Recently, on a European level as well as on a local level, in addition to the potential treatment of covered bonds as extremely high quality liquid assets or high quality liquid assets for the purpose of determining the Liquidity Coverage Ratio, progress has been made to further enhance the status of covered bonds and to make covered bonds more robust. On 1 July 2014, the European Banking Authority ("EBA") published its opinion and report on risk weight treatment of and the own funds requirements for covered bonds. In addition, on 18 September 2014, in the Netherlands, after consulting market participants, the third proposal of the draft amendment to the Act on the financial supervision (Wft), including the inclusion of new covered bond legislation, is published.
The opinion and report by the EBA are in response to the request by the Commission for advice. Pursuant to Article 503 of Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 (the "CRR"), the Commission shall, by 31 December 2014, after consulting the EBA, report to the European Parliament and the Council on whether risk weight treatment laid down in Article 129 of the CRR and the own funds requirements for specific risk in Article 336(3) of the CRR are adequate for, inter alia, covered bonds. In the opinion, the EBA recommends additional criteria for preferential risk weight treatment of covered bonds and advises that the current disclosure requirements are further clarified. In the report, the EBA sets out recommendations in relation to best practice and criteria for preferential risk weight treatment of covered bonds, including criteria regarding liquidity and over-collateralisation. The report of the Commission is expected by the end of this year.
Click here for the press release by the EBA, the opinion and the report.
Furthermore, in the Netherlands, to make covered bonds more robust and attractive, it is being proposed that the regulations with respect to covered bonds will be upgraded to a formal law (inclusion in the Wft) and will be enhanced by 1 January 2015. The current covered bonds regulations set limited conditions and minimum requirements that an issuing bank must meet for the instruments (to be) issued by to qualify as registered covered bonds. By inclusion in the Wft, the Dutch registered covered bonds will have a stronger statutory basis and the issuing bank becomes subject to more profound supervision and requirements. In addition, the amendments to the covered bond regulations will conform to the latest market developments including the EBA recommendations as discussed above. The Dutch Ministry of Finance, together with De Nederlandse Bank, market participants and NautaDutilh, now discuss the last details of the new legislation. After the statutory basis and the amendments, issuing of and investing in covered bonds intends to become more appealing.
Click here for the third proposal of the draft amendment to the Act on the financial supervision (Wft) dated 18 September 2014.