Disclosure on an electronic platform as envisaged in a transparency initiative by the ICMA Covered Bond Investor Council is of “utmost importance”, according to the ECB, which said that the CBIC’s work should help inform industry efforts to establish a covered bond label.

The European Central Bank’s comments were made in a response to a consultation on the CBIC’s proposed transparency standards. The CBIC has published this online alongside feedback from institutions such as the UK’s Financial Services Authority, HM Treasury and Bank of England, the European Covered Bond Council, Pioneer Investments, and Crédit Foncier de France (for previous coverage of submissions to the consultation from bodies such as the Association of Swedish Covered Bond Issuers click here).

Several of the responses emphasised a need for greater clarity and standardisation of definitions and concepts included in the CBIC’s template, with Francesco Papadia, director general of market operations at the ECB, saying that this was important to help foster the objectives of a better functioning and a greater integration of the European covered bond market.

The ECB’s feedback also dwelled on the technical implications of the CBIC’s proposed template, pointing to a need for a balance to be struck between providing “comparable, timely, frequent and easy to access data” and limiting issuers’ administrative burden.

“The electronic platform accessible to all (investors, issuers, rating agencies, market analysts, academics, and commercial data providers) envisaged in the CBIC’s consultation paper is therefore of utmost importance,” said Papadia.

He then referred to the commercial paper market’s Short Term Paper Market in Europe (STEP) project and a recent ABS loan level data initiative, saying that the ECB would be pleased to share its experience “on a catalytic basis”. The Covered Bond Report understands that the STEP project is being looked at as an example of a successful labelling initiative by the ECBC, which is leading the covered bond market’s efforts.

“Against this background,” said Papadia, “I would regard it useful if the CBIC and the ECBC would join forces both from a conceptual and a technical point of view in order to achieve and maintain a meaningful transparency pillar of the prospective covered bond label.”

In its response to the CBIC consultation the ECBC described the introduction of a label for covered bonds as its main focus, adding that transparency will form a key element of the label.

“The label transparency component is the result of a detailed ongoing reflection conducted by the ECBC that was launched in late 2009,” it said.

The ECBC is due to update council members and other market participants on progress on the label at a plenary meeting in Barcelona on 14 September.

Buy-side nailing colours to the mast

Nathalie Aubry-Stacey, director, regulatory policy and market practice at the International Capital Market Association, told The Covered Bond Report that half a dozen investors responded to the CBIC’s consultation “in addition to many investor comments received as the template was drafted”.

“We intend to review all comments received over the summer, and establish working groups according to the themes that came up during the consultation period,” she said. “We will be publishing a reviewed template in September/October and look forward to working with the ECBC and national associations.”

The only buy-side feedback published on the CBIC’s website comes from Pioneer Investments, whose letter assessed the data in the template as “pretty extensive and should cover most of the information requirements”.

However, 12 investors are named on the CBIC’s website as “supporting enhanced transparency standards in the European Covered bond market”.

These include Allianz GI, Generali Investments, Legal & General, and Schroders, with a statement from Allianz that it strongly supports the initiative.

“It believes that in financial market, transparency means also confidence and both lead immediately to efficiency,” said Allianz.

UK bodies split

A submission from the UK FSA, HMT and Bank of England focussed on these institutions’ belief that the CBIC’s transparency template should extend to require loan-level data in addition to the stratification tables it has already proposed. The provision of underlying loan data allows information omitted under stratification tables to be disclosed, they said.

“Furthermore, without the provision of the underlying loan data, international differences in the definitions used in aggregating data reduces the comparability of covered bond programmes from different jurisdictions,” they added.

The Bank of England has already mandated loan-level data disclosure for covered bonds used in its operations, and the FSA is consulting on extending this requirement to all UK Regulated Covered Bonds.

In its feedback to the CBIC, however, the UK Regulated Covered Bond Council set out a preference – in line with the CBIC’s – for aggregate cover pool rather than loan-level data.

Room for improvement

The UK RCBC also listed several ways in which it felt the CBIC’s template could be improved, for example by better defining or describing certain requirements referred to in the proposed standards.

“In the absence of clarification, the goal of establishing a consistent and harmonised standard will not be achieved as issuers may report certain information on a different basis,” it said. “For example, it is not clear whether the issuer financial information is to be provided on the issuer’s consolidated, solo or group balance sheet.”

CFF picked up on this aspect in its response, saying that the proposed format “appears better suited for issuers sharing the same balance sheet with the sponsor (German or Spanish model), as opposed to the separate balance sheet format used in countries such as France, Ireland or Norway”.

The French issuer’s response did not dwell on the concept behind the CBIC’s proposed standards, choosing instead to make several suggestions, mostly for the addition of data fields, such as the ability to report loans that benefit from a double guarantee (social loans underwritten by the Fonds de Garantie a l’Aide Sociale in France, the national mortgage guarantee scheme in The Netherlands (NHG) or CMHC-backed mortgages in Canada).

CFF and the UK RCBC also commented on the provision of unaudited information that they believe CBIC’s template would require, with both calling for the transparency standards to stick to audited information.

The UK RCBC also drew attention to the existence of other covered bond transparency initiatives put forward by different industry organisations and different regulators, calling for a joint approach to be adopted where possible.

“In general, we consider that further work may be required in order to establish a suitable benchmark for all, to avoid certain potential unintended consequences and to strike an appropriate balance from a cost-benefit perspective,” it said. “This work should not be rushed and the final product should allow flexibility for further market development.”

The feedback can be found on the ICMA website by clicking here.