Political infighting, drafting missteps and insurer tensions cloud the future of EU securitisation reform
EU securitisation reform has become an increasingly contentious political debate marked by changing compromise proposals, technical disagreements and growing tension between member states, parliamentarians and market participants, according to SCI sources familiar with the discussions.
One senior industry figure, speaking on condition of anonymity due to the sensitivity of the matter, says the negotiations have increasingly resembled a rollercoaster of late-night calls, leaked amendments, last-minute reversals and constantly shifting compromises. A second market participant, speaking on background, broadly corroborates the volatility of the process.
What was initially presented as a targeted effort to revive Europe’s securitisation market and expand the role of insurers in synthetic risk transfer has evolved into a wider debate over ideology, national interests and competing financial models.
Insurers versus funds
At the centre of the dispute is the treatment of insurers in synthetic securitisation. For many market participants, the issue comes down to the different roles played by insurers and investment funds.
That difference becomes particularly visible during periods of market stress. Funds can pull back quickly when liquidity tightens or returns become less attractive, while insurers are generally viewed as more stable, long-term providers of protection. Market participants argue that insurers are natural counterparties for long-dated assets such as mortgages because they can hold risk over a 20-year horizon, unlike investment funds, which typically prefer shorter maturities.
Supporters of the reform argue that allowing insurers to participate more fully in the market would create additional capacity for banks to transfer risk and free up capital for lending. They point to the US market, where insurers have become an established part of the risk transfer landscape over the last decade, and especially during the COVID crisis.
Another industry expert notes that the question is not simply whether insurers have appetite for these exposures, but whether regulation is calibrated in a way that allows that demand to emerge at all. In that view, weak demand today may reflect capital treatment rather than a structural absence of investor interest.
However, efforts to expand the role of insurers in Europe have faced significant resistance from some policymakers and regulators, according to the sources.
Concerns over systemic risk
One major flashpoint has been the intervention of the European Systemic Risk Board (ESRB), which warned that expanding insurers’ involvement in securitisation could create, in its view, systemic risk.
According to critics of the ESRB position, the watchdog may have relied on older versions of banking rules when it comes to its chief concern – the so-called cliff effect.
In fact, the current CRR addresses this issue fully. In addition, the ESRB has not fully accounted for constraints such as leverage ratios, which already limit how much risk banks can transfer and had no assessment on the added value of Solvency II.
In their view, the ESRB overstated the danger without properly modelling the practical limits on the market’s size. To them the fears are overstated and based on outdated references to banking rules that have already changed.
Their chief point is that that the overall scale of the market remains too small to threaten financial stability. Even under aggressive growth assumptions, supporters of reform say insurer involvement would still represent only a modest share of banks’ balance sheets and insurers’ overall exposures.
A separate industry source also argues that some of the risks cited by the ESRB, including rollover or concentration risk, are not necessarily evidence against the market but risks already capable of being managed through supervisory oversight.
Parliament divides along political lines
The political battle has become particularly intense inside the European Parliament.
The debate has increasingly turned into a confrontation between left-wing parties, which are suspicious of securitisation on principle, and right-wing parties, which are more willing to back market-friendly reforms.
That has created some unexpected political dynamics. Several market participants note the irony that parts of the far right have at times appeared more supportive of securitisation than centrist parties, largely because they are reacting against what they see as excessive left-wing intervention in financial markets. The senior industry figure says this has produced some unusual alliances, with parts of the European Conservatives and Reformists group becoming more supportive of the market than some centrist parties.
That dynamic has put pressure on the European People’s Party, which some observers see as balancing the desire to appear politically moderate with pressure to support a more market-friendly outcome.
Renew Europe has also emerged as an important player. While no longer the dominant kingmaker it once was, the group remains influential on this front. According to market participants, divisions inside Renew have increasingly followed national lines, with Irish members seen as more supportive of opening the market and French members taking a more restrictive approach.
The equivalence battle
The French position has become particularly contentious because of the debate around “equivalence” for non-EU insurers, an issue that some observers see as central to the future structure of the market.
Only a small number of Europe-based insurers are currently interested in participating in this business.
The list of genuinely active European insurers is extremely small and, under the Council text, could be reduced to only a handful. Other insurers remain uninterested, constrained by ratings, or unwilling to commit capital to what is still seen as a relatively niche market.
At the same time, some of the specialist players that actively write this kind of protection in the non-STS type of securitisation are headquartered in jurisdictions such as Bermuda or Switzerland – the only two jurisdictions worldwide that currently benefit from supervisory equivalence under Solvency II.
As a result, the role of non-EU players has become increasingly politically sensitive. Bermuda-based insurers in particular are widely viewed as essential to creating a competitive market, while others see them as firms whose activity should be brought back under a European regulatory umbrella.
Efforts to tighten equivalence rules are increasingly viewed not only as prudential concerns but also as an attempt to encourage more activity to take place within continental Europe. However, tougher rules could simply drive business away altogether, because foreign insurers are unlikely to establish large European subsidiaries for a relatively niche activity.
That, they argue, would leave only a small number of counterparties in the market, reducing competition and making it harder for banks to find protection providers.
Another industry source also cautions that the equivalence debate has both prudential and political dimensions, arguing it should not be framed solely as a conflict between openness and protectionism. In that regard, some concerns around equivalence stem from broader questions of regulatory arbitrage and control rather than opposition to non-EU participation per se.
