European Parliament Finalises Securitisation Regulation and Capital Requirements Regulation Reform Proposals Ahead of Trilogue

Background

• The European Parliament has finalised its proposed amendments to the Securitisation Regulation and Capital Requirements Regulation (the Parliament Position).
• The European Parliament’s Committee on Economic and Monetary Affairs (ECON) approved the Parliament Position on 6 May 2026.
• The Parliament Position follows publication of the ECON Rapporteur’s draft report (the Draft Report) on the original European Commission proposal (the Commission Proposal) last December.
• The Council of the European Union also published its finalised reform proposals in response to the Commission Proposal (the Council Position) at the end of last year.

Next Steps: Negotiation and Compromise

The Parliament Position (subject to formal endorsement in a plenary session of the European Parliament scheduled for the week commencing 18 May 2026) constitutes the European Parliament’s negotiating position going into “trilogue” discussions with the Council of the European Union and the European Commission, expected to take place during the second half of this year. During trilogue, all three bodies will debate and agree a final compromise position, which may differ materially from the Parliament Position, the Council Position, and/or the Commission Proposal.

Notably, the Parliament Position deviates significantly from the proposals set out in the Draft Report, reflecting an intense process of negotiation and compromise within the European Parliament. While a reasonable compromise position appears to have been reached within the European Parliament on the prudential side, the Parliament Position regarding the Securitisation Regulation reforms does not, in our view, fully address the concerns of market participants following the Commission Proposal.

We outline key aspects of the Parliament Position below. Tables comparing the Parliament Position, Draft Report, Council Position, and Commission Proposal are also provided below to highlight key provisions.

The Parliament Position on Securitisation Regulation

a. Public Versus Private Securitisation

• Distinguishing a “public” from a “private” securitisation continues to be a major focus of the EU reforms, as this will determine the required content of disclosures and their manner of distribution, including whether any confidentiality safeguards apply. 
• The Parliament Position includes a new basis for “public” classification, defined as transactions where the underlying pool of exposures is “actively managed,” in addition to where a prospectus is required. According to the Parliament Proposal, this is due to such transactions’ “accessibility to a broad range of investors.”
• In our view: A securitisation should not be classified as “public” simply because it is actively managed. Active portfolio management is a feature of many transactions that are truly private in nature (such as banks providing warehouse lines to CLO managers or leverage to credit funds in securitisation format). Such transactions are not “accessible to a broad range of investors.” On the contrary, they involve documentation and the exchange of commercially sensitive information under strict confidentiality terms. 
• Mandating disclosure (including through Securitisation Repositories – see (f) below) at the mere presence of active portfolio management without adequate confidentiality safeguards will consequently have adverse commercial consequences for the lenders, sponsors and other parties, potentially impacting both transaction viability and funding for underlying borrowers.

b. Administrative Sanctions

• The Parliament Position retains the Commission Proposal to extend the Securitisation Regulation’s administrative sanctions regime to investors for breaches of their due diligence obligations.
• However, the maximum penalty has been reduced (from twice the initial investment in the Draft Report to half the initial investment). 
• The need to avoid “double-up” of sanctions due to the potential for the Securitisation Regulation regime to overlap with investors' sectoral regimes has also been acknowledged (and the recitals confirm that “a more proportionate sanctioning regime vis-à-vis institutional investors as compared to the sanctions applicable to the sell-side” should apply).
• In our view: The Parliament Position therefore reflects a softening of the original Commission Proposal (which provided for sanctions of up to 10% of global net turnover without reference to existing sectoral regimes), however, it still has the potential to significantly disincentivise EU investors from investing in securitisations (and adversely impact EU issuance). The administrative sanctions regime should remain applicable only to EU sell-side entities.

c. Definition of Originator: The “Sole Purpose” Test

• Neither the Commission Proposal, Council Position nor Draft Report addressed the “sole purpose” test for “originator” eligibility, despite clarification being keenly awaited by market participants following last March’s report of the Joint Committee of the European Supervisory Authorities (the ESAs Report).
• The Parliament Position does not clarify “predominant source of revenue”, however. Instead, it tasks the European Banking Authority (the EBA) with providing regulatory technical standards on criteria for determining that an entity is not established solely for securitising exposures, with draft standards due within six months.
• A safe harbour has been proposed for entities using securitisation as a “means to finance their business, or that of an entity belonging to the same group, which is centred on the provision of goods or non-financial services.” We view this as too narrow, excluding financial entities such as credit funds that originate loans or make investments with leverage as well as CLO managers, each being “real businesses” with risk retention investment an entirely incidental objective.
• The Parliament Position also permits a regulatory determination to be made as to satisfaction of the sole purpose test on a “case-by-case basis,” although no indication is given as to how this process might work. This may not be workable in practice and could delay transactions.
• In our view: The Parliament Position’s focus on certain aspects of the “sole purpose” test is a step in the right direction. However, its failure to resolve key open points such as the position of credit funds that use securitisation as a financing tool and CLO collateral managers that operate as “real businesses,” is a missed opportunity. Clarification as to the meaning of "predominant source of revenue" following the ESAs Report (and subsequent Q&A) would also have been useful.

