A report on
European covered bond practices has identified shortfalls
in the disclosure of structural features and prompted calls for
a single data repository regarding information on loan
The study has been welcomed by the European Covered Bond Council (ECBC), which
represents the region’s issuers. But it has
queried whether some recommended disclosures are better
addressed through direct dialogue between issuers and investors
rather than a standardised format.
Commissioned by the International Capital Market
Association’s (ICMA) Covered Bond Investor Council (CBIC), the report
gives a disclosure score to the ECBC’s German, UK
and Dutch national templates, based on their requirements
compared with the Council’s disclosure template.
"On the whole, I’m not that concerned
about non-disclosure as the national templates do a very good
job of disclosing what is relevant in each jurisdiction," said
Richard Kemmish, who prepared the report titled 'Covered bond
pool transparency: the next stage for
For example, Germany’s score is
perhaps slightly lower than it deserves as self-certified
mortgages – which it does not disclose – is
not relevant in the country.
But he has called for improvements regarding cover
pool and structural disclosures.
- An reported commissioned by the ICMA has found
shortcomings in European covered bond issuers' disclosure of
structural aspects of their deals;
- The ECBC agrees this should be a long-term goal,
but that disclosures such as these that go beyond regulatory
requirements are best addressed on a one-on-one basis between
investors and issuers;
- The report also recommends the creation of a
central data repository - similar to the European Data
Warehouse - for information relating to cover
Kemmish’s first recommendation is for
a single repository for cover pool data, similar to the
securitisation industry’s European Data
Today it is possible to obtain this information on
a deal-by-deal basis, but there is no platform for
"Obviously there is a greater need for these tools
in the securitisation market – but to the extent you
have cross-over investors, I think more people will ask why
they can’t do that analysis," he said.
Luca Bertalot, secretary general of the ECBC,
agrees it is an admirable objective, but he highlighted some
hurdles to its creation.
"Being realistic, we need to make an effort to
create the political motivation for this change," he said. "The
CBIC needs to explain to regulators and the broader community
the long-term, market and regulatory benefits of increasing
transparency, and create market consensus on how this can be
realistically implemented – and the details and
political consensus are extremely important elements."
As a starting point, the correct regulatory
authority must be identified. Today, transparency regarding
covered bonds touches on the mandate of the EC, European
Banking Authority, European Central Bank and the European
Systemic Risk Board.
An area where the ECBC – and even ICBC
– templates fell short, according to the report, is in
the disclosures relating to aspects of the deal beyond the
"If, for example, you need to know whether the deal
permits RMBS [residential mortgage-backed securities] in the
cover pool or has swap rating triggers, it can be quite
difficult to collate that data," Kemmish said. "That
wasn’t in the original CBIC template or Covered
Bond Label template, but is very important to some
It’s pretty strange in this day and age
that an investor would have to resort to that
The ICBC’s original template asks for
some of these details to be disclosed, but the number of such
features has increased as the market has evolved, and it can be
difficult to find the relevant information.
"A lot of investors complained about that.
Sometimes it wasn’t even in the offering circular
– sometimes it was in the trust deed or not actually
available anywhere," Kemmish added.
During his research, Kemmish spoke with one
investor who had resorted to phoning the issuer to ask about
structural information that they could not locate.
"It’s pretty strange in this day and
age that an investor would have to resort to that rather than
looking at a database to find details that are key to the
credit," he said. "It seems like an easy win to me."
He has recommended investors and interested parties
to come up with a wish list of the details they would like to
see, and suggest to the issuers and ECBC that a database should
be produced that collates these details about the structural
aspects of deals.
Bertalot said that this would have to be a
long-term goal, as it would be difficult to implement.
"A wish list can evolve – it is very
volatile and can be based on the specific needs of different
investors which can change over time," he said, adding that the
needs must be consolidated.
According to Bertalot, a tailor-made solution based
on a business-to-business relationship between the issuer and
investor could be a more realistic short-term approach to
address requirements that go beyond the dataset already
provided in the national transparency templates.
The ECBC’s templates cover the
disclosures required by article 129 of the Capital Requirements
Regulation (CRR), and he believes disclosures beyond this could
be better dealt with by an issuer responding to the
investor’s individual needs.
"For me, the requirements of article 129 (7) of the
CRR is the target that must be achieved. Over and above this,
investors should ask for more information and we should try to
push for this, but our primary goal is to ensure that every
country is in line with the CRR requirements," Bertalot said.
"For me, this is the pillar and the priority."
Others, however, note that the covered bond market
is characterised by small investors, which often
don’t have the resources of knowledge to be able
to easily identify that information.
This is particularly true in today’s
issuers’ market, when investors are struggling to
obtain any disclosures over and above those required by
The report is available here.
The ECBC, ICMA and other key participants in
Europe’s covered bond market will discuss the
report’s findings at the ECBC’s
plenary meeting in Vienna on September 24.
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