rates between the currencies.
  • Securities within the Fund could become hard to value or to sell at a desired time and price, especially in extreme market conditions when asset prices may be falling, increasing the risk of investment losses.
  • The Fund involves a high level of buying and selling activity and as such will incur a higher level of transaction costs than a fund that trades less frequently. These transaction costs are in addition to the Fund's ongoing charges.
  • The Fund could lose money if a counterparty with which the Fund trades becomes unwilling or unable to meet its obligations, or as a result of failure or delay in operational processes or the failure of a third party provider.
    Specific risks
  • Shares/Units can lose value rapidly, and typically involve higher risks than bonds or money market instruments. The value of your investment may fall as a result.
  • Shares of small and mid-size companies can be more volatile than shares of larger companies, and at times it may be difficult to value or to sell shares at desired times and prices, increasing the risk of losses.
  • If a Fund has a high exposure to a particular country or geographical region it carries a higher level of risk than a Fund which is more broadly diversified.
  • This Fund may have a particularly concentrated portfolio relative to its investment universe or other funds in its sector. An adverse event impacting even a small number of holdings could create significant volatility or losses for the Fund.
  • The Fund may use derivatives with the aim of reducing risk or managing the portfolio more efficiently. However this introduces other risks, in particular, that a derivative counterparty may not meet its contractual obligations.
  • If the Fund holds assets in currencies other than the base currency of the Fund, or you invest in a share/unit class of a different currency to the Fund (unless hedged, i.e. mitigated by taking an offsetting position in a related security), the value of your investment may be impacted by changes in exchange rates.
  • Securities within the Fund could become hard to value or to sell at a desired time and price, especially in extreme market conditions when asset prices may be falling, increasing the risk of investment losses.
  • The Fund could lose money if a counterparty with which the Fund trades becomes unwilling or unable to meet its obligations, or as a result of failure or delay in operational processes or the failure of a third party provider.
    Specific risks
  • Shares/Units can lose value rapidly, and typically involve higher risks than bonds or money market instruments. The value of your investment may fall as a result.
  • Shares of small and mid-size companies can be more volatile than shares of larger companies, and at times it may be difficult to value or to sell shares at desired times and prices, increasing the risk of losses.
  • If a Fund has a high exposure to a particular country or geographical region it carries a higher level of risk than a Fund which is more broadly diversified.
  • The Fund may use derivatives with the aim of reducing risk or managing the portfolio more efficiently. However this introduces other risks, in particular, that a derivative counterparty may not meet its contractual obligations.
  • If the Fund holds assets in currencies other than the base currency of the Fund, or you invest in a share/unit class of a different currency to the Fund (unless hedged, i.e. mitigated by taking an offsetting position in a related security), the value of your investment may be impacted by changes in exchange rates.
  • Securities within the Fund could become hard to value or to sell at a desired time and price, especially in extreme market conditions when asset prices may be falling, increasing the risk of investment losses.
  • The Fund could lose money if a counterparty with which the Fund trades becomes unwilling or unable to meet its obligations, or as a result of failure or delay in operational processes or the failure of a third party provider.