Focus on Securitisation and its relevance for Risk Management

What are Securitisations?

Securitisation has remarkable legacy being positioned at the intersection of financial innovation and risk. In the existing business framework, financial institutions are able to transform predictable streams of cash flows – mainly from loans such as residential loans, asset-based financings or leases, and credit card debt – into tradable securities through securitisation procedures. This allows lenders to refinance their assets by pooling them together and dividing them into different risk categories for investors, offering access to investment opportunities that might otherwise be unavailable to pursue. Investors, in turn, receive returns from the cash flows generated by the underlying assets used for the securitisation.

Regulatory environment shaken up by a global pandemic and market-driven developments

In the EU, the regulatory framework for securitisation has developed significantly during the last ten years. In 2017, the EU published its first dedicated Securitisation Regulation-Regulation (EU) 2017/2402 (SECR), which consolidated and harmonised the existing securitisation rules from CRR, Solvency II, AIFMD, and UCITS into a single legal framework.

The EU SECR established both a general securitisation framework and a more risk-sensitive prudential regime for Simple, Transparent and Standardised (STS) securitisations. This framework provided a clear definition of the roles of both buy-side and sell-side participants, introduced specific operational requirements, and granted exemptions depending on the respective role. It represented a significant step forward in building a Capital Markets Union and strengthening the EU securitisation market.

During the COVID 19 period, it was observed that while ‘true-sale’¹ securitisation declined, synthetic securitisations² surged, becoming banks’ preferred risk transfer vehicle. This shift reflects banks optimizing their strategies for capital relief and funding benefits, with high retention levels of senior tranches in synthetic transactions.

The significant growth of synthetic securitisations, alongside the increasing demand for Non-Performing Loan (NPL) securitisation, became especially evident during the COVID 19 pandemic. Following a comprehensive evaluation, the EU revised its stance that only ‘true-sale’ securitisations could be designated as STS. This led to the first amendment of the EU SECR in 2021, extending the STS framework to include synthetic securitisations. This change enabled banks to use securitisation more flexibly to transfer risk of NPL portfolio and support the post-pandemic economic recovery.

The regulatory framework since then has continued to evolve. In 2025, the Joint Committee (JC) of the European Supervisory Authorities (ESAs) has published its latest evaluation of the EU Securitisation Framework. These evaluations are conducted every three years and aim to enhance the functioning of the SECR and, where applicable, amend the supervisory framework to support a sound and robust securitisation market in the future. The 2025 JC report includes several key recommendations, such as:

Clarifying the jurisdictional scope of the SECR,
Broadening the definition of public securitisation,
Offering a simplified due diligence approach,
Clarifying risk retention rules in specific cases, and
Simplifying transparency and reporting requirements.

Markets are now awaiting to see whether these recommendations will be adopted and reflected in the next amendment of the EU Securitisation Regulation.

The Compass to navigate your risk management

To provide a clearer regulatory landscape, we summarise and list the key requirements and concepts of the regulation as well as the implications for market participants below:

The SECR places significant risk assessment responsibility on institutional investors – who choose to invest in securitisation positions. Before investing, they are expected to rigorously verify various aspects, including the originator's credit-granting processes, the risk retention by the originator, sponsor, or original lender, and the availability of necessary information. Ongoing monitoring of the performance of the securitisation and the underlying exposures is also mandated. This ensures that investors may have a thorough understanding of the risks they are taking through the securitisation investment cycle.

To discourage the ‘originate to distribute’ model, where lenders might have less stringent underwriting standards knowing that the risks will be passed on, the regulation mandates that originators, sponsors, or original lenders must retain a material net economic interest of at least 5% in the securitisation. This ensures that those who create or sponsor these products have ‘skin in the game’ and maintain an ongoing interest in the performance of signed deals.

A cornerstone of the regulation is the emphasis on transparency. Originators, sponsors, and Special Purpose Entities (SPEs) – the entities often established to hold the securitised assets – are obligated to make information available to existing investors, competent authorities, and potential investors upon request. This includes quarterly or monthly reports on the underlying exposures, essential transaction documents, details on the deal structure and cash flows, and information on risk retention. This information is often made available through securitisation repositories, which act as central hubs for collecting and maintaining records of securitisations.

The regulation introduces a specific framework for STS securitisation, aiming to identify high-quality, less complex securitisations. STS securitisations benefit from potentially more favourable regulatory treatment, including lower capital requirements and preferential liquidity treatment for investors. To qualify as STS, a securitisation must meet a set of strict criteria related to simplicity, standardisation, and transparency. Originators and sponsors are obligated jointly to notify the ESMA when a securitisation meets these requirements. Although many market participants choose to involve a third-party STS verification agent, this procedure cannot be classified as mandatory.

Generally, EU SECR prohibits re-securitisation, where existing securitisation positions are used as underlying exposures in a new securitisation. However, certain legitimate purposes are defined under which re-securitisation may be permitted, such as facilitating the winding-up or ensuring the viability of financial institutions or preserving the interests of investors in cases of non-performing exposures.

Recognizing that securitisation instruments are generally not appropriate for all investors, the regulation sets out specific conditions for selling securitisation positions to retail clients. These conditions include performing a suitability test and ensuring the client's portfolio diversification.

BDO Germany can be your trusted partner

Navigating through the SECR regulatory landscape and market developments is complex. The regulation imposes significant obligations on originators, sponsors, SPEs, and institutional investors and the regulatory environment will continue to evolve in 2025. Understanding these requirements, ensuring compliance, and leveraging the opportunities presented by the STS framework are crucial for success in the EU securitisation market.

We are delighted to be your trusted partner in that adjustment and change processes. Our team of experienced professionals has deep expertise and long-year experience in the EU Securitisation Regulation and its practical implications, gained through extensive audit and advisory experience in this area.

We offer a tailored range of services to support your securitisation activities—helping you determine whether your transaction falls within the scope of the SECR and ensuring compliance with regulatory obligations, whether you are acting as an originator, sponsor, or investor.

By partnering with BDO Germany, you can confidently navigate the complexities of the EU Securitisation Regulation, unlock the benefits of securitisation, manage risks effectively, and ultimately achieve your business goals.

Feel invited to contact us to elaborate how our expertise can support your success in the EU securitisation market.

¹A true sale securitisation involves the legal and irrevocable sale of assets from the originator to a special purpose vehicle (SPV). This removes the assets from the originator’s balance sheet and transfers the associated risks.

²Synthetic securitization is a type of securitisation where the credit risk of a pool of exposures is transferred to investors without transferring the actual assets.