d. Third Country Transactions

• The Parliament Position removes the requirement for non-EU sell side entities to prepare EU disclosure templates, but retains a requirement for investors to verify the provision of the information listed in Article 7(1) itself.
• The recitals confirm the need to “verify that third country issuers provide information which is substantively equivalent to the transparency standards set out in accordance with [the Securitisation Regulation],” indicating that this “substantive equivalence” test is to be assessed by reference to the information contained in the disclosure templates themselves.
• As a result, under this proposal EU investors would likely continue to require non-EU sell-side parties to use the disclosure templates to be sure of compliance with their due diligence obligations.
• In our view: A bolder proposal is therefore needed (for example, by aligning the requirement with the UK’s “sufficient information” test that is assessed entirely from the investor’s perspective) to ensure that EU investors are not placed at a competitive disadvantage in global securitisation markets.

e. Definition of Sponsor

• Unfortunately, the Parliament Position (consistent with each of the other EU institutions’ positions to date) does not expand the definition of “sponsor” to include non-EU investment firms.
• Non-EU CLO collateral managers who wish to hold risk retention in their EU-compliant transactions will therefore need to continue to do so as an “originator”.

f. Securitisation Repositories

• The Parliament Position requires both public and private transactions to report through Securitisation Repositories (although private transactions will benefit from certain confidentiality safeguards).
• In our view: The extension of Securitisation Repository reporting to private transactions as such is not particularly problematic (so long as adequate confidentiality safeguards apply). Much more significant however, is the Parliament Position on “public” classification (see above) which would require many truly private transactions to report (through Securitisation Repositories) publicly, without any confidentiality safeguards.

g. Definition of Originator: “Purchase on Own Account”

• The Parliament Position does not propose any changes to the current requirement for an originator to “purchase on its own account” before securitising exposures under paragraph (b) of the definition of “originator,” despite market participants having raised several Q&As in recent years in relation to this issue (including as to the ability to satisfy such requirement by the originator holding all of the equity in the securitisation and on the use of conditional sale agreements by CLO collateral managers).
• In our view: It is disappointing that none of the EU institutions have tabled any proposals, or mandated further standards, in relation to this aspect of the originator definition to date.

h. UCITS: Single Issuer Limit

• The Parliament Position increases the limit set out in the UCITS Directive under which a UCITS must not acquire more than 10% of the debt securities issued by any single body, to 20% for securitisation issuers.
• In our view: We welcome this proposal, particularly as exchange-traded funds are increasingly being established in Europe to invest in CLOs under the UCITS regime. While the existing issuer limit may be workable when applied to corporate issuers (due to the relatively large issuance sizes involved), it can quickly become relevant (and prohibitive, from a cost-benefit standpoint) in relation to CLO issuers and other securitisation special purpose entities that issue transactions on a standalone basis, limiting potential investors.

The Parliament Position on Capital Requirements Regulation

a. Risk Weight Floor Formula – Cap

• The Parliament Position retains the “cap” (introduced by the Draft Report) on the new risk-sensitive risk weight floor formula proposed under the Commission Proposal.
• In our view: This is welcome, particularly for senior positions in securitisations of leveraged loans (such as CLOs) where the relatively high risk weights that are applicable to the underlying assets under the formula would likely cause the risk weight floor to increase relative to the current level, with corresponding increases in risk weights for positions where the floor were in force (subject to any overriding impact of the output floor).

b. Risk Weight Floor Formula: Slope Coefficients and “Resilience” Classification

• The Parliament Position retains the concept of “resilience” (introduced under the Commission Proposal), but the resulting risk weight reductions are likely to be modest (delivered through a reduction in the risk weight floor primarily by lowering the slope coefficient in the new formula).
• Although “investor” positions (in addition to investments by “sponsors and originators”) can obtain resilient treatment under the Parliament Position—a departure from the Commission Proposal—CLOs, and most other leveraged loan securitisations, will be unlikely to satisfy the granularity requirement for resilience in any case.
• Since the new risk weight floor formula tends to penalise securitisation of leveraged loans (see above), the proposed cap on the risk weight floor will likely be binding for such transactions and any lowering of the slope coefficient would therefore be unlikely to decrease the risk weight floor.

c. P-factor: Reduction and Investor Versus Originator/Sponsor Classification

• The p-factor represents a penalty for securitisation, by increasing regulatory capital cost versus holding exposures directly.
• Given the presence of the risk weight floor, any p-factor reduction could lower risk weights if the risk weight floor were not in force (or by giving the investor more structuring flexibility to achieve the risk weight floor for a position) subject to any overriding impact of the output floor.
• For banks bound by the output floor, a p-factor reduction could lower risk weights under SEC-SA, lowering the output floor.
• In our view: The proposed reduction in the p-factor for senior non-STS positions (from 1.0 to 0.6 under SEC-SA) is welcome. This is also a significant improvement on the Council Position, where such reduction was only available for “originators” and “sponsors” as opposed to “investors” (meaning that typical CLOs could not benefit). That said, this distinction, which unjustifiably penalises typical CLOs where no originating bank exists, has been retained under the Parliament Position with further p-factor reduction proposed for certain originator and sponsor positions.

d. Definition of “Senior”

• The Commission Proposal introduced a minimum attachment point for a securitisation position to qualify as “senior” (in addition to being “first-pay”) which the Parliament Position has removed.
• In our view: While most first-pay tranches in leveraged loan securitisations could be structured to satisfy such minimum attachment point (at least at commencement of the transaction), its removal is welcome given the importance of “senior” characterisation (throughout a transaction) for regulatory capital benefit (both for banks and for EU insurers following the significant lowering of stress factors for senior non-STS positions under the recent changes to the Solvency II rules).

¹ Focus is on senior non-STS traditional positions.