Changes to Dutch covered bond legislation, such as the introduction of minimum OC, are under discussion after the country’s issuers, ministry of finance and central bank reviewed the 2008 framework, according to an official familiar with the initiative.

De Nederlandsche Bank, Amsterdam

The Dutch Association of Covered Bond Issuers (DACB) has been in discussions with De Nederlandsche Bank and the Dutch ministry of finance for a few months, and expects these to be wrapped up by the end of the year, according to Jac Besuijen, president at DACB.

“It makes sense to revisit the law and regulations that were put in place in 2008 against the background of experience and changes implemented in other countries and the arrival of new laws such as in Belgium,” he told The Covered Bond Report.

An analysis of the Dutch framework concluded that no major changes were needed, but that some minor amendments could enhance the country’s covered bond product, he said.

One of these is the introduction of statutory minimum overcollateralisation (OC), which Besuijen noted would align the Dutch covered bond framework with legislation in many other countries. A requirement to hold a buffer against potential liquidity gaps is also a topic under discussion, according to Besuijen.

Dutch covered bond legislation stipulates that covered bonds must be overcollateralised, but does not go beyond this by setting a minimum level. Instead, minimum OC commitments are included in programme prospectuses in the form of an asset coverage test.

“Dutch issuers already have minimum OC in their programmes but it’s not in the law, unlike in other countries,” said Daniëlle Boerendans, head of secured funding at ABN Amro. “It would be an improvement for investors.”

DACB’s Besuijen said that the review of the Dutch covered bond legal and regulatory framework also identified room for improvement in the broad context of transparency, such as in the way in which the framework is presented to third parties.

“The regulatory and supervisory procedures are very robust, but they could do with being explained a little bit better to the outside world,” he said.

Certain information on some of the regulatory bodies’ websites may be rewritten to tackle this.

Dutch legislation on covered bonds was introduced in 2008, three years after the first Dutch covered bond was issued, which had been done on a contractual basis. The introduction of legislation meant that covered bonds complying with the legal framework could benefit from preferential risk weights and limits as defined in Ucits and/or the Capital Requirement Directive (CRD).

The Dutch law on covered bonds is part of the Financial Supervision Act, and has been described by ABN Amro analysts as “relatively light”. The Financial Supervision Act, and hence also the covered bond legislation, is principles-based, they noted.

“It provides broad definitions and establishes supervision by the Dutch central bank (DNB), but it is lacking in detail and rules for practical implementation,” they said. “The latter two elements are achieved in an ongoing dialogue between regulator, supervisor and the issuers. In this interchange, the documentation of the issuer fulfils a very important role. It not only stipulates further detail and (stricter) requirements as set by rating agencies, but it is also subject to close official supervision.”