European Central Bank Banking Supervision to pilot fast track significant risk transfer assessments for simple securitisations

European Central Bank (ECB) Banking Supervision has set out a new fast-track supervisory process for assessing “significant risk transfer” (SRT) in securitisations, aiming to materially shorten review times for sufficiently simple transactions while applying the full requirements of the existing prudential framework. Banks can only reduce regulatory capital requirements following a positive SRT assessment confirming that risks have been transferred to third parties and will not be re-assumed by the originating bank during the transaction’s life. SRT assessments currently take around three months; the fast-track approach is designed to save supervisory time by using product standardisation and harmonised templates, while complex and innovative securitisations will continue to undergo detailed scrutiny. The transaction-level work will be complemented by ex post checks and regular monitoring of banks’ securitisation activities, alongside expectations that banks integrate securitisation risks into governance, stress testing, capital planning and broader risk management. The ECB also highlighted prudential concerns where banks provide leverage to credit funds investing in securitisations, which could leave “hidden” risks in the banking system, and expects banks to identify and mitigate interconnectedness risks; it noted that stronger reporting and disclosure by non-bank financial institutions would help monitor these linkages. The ECB plans to test the fast-track SRT process in the first half of 2025 to verify the expected benefits and whether the eligibility criteria and templates are fit for purpose, and indicated that broader use will depend on banks structuring sufficiently simple securitisations.