Investor sanctions in SECR: An Undesirable Duplication

Supervision is crucial to ensure the efficient and safe functioning of financial markets. Sanctions for non-compliance are a natural consequence to ensure everyone observes the standards that keep the system safe and fair and as such are vital for the integrity of the financial markets. However, problems arise when these sanctions become duplicative or excessively harsh, particularly when they only apply for specific sub-categories. They create unnecessary complexity and intimidation, particularly for first-time or smaller investors and instead of improving compliance or safety, such an approach may deter investors’ participation entirely. The EC’s alarming proposal to introduce additional administrative sanctions under Article 32 SECR for investors is an example of such unnecessary duplicative sanctioning.

To continue our traffic and securitisation metaphor from the previous blogs: just like cars ensure mobility of people – enabling them to move from home to the office or the grocery store, similarly, financial markets enable finance to flow from people that save money to companies that need such financing to grow. Indeed, this is a core objective of the Savings and Investments Union (SIU).

The flow of car traffic does not automatically go well and without rules and regulations traffic may turn into disorder. As for financial markets, these rules must be supervised, and sanctions (fines) help deter reckless driving and maintaining order on the roads. However, what if the traffic regulator decides that drivers of one type of car need additional sanctions? For example, it would impose additional fines for failing to use the turn signal, or steering with one hand instead of two, but only for drivers of a sedan and not for drivers of sport cars, SUVs or hatchbacks?

This is essentially what is happening for securitisation. In its proposal to introduce additional administrative sanctions for failure to meet due diligence requirements, the EC provides a rationale that the change is necessary to “enable supervisors to enforce the due diligence requirements”. Please see the Explanatory Memorandum accompanying the Proposal for the Amendments to the EU Securitisation Regulation.

Naturally, we agree that thorough due diligence is essential for a well-functioning securitisation market, and we understand the explicit requirement for risk-proportionate due diligence in SECR, even if these are more detailed than found in other investment categories. Furthermore, appropriate supervision and the ability to enforce compliance are integral aspects of the regulatory framework. However, European institutional investors are already subject to rigorous oversight and regulation under their respective sectoral regulations, such as the CRR, Solvency II, or AIFMD, and national regimes. National supervisors already possess all the necessary tools to enforce compliance and, where necessary, to take disciplinary action. These apply to all investment activity across asset classes. Thus, the sanction regime for securitisation is not a regulatory gap in need of filling; rather, it is an example of singling out one investment category for duplicative punishment.  

If the amendment to Article 32 is adopted as proposed by the EC, the consequences could be far-reaching. Instead of strengthening the European securitisation market, it risks discouraging investors’ participation - especially among first-time EU investors who may have less tolerance to the compliance risk of navigating the increasing complexity of SECR. The EU’s goal is to foster a vibrant, accessible market that attracts new capital, not to create unnecessary hurdles that deter it. Layering additional sanctions within the SECR does not make supervision more effective; instead, it duplicates existing measures and creates additional uncertainty. This prevents the flow of financing from European savers to the European real economy, directly counterproductive to the goals of the SIU.  

Regulatory coherence and clarity are essential to maintaining a healthy investment environment, as much as proportional fines are essential to maintaining safe circulation on the roads. Thus, we urge the European Commission and the co-legislators to reconsider the proposed amendment to Article 32 SECR. The focus should remain on proportionate and consistent regulation that encourage investors’ participation. It is our hope that the final text will reflect these priorities, making the EU securitisation market robust, competitive, and open for future investment.

In our next blog, we provide our perspective on how to improve the Simple, Transparent and Standardise (STS) label – the securitisation blueprint - to make the securitisation market stronger and more effective.