EU policymakers face growing pressure to ease constraints on insurers and banks, with industry participants warning current proposals may fall short of reviving the market
The European Union’s latest attempt to revive its securitisation market is entering a decisive phase, with policymakers in Brussels weighing how far reforms should go to unlock capital and support lending to the real economy.
At stake is more than a technical recalibration of rules. For many market participants, the outcome will signal whether Europe is serious about mobilising institutional capital under its Savings & Investment Union agenda or whether longstanding caution will continue to constrain growth.
As part of the Savings & Investments Union Agenda, the European Commission is proposing to realign the EU securitisation framework with today’s economic and strategic needs. The current framework is considered excessively conservative, discouraging both issuance and investments.
“The Commission flagged securitisation as one of the bridges between savings and investments,” says Pablo Pascual, Brussels Office manager at Insurance Ireland.
The legislative process is now advancing across institutions. In the Council, member states adopted a position in December 2025, while the European Parliament is currently negotiating its position ahead of a ECON Committee vote on 5 May and subsequent trilogue negotiations.
“Although everyone in the room agrees that a well-functioning securitisation [market] is essential to channel private savings into productive investments, there is a challenge to build a sustainable political majority,” Pascual says.
Market participants broadly welcome the reform effort but question whether it goes far enough.
“I think it’s definitely progress, but is it sufficient to kickstart the market? Probably not,” says Peter McGuigan, head of EU affairs at Banking & Payments Federation Ireland (BPFI).
McGuigan adds that Irish banks and non-bank mortgage lenders are already established users of securitisation as both a funding and capital management tool. “From our perspective, securitisation is an essential part of a well-functioning financial system and a key enabler of deeper, more integrated European capital markets,” he says.
That hesitation reflects a persistent tension in Brussels: how to scale securitisation while maintaining a conservative regulatory framework shaped by post-crisis sensitivities.
Insurers at the centre of the debate and a regulation still restrictive
Insurers can play a central role helping banks to improve capital allocation, both as investors and as providers of credit protection. “Non-life insurers have a role both as institutional investors and as underwriters. By covering credit risk, insurers make the transactions safer and more attractive for banks and investors,” Pascual says.
From the banking side, support for greater insurer participation is clear. “We’re very supportive of allowing them to play a bigger role. More investors in the market is what’s required,” McGuigan says.
However, participation remains uneven. While some large or internationally active insurers see securitisation as a business opportunity, others face constraints ranging from capital requirements to internal resource limitations. In many cases, entering the market would require new hiring, upskilling and investment in specialist teams.
Much of the debate focuses on whether the new safeguards in place can support a meaningful expansion of insurers activity.
“The Commission decided to open the market of unfunded credit protection to insurers, but with conservative safeguards” Pascual says, such as high size thresholds at both the undertaking and group levels, and the requirement to have an internal model in place.
From the banking perspective, other regulatory constraints continue to weigh on issuance. “Our central message is that the policy focus must be on growing the securitisation market in a meaningful way, increasing issuance, broadening investor participation and strengthening EU capital markets overall,” McGuigan says. “This has clear benefits for competitiveness, resilience and funding diversification across the Union.”
He argues that, for the market to scale, policymakers need to address the structural disincentives constraining both issuers and investors. “Without stronger issuance and sustained investor demand, the market will struggle to scale,” he says. “Unlocking both requires incentives for banks to securitise and for investors to commit capital with confidence.”
McGuigan says a core issue is the lack of risk sensitivity in parts of the capital framework. Certain correction factors, including the P-factor and risk-weight floors, can result in securitised exposures attracting higher capital charges than the same assets held on balance sheet. Senior tranches, in particular, can still face relatively high minimum risk weights despite bearing only a small share of the overall risk, given the protection provided by junior tranches.
As part of the review, he says policymakers should consider lowering risk-weight floors for both STS and non-STS transactions and reducing the disproportionate impact of some parameters within securitisation capital formulas.
In addition, liquidity rules, particularly the treatment of securitisation under the liquidity coverage ratio, are seen as limiting demand from bank treasury desks, further constraining the investor base.
A market constrained by scale and complexity
Beyond regulation, structural factors continue to limit the development of Europe’s securitisation market.
One of the most frequently cited issues is the lack of scale. “There are limited active investors in the EU market,” McGuigan says, highlighting the stark contrast with the much broader US investor base.
Operational complexity adds another layer of friction. Securitisation transactions involve significant upfront costs, extensive reporting requirements and long execution timelines. For smaller banks, these hurdles can be decisive.
“You really have to be invested in it, otherwise it just falls down the to-do list,” McGuigan says.
Approval processes also play a role. McGuigan says investor participation is being held back by “overly prescriptive and duplicative” due diligence requirements, adding that proposals to streamline those obligations without weakening safeguards would be welcomed.
Delays in securing ECB eligibility or significant risk transfer recognition can affect pricing and execution, particularly for smaller or more complex transactions.
SRT as a strategic tool
While much of the debate focuses on constraints, market participants emphasise that securitisation, and SRT in particular, is already delivering tangible benefits.
Irish banks, for example, have used SRT programmes as a core capital management tool, running multiple transactions per year to optimise risk-weighted assets and improve capital efficiency.
In some cases, the impact extends beyond balance sheet management. Securitisation can enable strategic activity by freeing up capital for acquisitions or business expansion.
“In the Irish market, it has helped free up capital for lending but it can also be used to support firms investment in services and strategic acquisitions,” McGuigan says, referring to transactions supported by risk transfer.
Such examples underscore the potential for securitisation to act not only as a funding mechanism, but also as a driver of capital 'velocity' within the financial system.
A fragmented but evolving ecosystem
Ireland offers a microcosm of the broader European market. Alongside active bank issuers, the country hosts a growing ecosystem of non-bank mortgage lenders that rely heavily on securitisation for funding.
These lenders are less concerned with regulatory capital treatment and more focused on market conditions, liquidity, pricing and investor demand, underscoring the importance of a well-functioning market.
At the same time, Ireland’s role as a hub for securitisation structures, including SPVs and servicing infrastructure, highlights the strength of Europe’s financial ecosystem even as scale remains limited.
A test of Europe’s capital markets ambition
A recurring theme across the debate is the stigma of securitisation after the 2008 global financial crisis. This scepticism combined with the complexity of the file, contributes to a cautious approach. “There are policymakers who don’t want the risk at all,” Pascual notes, reflecting a more fundamental resistance in some capitals.
Once the European Parliament will reach its general approach, negotiations will move towards trilogues most likely under the Irish Presidency of the Council of the EU during the second half of 2026.
“The negotiations will land somewhere in the middle, reflecting a compromise between competing priorities” Pascual says. While he welcomes the Commission proposal and parts of the Council approach, McGuigan says there is still room for greater ambition. He hopes the upcoming Irish EU presidency can help push the review towards “a more impactful outcome.”
For market participants, the stakes extend beyond securitisation itself. McGuigan describes the review as “a clear test” of the EU’s broader Savings and Investment Union ambitions. “Securitisation is not a niche issue, it is a foundational tool for deepening capital markets and mobilising private capital across the Union,” he says.
The reform is increasingly seen as a test of Europe’s ability to build deeper, more integrated capital markets.
Whether policymakers ultimately choose to fully mobilise insurers and other institutional investors or maintain a more restrictive framework will shape not only the future of securitisation, but also the broader trajectory of Europe’s financial system.
SCI will hold its European SRT Roadshow events this year. More information can be found here: https://www.events-sci.com/european-srt-roadshow