Europe needs greater “consistent and harmonised” regulation, particularly in relation to securitisation, to unlock more capital for private credit.
As the private credit market grows in Europe and more limited partners look to allocate capital to the asset class, the key challenge for the continent is how it treats securitisation, which currently varies widely across jurisdictions, according to Kunal Guha, head of Europe, the Middle East and Asia financial institutions group at Liquidity, which is an AI-driven direct lender.
“Today, Europe’s treatment of securitisation is materially more punitive than in the US, which discourages banks and insurers from participating,” Guha told Alternative Credit Investor. “A global level playing field would enable credit markets to fund the growth of European companies more efficiently.”
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If Europe is able to improve the regulatory treatment of securitisation, this could unlock more insurance capital into European private credit, something already well understood in the US. “Europe now has a real opportunity to do the same,” said Guha.
This comes as the European Commission put forward a reform package last year for the EU securitisation framework, aimed at reducing capital burdens, simplifying rules and making securitisation more attractive for investors such as insurers governed by Solvency II. The reforms aimed at helping investors gain more exposure to illiquid assets.
Despite being adopted last year, the new rules are set to apply from January 2027. However, some critics argue that capital requirements still remain high for investment in non-STS securitisations, particularly when compared with jurisdictions such as the US.
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Guha pointed to how regulatory changes, when aligned with long-term liabilities, can mobilise institutional capital quickly, citing the Dutch mortgage market as an example. In the Netherlands, regulatory and capital frameworks have supported institutional investment in residential mortgages by recognising them as suitable long-term assets.
“Europe could apply that same mindset, not just to mortgages, but to growth lending and venture-backed companies,” Guha said. “A regulatory shift in that direction would make a meaningful difference to Europe’s competitiveness and growth.”
