Which European covered bond disclosures must improve

Author: Danielle Myles | Published: 3 Sep 2014
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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 pools.

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 investors’.

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 pools.

Central data depository

Kemmish’s first recommendation is for a single repository for cover pool data, similar to the securitisation industry’s European Data Warehouse.

Today it is possible to obtain this information on a deal-by-deal basis, but there is no platform for cross-portfolio comparisons.

"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.

Structural disclosures

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 cover pool.

"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 investors."

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 regulations.

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.

See also

Covered bond special focus 2014

SME covered bonds’ future assessed

Creating the modern covered bond