Proposed Reform of EU Securitization Regulation — Implications for U.S. Securitizations

On June 17, 2025, the European Commission (the Commission) published its proposal (the Proposal) to amend various aspects of the EU Securitization Regulation (EUSR).

This Sidley Update considers the Proposal specifically within the context of U.S. securitizations. We focus on its potential impact on U.S. securitization sponsors seeking to facilitate compliance by EU investors with the EUSR. As such, this Update will also be of interest to EU investors investing in U.S. securitizations.

In this Update, our use of the term “securitization” is intended to capture the full breadth of transactions potentially within the scope of the EUSR — including, for example, traditional securitizations of all asset classes, collateralized loan obligations, single-family residential securitizations, and certain bilateral loan facilities. In addition, in this Update, the term “EU investors” refers to “institutional investors,” which are defined in the EUSR to include certain insurance companies, institutions for occupational retirement provision, alternative investment fund managers (AIFMs), undertakings for collective investment in transferable securities, banks and investment firms. The Proposal would not amend this definition (see below for further detail).

This Update is not intended to be an exhaustive summary of the Proposal, which covers an expansive range of topics. The Proposal was published as part of a broader reform package intended to revive EU securitization markets, including proposals relating to the prudential treatment of securitizations for banks and insurers (which are beyond the scope of this Update).

The Proposal relates only to the EUSR and does not affect the UK’s securitization regime.

BACKGROUND: SCOPE OF EUSR

The EUSR does not apply directly to U.S. (or other non-EU) sponsors, lenders, originators, or issuers. However, it imposes certain restrictions on EU investors, such that they are not permitted to invest in any securitization — including a U.S. securitization — unless they can verify that the requirements of the EUSR are satisfied (including as to risk-retention, transparency, and credit-granting criteria). Consequently, in practice, certain aspects of the EUSR have extraterritorial effect. In the context of a U.S. securitization targeting EU investors, it will be necessary for the sponsor (or another appropriate party) to commit to take certain actions in accordance with these requirements in order to assist EU investors with their due diligence obligations under the EUSR.

IMPLICATIONS OF PROPOSAL FOR U.S. SPONSORS

Risk Retention

The Proposal contains no changes to the core risk-retention requirement that a 5% material net economic interest be retained for the life of a securitization.

Therefore, an EU investor in U.S. securitizations would still be required to verify that the transaction documents provide for one of the prescribed forms of retained interest in accordance with the EUSR, held by an entity that qualifies as an “originator,” “original lender,” or “sponsor” for such purposes.

No changes are proposed to the “sole purpose test.” Satisfying the sole purpose test is a requirement for qualifying as an originator. The test has been the subject of recent uncertainty, following a report on the EUSR published by the European Supervisory Authorities (ESAs) in March 2025 (discussed in our May 2025 UK/EU Investment Management Update). The Proposal does not acknowledge any of the issues raised by the ESAs in their report, and there are no imminent proposals to amend the EUSR to address their comments on the sole purpose test.

Credit-Granting

The Proposal does not contain any amendments to credit-granting requirements under the EUSR.

Therefore, EU investors in U.S. securitizations will still be required to ensure that certain credit-granting standards are met in respect of the transaction’s underlying assets.

Transparency and Reporting

The Proposal contains substantive amendments to the transparency requirements under the EUSR.

Investor Requirement

Historically, there has been uncertainty as to whether EU investors investing in U.S. (or other non-EU) securitizations are required to ensure that the sponsor (or another appropriate party) will deliver the documents and information prescribed by Article 7 of the EUSR. Such “Article 7 reporting” includes (among other things) asset-level and investor reports required to be delivered in the form of EU-prescribed templates. The uncertainty arose, in part, out of the ambiguous drafting of the relevant provision of the EUSR, which does not currently distinguish between investments in EU and non-EU securitizations.

In 2022, the Commission published a report on the EUSR, which contained interpretative guidance to the effect that EU investors should not invest in non-EU securitizations unless there is Article 7 reporting, including reporting on the prescribed templates (discussed in our Sidley Update, U.S. Securitizations – Implications of New Guidance Clarifying EU Investors’ Reporting Requirements).

Under the Proposal, the investor due diligence provisions would be amended to state expressly that EU investors in non-EU deals must ensure that there is Article 7 reporting, including the prescribed template reports.

In our experience, since 2022, it has become increasingly common for EU investors to take the position that they cannot invest in U.S. securitizations without Article 7 reporting. We would expect that trend to continue because, while this amendment is not yet in effect, EU investors may consider the Proposal to be indicative of the EU authorities’ current position on the requirement for Article 7 reporting in the context of U.S. securitizations.

Content and Form of Article 7 Reports

There are two linked proposals in relation to Article 7 reporting templates:

(i) introducing new definitions of “private” and “public” securitizations; and
(ii) changes to reporting templates, including:

(a) for public securitizations, streamlined versions of the existing templates; and
(b) for private securitizations, a new standalone template.

Definition of public/private securitizations:

Under the EUSR, currently, a securitization is “public” only if there is required to be an EU Prospectus Regulation–compliant prospectus (which would be the case if the securitization notes are offered to the public in the EU (as opposed to, e.g., certain types of sophisticated investors) and/or listed on an EU regulated market).

