Lenders looking to offload credit risk to investors via deals backed by insurers may face a longer wait for approval as the European Central Bank steps up scrutiny of the opaque trades.

The market for significant risk transfers is booming and as competition heats up for the high-yield instruments, hedge funds and others are turning to insurers to provide guarantees that cut the cost of bank loans they sometimes use to finance the trades.

The ECB is alert to the risk that this could create or amplify linkages within the banking system but has so far seen no evidence of that happening, according to supervisory board member Pedro Machado. Still, the additional complexity would have consequences.

“The more complex the structure becomes, the more uncomfortable we are with these sorts of transactions,” Machado said in an interview with Bloomberg News. “We not only see the risk of this flowing back to the banking system, but it also increases the complexity of the transaction.”Increasingly complex securitizations can’t be seen as “simple and standard, which means that they will also be subject to a more intensive and comprehensive assessment, and hence will not qualify for the fast track procedure” the ECB has adopted for approving SRTs, he added.

As well as helping asset managers access leverage, insurers are investing directly in synthetic SRTs or so-called unfunded credit protections. Munich Re AG, AXA SA, Axis Capital and Liberty Mutual are among firms active in this type of deal.

Unfunded credit protections also shouldn’t qualify for the European Union’s simple, transparent and standardized (STS) label, said Machado, former chief legal counsel at Banco de Portugal. The label was created by policymakers to distinguish high-quality, straightforward securitizations from the types of products tarnished by the global financial crisis.

One type of credit that banks have increasingly sought to hedge is exposure to data centers. As part of a wider review of banks’ underwriting standards, the ECB is paying close attention to “specific dimensions” of data center lending and how they are reflected in pricing. Given that some loans are used for real estate development, while others have more to do with energy sustainability, “what really matters is which part of the cycle the banks are financing,” Machado said.

The ECB also regularly “carries out analyses on potentially risky sectors to identify any concentrations or emerging risks which should be more carefully monitored or investigated,” he added.

The central bank supports the European Union’s efforts to revive securitization as a way of unleashing additional funding for the region’s economy and “create a certain dynamic in capital markets,” Machado said. Still, it has concerns that the initiative would in some cases reduce by too much the amount of capital banks need to set aside for unexpected losses.

Europe isn’t just stoking the securitization market with lower capital requirements for banks. The commission is also working on proposals to forge closer links between the bloc’s banking markets and help banks compete as other jurisdictions water down regulations of their own.

Changes aimed at simplifying regulations should be viewed in the round to avoid “underestimating significant risks down the road,” Machado said.

“We’re just emphasizing the prudence that one has to have in this debate on competitiveness,” he added. “We should not lose sight of a holistic assessment of resilience and risks.”