New draft law proposes broader financing options, active management and cross-compartment flexibility.
Luxembourg’s securitisation framework is widely regarded as one of the most versatile in Europe, offering a combination of structural flexibility, investor protection and legal certainty that few competing regimes can match. The legislature is now looking to raise the bar once more.
On 8 June 2026, Draft Law No. 8761 (the "Draft Law") was submitted to the Luxembourg Parliament (Chambre des députés), proposing targeted amendments to the Luxembourg law of 22 March 2004 on securitisation (the "Securitisation Law"). When enacted, the Draft Law will open up new financing channels, extend active management to all asset classes and unlock cross-compartment investment structures within a single vehicle. It builds directly on the reforms introduced by the Luxembourg law of 25 February 2022 (the "2022 Law") and seeks to address structuring questions that have emerged in practice since then.
Background and context
The 2022 Law brought significant changes to the securitisation framework: it broadened available financing methods, introduced active management for debt portfolios and expanded the catalogue of corporate forms open to securitisation undertakings. The Draft Law continues in the same direction. The official commentary makes clear that the proposed changes are intended to accompany structural developments already made possible by the 2022 Law and strengthen the competitiveness of the legal framework for securitisation in Luxembourg.
Key amendments
Broader financing options
Article 1 of the Securitisation Law is proposed to be amended to permit securitisation undertakings to finance themselves through any form of "financing or other financial commitment", beyond traditional loans and financial instruments. The commentary identifies the incompatibility of traditional loans and financial instruments with Islamic finance principles as a key driver of this change. One important limitation remains: public offerings remain restricted to the issuance of financial instruments.
Cross-compartment investments
Under new Article 59-1, a compartment of a securitisation undertaking may make direct or indirect investments in one or several other compartments of the same entity, provided that such investments are permitted by the constitutional documents, management regulations and the issuance documents. Circular investments whereby a compartment invests in another compartment which has already invested in the first compartment are prohibited. This option draws on a concept already recognised under legislative frameworks governing SIFs and RAIFs.
Active management
If the Draft Law is enacted in its current form, Article 61-1 will be replaced in its entirety. The existing restriction confining active management to a pool of debt securities, financial debt instruments and receivables will be removed, allowing active management to extend to all asset classes, including equity positions, provided that the instruments issued to finance the acquisition of the relevant risk basket are not offered to the public. As the official commentary explains, this amendment responds to the need to ensure a level playing field with foreign securitisation regimes that have long permitted active management of portfolios comprising equity positions. Recognising that a passively managed portfolio cannot remain entirely static over the life of a transaction, the Draft Law also lists seven categories of portfolio operations that do not constitute active management:
- the replacement of defaulted or at-risk assets;
- the replacement of assets that no longer meet the applicable eligibility criteria;
- the replacement of assets that do not conform to the representations or warranties given by the transferor;
- the addition of assets during the initial portfolio ramp-up phase, provided it does not exceed one third of the total transaction duration;
- the addition of assets under ongoing issuance programmes;
- the replacement of matured or early-redeemed assets; and
- marginal adjustments to portfolio composition, asset allocation, risk exposure or investment duration. Securitisation undertakings carrying out only these types of operations would not be treated as actively managing their portfolio and would therefore remain free to offer their financing instruments to the public.
Subordination
The Draft Law revises Article 64(1)(5) to establish a clearer subordination hierarchy: debt instruments with a non-fixed yield rank behind both fixed-rate debt instruments and debt instruments bearing interest determined by reference to a benchmark rate plus a fixed margin. Those latter two categories are treated as ranking pari passu.
Insolvency ring-fencing of securitisation fund assets
The Draft Law amends Article 17 to confirm that, upon the bankruptcy of a management company, the assets of any securitisation fund under its management fall outside the management company's insolvency estate (masse) and are not available to satisfy its creditors. This clarification is modelled on similar protections found in the fund legislation, in particular Article 101(5) of the UCI Law of 17 December 2010, which provides that assets managed under that provision do not form part of the management company’s estate in the event of its bankruptcy.
Security interests and guarantees
The Draft Law amends Article 61(3) to replace the existing general restriction with three specific cases in which a securitisation undertaking is permitted to grant security interests or guarantees over its assets:
- first, in respect of its own obligations;
- second, to guarantee obligations of a third party that are directly or indirectly linked to the securitisation transaction; and
- third, to guarantee third-party obligations in connection with a direct or indirect investment in the securitisation transaction.
As the official commentary explains, the broadening of financing methods by the 2022 Law led to the emergence of new structuring patterns, which in turn created a need to clarify the circumstances in which securitisation undertakings may grant security over their assets. The revised provision is intended to accompany those structural developments and reinforce legal certainty.
What this means for you
The Draft Law will give practitioners additional flexibility when structuring securitisation transactions in Luxembourg. The broader financing concept should prove particularly relevant for transactions in which conventional debt instruments are not available, notably in the Islamic finance space. The extension of active management to all asset classes, including equity positions, will bring the Luxembourg framework into closer alignment with competing foreign regimes. The ability for compartments to invest in one another will facilitate the setting up of multi-layer platforms within a single vehicle. Finally, the clarification of the rules on security interests and guarantees should resolve the interpretive difficulty that has arisen in the structuring of financing transactions.
Next steps and timeline
The Draft Law is currently before the Luxembourg Parliament and the opinion of the Conseil d’Etat has been requested. BSP is closely monitoring the legislative process and is available to discuss how the proposed amendments may affect your existing structures or the opportunities they may create for future transactions.
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