EU-RFC position paper on relaunching the securitisation market in Europe
The European Union Roundtable of Financial Centres (EU-RFC), a regional chapter of WAIFC, convened in Brussels to outline a comprehensive strategy aimed at strengthening the competitiveness of the EU financial sector. The resulting position paper, "A Targeted Reform of the EU Securitisation Framework is Key to Meet the Needs of the Digital and Sustainable Transition," underscores the urgent need for targeted reforms, particularly in revitalizing the EU securitization market, a key priority identified by the roundtable participants.
Revitalizing EU Securitization: A Top Priority
One of the central themes of the paper is the importance of re-establishing a robust EU securitization market. Participants emphasized that securitization plays a critical role in facilitating financing for banks, insurance companies, and asset managers while effectively managing risk. Despite being unfairly associated with the 2008 financial crisis, European securitizations have maintained a historically low default rate. Even during periods of financial turmoil, such as the Global Financial Crisis and the euro crisis, default rates in European securitizations remained at a modest 3%, significantly lower than those of US-issued subprime mortgage-backed securities.
The paper cites research indicating that the stringent lending standards in Europe have contributed to the strong performance of EU securitizations. By addressing inefficiencies in the securitization process—from issuance to investment and secondary market liquidity—the EU can enhance its financial ecosystem and improve market stability.
Addressing Regulatory Barriers and Market Fragmentation
The EU-RFC highlights the need to eliminate regulatory barriers that hinder the competitiveness of EU financial markets, particularly in smaller capital markets. Roundtable participants stressed that the lack of regulatory harmonization across member states continues to pose a significant challenge. Regulatory inefficiencies, if left unaddressed, could widen the financing and competitiveness gap, as outlined in the Draghi report.
The paper calls for swift action from EU policymakers, urging the European Commission to prioritize the implementation of targeted legislative reforms. A more streamlined regulatory framework would not only strengthen the securitization market but also enhance the EU’s ability to compete with global financial hubs.
Urgency for Legislative Reforms
With the European Commission’s commitment to introducing a targeted legislative proposal by the end of Q2, the EU-RFC welcomes the consultation process and stresses the importance of implementing reforms expeditiously. The roundtable reaffirmed that revisions must cater to all member states, including those with less developed capital markets. This means addressing both Simple, Transparent, and Standardized (STS) and non-STS markets, as well as both Internal Ratings-Based (IRB) and Standardized Approach (SA) banks.
The EU-RFC warns that delaying reforms would only deepen the financing and competitiveness challenges faced by the EU financial sector. To prevent further economic setbacks, the organization urges the Commission to adhere to its proposed timeline and ensure that these changes are enacted through a fast-track process.
Ensuring a Competitive and Resilient Financial Future
The EU-RFC’s position paper presents a roadmap for a stronger, more competitive European financial sector. By tackling regulatory inefficiencies, fostering a thriving securitization market, and streamlining financial market operations, the EU can position itself as a global leader in financial services.
The full position paper is now available for review, offering an in-depth analysis of the challenges and solutions necessary to secure the EU’s financial future.
Read the paper here.