Luxembourg securitisation bill: proposed modernisation of the legal framework

On 8 June 2026, the Bill of Law No.8761 (the “Bill”) amending the Law of 22 March 2004 on securitisation (the “Securitisation Law”) was submitted to the Luxembourg Parliament. The Bill offers new opportunities for market participants to accomplish securitisation transactions with more flexibility and legal certainty.

The Bill adapts the legal framework to the needs of the securitisation market with a view to strengthening Luxembourg’s position as a leading European market for securitisations. To that end, it broadens the means by which a securitisation undertaking may obtain financing, expands the active management of securitised assets, allows investments between compartments of the same securitisation entity, and clarifies existing rules on insolvency and guarantees.

Key amendments to the Securitisation Law

Flexibility on financing methods

The Bill broadens the definition of credit, which had already been amended by the Law of 25 February 2022 (the “2022 Law”), by extending it to cover any form of financing or other financial commitment. Until now, that definition had been limited to forms of debt creating a reimbursement obligation for the securitisation undertaking. Such change appears to be tailor-made for Islamic finance to allow the use of asset-based sukuks. 

This amendment allows securitisation undertakings to obtain financing through any type of instrument governed by Luxembourg or foreign law, even if such instrument does not qualify as a financial instrument under the Luxembourg Law of 5 August 2005 on financial collateral arrangements, or as a loan creating an obligation of reimbursement depending on the underlying assets being financed by that loan.

Expansion of active management

It should be recalled that the 2022 Law provided market participants with greater legal certainty by introducing a provision permitting the active management of securitised assets by the securitisation undertaking itself or by a third party, subject to the following conditions: (i) the portfolio of securitised assets must be composed of debt security, loans, debt financial instruments or receivables; and (ii) the securitisation undertaking must be financed through financial instruments which are not offered to the public. 

The Bill further extends active management to all types of assets (effectively removing the first condition of the 2022 Law), subject to the instruments not being offered to the public. Securitisation undertakings may then be used in private equity strategies and other non-debt strategies. 

The Bill also clarifies what does not constitute active management, namely:

• Replacing assets after default or risk of default; 
• Replacing assets that no longer meet eligibility criteria; 
• Replacing assets that break representations or warranties; 
• Adding assets at the inception of the structure (if within 1/3 of transaction duration); 
• Adding assets during ongoing issuances; 
• Replacing assets that matured or were redeemed early; 
• Small adjustments to portfolio, asset allocation, risk or investment duration.

Investments between compartments of the same securitisation undertaking

The Bill permits a compartment of a securitisation undertaking to invest, directly or indirectly, in one or more other compartments of the same undertaking, as is already the case for RAIFs or SIFs. However, cross-investments between compartments is prohibited; in other words, a compartment may not invest in another compartment that already invests in the first compartment.

Clarifications and tidy-ups

Finally, the Bill provides several clarifications that provide legal certainty to the players: 

• With respect to Article 64(1) of the Securitisation Law, which establishes subordination between financial instruments issued by a securitisation undertaking, the Bill clarifies that a financial instrument remunerated by reference to an index plus a margin (e.g., “EURIBOR + 2%”) is considered as a fixed interest debt instrument, and not a variable interest. It therefore provides greater clarity in practice as to the subordination of such instruments.
• The Bill confirms that, in the event of insolvency of the management company of a securitisation fund, the assets managed by the management company on behalf of the securitisation fund are not included in the insolvency estate of the management company.
• The Bill provides that securitisation undertakings may provide guarantees and security interests: (i) to secure its own obligations, (ii) to secure the obligations of third parties, in relation to, directly or indirectly, the securitisation transaction, or (iii) to secure obligations of third parties in the context of its direct or indirect investment in the securitisation transaction.

The proposed amendments mark a further step in the modernisation of Luxembourg’s securitisation framework. By broadening financing techniques, extending the scope for active management, allowing intra-entity compartment investments and clarifying key rules on subordination, insolvency of securitisation funds and providing guarantees and security interests, the legislator seeks to align the regime more closely with current market practice. If enacted in its current form, the reform should enhance legal certainty and transactional flexibility, while reinforcing Luxembourg’s attractiveness as a jurisdiction for increasingly sophisticated and diverse securitisation structures.