Under the Proposal, the “public” definition would be expanded to include (i) securitizations whose notes are listed on certain EU trading venues and (ii) securitizations “marketed to investors and the terms and conditions are not negotiable among the parties.” A securitization will be “private” if it does not fall within the meaning of “public.”

There is uncertainty as to the meaning of the new condition that “terms and conditions are not negotiable among the parties.” The Proposal indicates that the definition is intended to cover transactions that are offered to investors on a “take-it-or-leave-it” basis. It may be necessary to evaluate on a case-by-case analysis how any particular transaction should be classified for this purpose. However, it is clear that the new definition for public securitizations is intended to capture a broader range of transactions — and would potentially include many U.S. capital market securitization issuances that do not fall within the current definition.

New Reporting Templates:

The proposals in relation to Article 7 reporting are intended to streamline the existing templates, which would be reserved for use by public securitizations only. The Commission’s related proposals include:

(i) the aim of reducing the number of mandatory data fields by at least 35%, or more where feasible;
(ii) the possibility of some mandatory fields being converted to voluntary fields; and
(iii) the abolition of loan level information for highly granular and short term assets, such as credit card receivables and certain consumer loans.

Private securitisations would be required to report on a new simplified template. The Commission has indicated that this template should closely follow existing EU notification templates — specifically, the notifications required to be made by certain systemically important banking institutions to the European Central Bank in respect of securitization transactions on which they act as originator or sponsor.

Timing:

The new definitions of public and private securitizations are expected to take effect when the final legislation comes into force. However, development of the new reporting templates will likely follow a longer timeline. On the basis of the Proposal, drafts of the new reporting templates are not required to be submitted to the Commission for approval until six months after the amendments to the EUSR come into force. The new templates would then come into force 12 months after they are adopted by the Commission, and there is no certainty as to how long the Commission may take to adopt the new templates.

Therefore, it would appear that the new reporting templates will not come into force until at least 18 months after the EUSR amendments are adopted.

Article 7 Reports — Filing Requirements

Under the EUSR, sponsors and issuers of public securitizations are required to file Article 7 reports with regulated EU securitization repositories (SRs). As U.S. securitizations typically do not fall within the meaning of “public securitization,” as currently defined, the practice of filing information with SRs generally has not been relevant to U.S. sponsors and issuers to date.

The Proposal would extend this filing obligation to private securitizations. However, in contrast to SR filings for public transactions, SR filings for private transactions would be accessible only by EU authorities (not also by investors and prospective investors).

It is not clear from the Proposal whether the filing obligation should apply only to private securitizations once the new simplified template for private securitizations comes into force or as soon as the final legislation implementing the Proposal comes into effect.

There is also some uncertainty as to whether EU investors would require U.S. sponsors to file with SRs (or indeed, how this would work in practice).

Other Investor Due Diligence Changes

One of the Commission’s stated objectives is to establish a more principles-based due diligence framework for EU investors. In connection with this:

(i) the Commission has proposed removing some granularity from the investor risk assessment and ongoing monitoring provisions; and
(ii) the Proposal contains statements to the effect that EU investors in senior tranches and repeat transactions should be permitted to conduct simplified due diligence procedures.

The Proposal would also disapply some or all of the investor due diligence requirements in certain cases, but this would not be relevant in the typical U.S. securitization (because the exceptions would apply only in relation to securitizations guaranteed by multilateral development banks and deals in which a first loss tranche is held or guaranteed by the EU itself or certain national promotional banks or institutions).

As noted above, the Proposal would not alter the definition of “institutional investor” in the EUSR. Historically, there has been some uncertainty as to the jurisdictional scope of the definition in relation to AIFMs — namely, whether non-EU AIFMs managing or marketing an alternative investment fund in the EU should be caught by the definition and, consequently, whether they would be subject to the investor due diligence requirements under the EUSR. The Proposal does not address this issue.

Administrative Sanctions for EU Investors

The Proposal contains a provision that would require EU member states to confer on regulatory authorities the power to impose new sanctions for breaches of the investor due diligence requirements. As a result, EU investors could face penalties of up to 10% of their net annual turnover (on a consolidated basis). It is not clear whether this sanction would be applied in addition to the existing penalties that apply under separate sectoral legislation for certain EU investors (such as, in the case of EU banks, an additional risk weight of up to 1,250% for breaches of investor due diligence requirements).

U.S. sponsors may observe EU investors exercising increased caution when they invest in U.S. securitizations. This may have an impact on expectations for the robustness and completeness of contractual undertakings provided by U.S. sponsors and issuers for the benefit of EU investors.

COMMENT

None of the matters discussed above give rise to imminent changes to the EUSR. The timing of the legislative process is uncertain, but it could be a year or more until these amendments come into force in full — and the new reporting templates will take longer still to be adopted.

We expect further debate on some of the more significant aspects of the Proposal, including investor due diligence on non-EU securitizations; the expanded scope of the “public” securitization definition; the content and form of Article 7 reporting templates; and administrative sanctions for breaches of investor due diligence requirements. In any case, the proposed amendments are likely to undergo further changes during the EU legislative process.

In the meantime, as the markets continue to digest the Proposal, and as the legislative process evolves, new perspectives and interpretations are likely to emerge, which EU investors and U.S. sponsors may wish to monitor. Once the legislation implementing the Proposal has been agreed, EU investors and U.S. sponsors will need to reassess the implications of the finalized text for investments in, and issuances of, U.S. securitizations.