Key Takeaways
- The US dominates the global securitised market. At around 10 times the size of its European counterpart, US bonds make up 90% of the global securities universe. Thus, the diversity and volume of US securitised assets drives an unparalleled depth of liquidity and investor interest.
- European Union Securitisation Regulation (EUSR) does reduce the addressable market for UCITS funds investing in US securitised credit. However, there is a healthy level of compliant structures, especially in more recent issuance, providing a diverse opportunity set for our US Asset-backed Securities (ABS) strategy.
- Our active approach means we combine deep credit research, EUSR-specific checklists and rigorous compliance monitoring to identify high-quality, eligible securities, helping clients manage regulatory risk while capturing attractive returns.
Background
The European Union Securitisation Regulation (EUSR) took effect in 2019 (concurrently with an equivalent UKSR framework for UK investors). EUSR imposes compliance obligations on many EU-regulated entities, including UCITS (Undertakings for Collective Investment in Transferable Securities) funds, which invest in securitised assets.
EUSR does not apply directly to US or other non-EU originators of securitisations. However, the regulation does demand that EU investors only purchase securities that meet the EUSR requirements. Therefore, in practice, EUSR has an extraterritorial effect: issuers of US securitisations marketed to EU investors must comply with the regulatory requirements. These are summarised in the following EUSR articles:
Article 5: Due diligence
Investors must verify that originators (or the equivalent sponsoring/issuing party) have followed sound lending standards and creditworthiness assessments.
Article 7: Reporting and disclosure
The reporting regime requires the originator to make certain documents and information available to investors, including asset-level information, generally on a quarterly basis. Reporting is templated and differs based on the nature of the asset pool (for example, mortgages/corporate loans/credit receivables).
The EUSR (and the UKSR) share a common basis with US regulation (the Dodd-Frank Act) developed post-global financial crisis as a means to reduce moral hazard and improve overall market stability. The key principles are an alignment of interests between investors and originators and an enhancement of transparency.
In many regards the US and European regulation are well aligned. However, there are some key differences, especially on risk retention:
- Dodd-Frank exempts some security types such as broadly syndicated collateralised loan obligations (CLOs) and non-agency residential mortgage-backed securities (RMBS) that meet qualified criteria.
- Dodd-Frank allows for the transfer of risk to a third party (with various covenant clauses).
- Dodd-Frank contains a sunset period, after which the risk retention requirement no longer applies. This is typically two years after issue for ABS and five years for MBS (or is based on levels at which the unpaid principal balances fall materially below the original deal size – whichever comes later).
EUSR does not permit such exemptions, and the risk retention must be on an ongoing basis. As a result, there is a need for asset compliance monitoring through time to ensure EUSR eligibility is maintained.
Impacts on the investible universe for UCITS investors
Since both EUSR and Dodd-Frank state that securitisations guaranteed by central governments are not in scope of the regulation, the largest component of the US securitised market – Agency RMBS, which is around $10 trillion in size – remains fully eligible for EU investors. Equally, the smaller related agency commercial mortgage-backed securities (CMBS) market is also 100% eligible, adding an additional $250 billion addressable market.
Within non-agency RMBS, many originators have in recent years sought to structure deals that are compatible with EUSR requirements in order to market to a wider international investor base. Seasoned deals prior to 2022 generally show lower compliance rates, but new issuance in 2024 and 2025 has seen compliance rates of more than 90% in non-qualified mortgages, and 60%-70% in other structures such as reperforming loans or second lien financing. In total this represents around $100 billion of eligible new supply from January to October 2025.
Broadly syndicated CLOs have experienced a similar trend, with compliance rates up to around 35% of new issuance this year. Given that the US CLO market has recently grown to more than $1 trillion in size, the outlook for EUSR-eligible opportunities looks attractive.
The most challenging areas for compliance are in non-agency CMBS and ABS, such as auto loans and credit card receivables, where less than 5% of issuance from January to October 2025 was EUSR-compliant (Figure 1).
On average over the past three years, we estimate the total volume of eligible new supply across all US securitised sectors has been around $1.3 trillion per year.
Figure 1: EUSR-eligible new issuance (as % of total issuance for that sector)
Source: Columbia Threadneedle Investments, Bank of America, Intex, Bloomberg. ABS = Asset-backed Securities, CMBS = Commercial Mortgage-backed Securities, CLOs = Collateralised Loan Obligations, BSL = Broadly Syndicated Loans, CRT = Credit Risk Transfers (structures that transfer agency-MBS credit risk to investors), CAS/STACR = the CRT programmes of Fannie Mae and Freddie Mac government agencies, RMBS = Residential Mortgage-backed Securities. Non-agency RMBS is defined as non-qualified mortgages, reperforming and non-performing loans, second lien financing and home equity lines of credit. As of 31 October 2025.
How do we assess EUSR compliance?
Our US Securitised Credit team operates a research-intensive approach to security selection, driven by fundamental analysis and data science. This facilitates loan-level analysis for all potential investments.
Within this research process we have the key principals of EUSR well covered. We favour deals with stronger underwriting standards from originators with sound governance practices and track records. We favour originators who keep “skin in the game” for the lifetime of the security – ie ongoing risk retention. And we engage with issuers on their reporting and disclosure – transparency is key.
Specifically for our US ABS strategy we have formalised our approach to include a dedicated EUSR “checklist” to cover the articles of the regulation. This is initiated by the US Securitised Credit team for each new investment on a pre-trade basis. The data collection and verification steps cover:
- Evidence of sound credit-granting standards from originators, sponsors and original lenders.
- Proof of risk retention.
- Ensuring that transparency and disclosure obligations are met.
Additional layers of independent oversight then validate the team’s findings. Our Compliance Monitoring team reviews each checklist and provides advisory support in instances where eligibility criteria is less clear.
We adopt a conservative approach: if we cannot be highly assured of eligibility, we will avoid a security. This involves understanding each issuer’s intention with regards to risk retention transfer and sunset triggers. We focus on securities where the issuer is clearly committed to risk retention until maturity. In addition, we can further mitigate against sunset risk by focusing on MBS deals with less than a five-year average life.
Ongoing compliance monitoring post-trade is led by a combination of the Compliance Monitoring and Risk Oversight teams (Figure 2).
Figure 2: Ongoing compliance monitoring process
The bottom line
Navigating the complexities of EUSR (and UKSR) is essential for EU and UK investors seeking exposure to US securitised credit. While regulatory alignment with Dodd-Frank provides a strong foundation, differences in risk retention and ongoing compliance create challenges that demand rigorous oversight.
At Columbia Threadneedle Investments, we combine deep fundamental research with robust compliance frameworks to ensure eligibility and transparency across every trade. Our checklist-driven approach prioritises issuers with strong governance and enduring risk retention, helping clients manage regulatory risk while capturing attractive opportunities in a growing, EU-compliant market.
As active managers, we are committed to seeking to deliver superior risk-adjusted returns within the rules – aligning our expertise with client objectives.
