Beyond Borders: Why European Investors Need Access to Global Securitisation

The Case for a Level Playing Field in Due Diligence

If we extend the metaphor from the previous blog and consider securitisation as a bridge that links capital markets with the real economy, we will see that this bridge spans across continents connecting European investors with global opportunities and allowing them to build varied and well-balanced portfolios. If this bridge were to stop at Europe’s edge, EU investors, such as PGGM, would find themselves at a competitive disadvantage compared to their international peers, limited in both reach and scope. Such restrictions would not only make it harder for us to compete effectively on the world stage but also would undermine the primary strength of securitisation - diversification - increasing overall concentration risk and consequently rendering the European market underdeveloped. In essence, while the metaphor highlights the crucial need for European investors to access global securitisation, regulatory barriers continue to hinder this vital connectivity.

While the European Commission’s (EC) recent move towards more principles-based due diligence (DD) is welcome, it only applies within the EU, leaving prescriptive rules in place for non-EU transactions. This risks cutting off EU investors from the broader securitisation market and as such undermining the robustness of their asset allocations.

Why Non-EU Securitisation Matters for Europe

One may argue that raising the barriers to invest in non-EU securitisations will attract more capital into the European market but in truth it merely ‘shrinks the bridge’, reducing investment options for EU investors. The choice to invest in an asset category depends on the investment opportunities available. In particular, it is a fundamental principle of pension fund investing to diversify away from the home economy. Fewer opportunities mean the possibility of construction a genuinely diversified portfolios resilient to market cycles is impaired for EU investors. This leads to less EU investment which benefits no one - least of all the EU economy. The strength of a mature securitisation market lies in cross-border flows and competition, with many non-EU institutions supporting EU financing. European investors must therefore have a level playing field via equal access to both EU and non-EU transactions.

Principles Over Prescription: The Case for Smarter Due Diligence

For a long-term institutional investor, such as PGGM, prudent due diligence is in our DNA and a core part of acting in our clients’ best interests. This way, we know exactly where we are heading to when investing -we know what we need and how to get there. When the rules become too detailed and restrictive, it is akin to following a satnav that insists on a single route, riddled with tolls and roadblocks. This not only creates delay and frustration - operational and compliance challenges- but ironically can even lead to the wrong destination - receiving information that is not fit for purpose. This is particularly the case for Credit Risk Sharing (CRS), where the current prescribed templates do not address the information needs of the investor and can even impede the ability to receive it, especially when abroad. Since non-EU banks are not bound by EU regulations, they are not compelled - or often able - to deliver data in the prescribed EU format. This creates a significant challenge for EU investors who must verify information in line with the Securitisation Regulation, making it difficult, and potentially out-of-reach, to invest. Rather than blindly following ‘due diligence navigation’, investors should be trusted to choose their own route and to assess risks and tailor their due diligence to the specifics of each deal. Therefore, the proposed principles-based approach makes a lot of sense, and we commend the EC for making a step in that direction. However, we wish the logic would have been followed further and applied to non-EU transactions as well.

In seeking to provide a ‘hard shoulder’ for non-EU investment, the EC’s proposal to simplify reporting and introduce a streamlined template for private securitisations has been well-intentioned. However, even a simplified template falls short of solving the problem. Additionally, the process of developing and implementing such a template is slow -forcing EU investors onto a ‘slow line’ and causing further delays. A far simpler solution, as recommended by the Joint Committee of the European Supervisory Authorities (ESAs), in March 2025, would be to remove the Article 7 SECR reference from due diligence requirements. This would clear the main obstacle and make global investment smoother. It is, therefore, regrettable that the EC has not taken up the advice of ESAs.

The way forward

The Savings and Investments Union aims to channel EU savings into EU financing. Yet, for EU investors to build robust portfolios, access to the global securitisation market is essential - a prerequisite for a mature and resilient European securitisation market. Regulations must therefore facilitate- rather than restrict- the gateway to a broader and more diverse pool of opportunities both within and beyond the EU. This approach is essential to secure returns for those who depend on institutional investors in EU and to ensuring the continued success of the SIU.

Our next commentary will address the proposed updates to the sanctions’ regime and their potential impact on the market.