The risk, according to several people close to the debate, is that Europe risks creating “capacity without demand”: banks may be encouraged to originate more synthetic securitisations, but if there are too few insurers willing or able to take the other side of the trade, the reforms could end up having limited practical effect. The senior industry figure says this risk is becoming increasingly central to the debate.
The other source, however, argues the deeper issue is less “capacity without demand” than whether regulatory calibration itself is distorting supply and demand, warning that policy should first focus on aligning capital treatment with risk and then allow markets to determine the level of participation.
Denmark, covered bonds and rushed negotiations
Member states have also been accused of mishandling the file. It is believed that Denmark, which held the rotating EU presidency during part of the negotiations in the latter half of 2025, pushed the process too quickly in an effort to secure a deal within six months.
According to sources involved in the discussions, Denmark repeatedly sought to accelerate negotiations rather than leave more time for technical analysis or for a later presidency, such as Ireland’s, to complete the file.
Some argue that several member states appeared more focused on being able to say they had “finished the file” politically than on ensuring the final rules were technically coherent. Some also claim Danish negotiators effectively gave member states an ultimatum during the final stages of talks: accept the compromise on the table or risk no deal at all.
That speed, they argue, came at the expense of technical accuracy.
One of the most controversial accusations is that Denmark had an inherent conflict of interest because of the importance of covered bonds in the Danish financial system. Covered bonds and securitisation are often seen as competing funding tools, particularly in mortgage finance. Some argue that Denmark appeared less like a neutral broker and more like a country seeking to protect its domestic covered bond market.
That view is reinforced, according to some observers, by the fact that several Nordic and northern European countries have traditionally been sceptical of securitisation because of past financial crises or bank failures. Countries such as Denmark, Sweden, Finland, Belgium and the Netherlands are often seen by market participants as part of a broader bloc that is instinctively cautious on the asset class.
There is also frustration that technical drafting errors may have unintentionally damaged parts of the existing non-STS securitisation market, despite there being no political intention to eliminate that activity.
Some sources believe some of the latest drafting changes inadvertently undermined parts of the existing framework simply because lawmakers moved too quickly and failed to understand the knock-on effects of their amendments. The senior industry figure says this was a direct consequence of the pace of negotiations.
Technical confusion and drafting mistakes
One country in western Europe has also drawn criticism from some observers, who argue that policymakers have at times appeared to confuse key insurance concepts such as reinsurance and co-insurance.
For some industry participants, that confusion has become symbolic of a wider concern that legislators and officials are being asked to make detailed decisions on highly technical areas of insurance and securitisation without always fully understanding the terminology or market structure involved.
Another person familiar with the framework compares the reform process to adjusting the gears of a complex watch without fully understanding how each component affects the others, warning that seemingly isolated amendments can have unintended effects across markets. The result has been a growing sense of uncertainty among those following the negotiations closely.
Compromise amendments have been rewritten multiple times. Provisions removed in one round of negotiations have reappeared in the next. Market participants say the file has become increasingly incoherent as lawmakers try to trade concessions across unrelated issues.
For some, the concern is no longer simply that the reforms will fall short of expectations. It is that Europe could end up unintentionally damaging parts of the market that already exist.
That risk is especially acute for synthetic securitisation linked to mortgages and for insurer-backed transactions, where market participants warn that poor drafting and political bargaining could shrink the number of active counterparties and reduce banks’ ability to transfer risk.
Still a long road ahead?
With further technical meetings and trilogue negotiations still ahead, few expect the debate to calm down soon.
There is also frustration among market participants that compromises on one part of the file are increasingly being traded off against unrelated issues elsewhere. Some argue that lawmakers are trying to balance competing demands on disclosure templates, STS treatment and insurer participation in ways that leave the overall framework internally inconsistent.
Attention is now shifting to the next phase of negotiations, including Ireland’s future role in the rotating presidency and the prospect of trilogue talks between the Parliament, Council and Commission.
Many in the market believe Ireland could take a more constructive approach, particularly given the importance of the country’s securitisation sector and the risk that poorly drafted rules could damage activity in areas such as synthetic mortgage transactions.
Another industry source cautions, however, that even imperfect reforms would still likely leave the market in a better place than today, with the larger risk being not outright failure but an anaemic or unbalanced outcome that improves some segments while leaving core markets such as mortgages underdeveloped.
Even so, others are bracing for another round of political horse-trading, last-minute amendments and competing national agendas before the final shape of the reforms becomes clear. The senior industry figure says that further volatility in the negotiations should be expected.
If the file unexpectedly resolves itself in a constructive manner at Parliament level, there is still a long way ahead, with technical discussions and trilogues where coherence will need to be preserved.
The senior industry figure argues that, if it does not, there is a real risk that Europe, driven by political positioning and specific national interests, ends up undermining securitisation as one of the flagship pillars of the Savings and Investment Union (SIU).
In that scenario, this would not only create internal inconsistencies in the framework, but directly weaken a key tool designed to support financing capacity, including mortgages.
At a time when strengthening European competitiveness is a core objective, the source argues this would run directly counter to the goals of the SIU itself.
As one market expert put it, the bigger risk may not be that the reforms fail entirely, but that they produce a fragmented framework that improves activity at the margins without delivering the balanced financial architecture the SIU is intended to support.
According to people close to the negotiations, the next phase will therefore remain critical, including the role of the Council and the future presidency. There is a window for a more constructive approach, but absent that, continued political trade-offs and late-stage adjustments can be expected, with a risk to the overall coherence and credibility of the framework.
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