Covered bonds’ position in LCRs, an EBA review of their preferential risk weighting, and treatment under EMIR are the key regulatory issues facing the asset class, ECBC chairman Paul O’Connor told a plenary meeting of the industry body in Barcelona today (Wednesday).

CaixaForum, Barcelona, venue of ECBC plenary

He noted that the CRD IV text had been completed in June, but that the industry still had some issues to work on with the European Banking Authority (EBA) and European Securities Markets Authority (ESMA). Liquidity coverage ratios (LCRs) and the place covered bonds will take therein are one, said O’Connor, with a review by the EBA of the preferential 10% risk weighting covered bonds enjoy in the Capital Requirements Directive (CRD) the other. He said that the industry will have to be pro-active in showing covered bonds’ qualities.

EMIR is another significant issue facing covered bonds, said O’Connor, with covered bonds facing tougher capital treatment if they cannot be centrally cleared. The ECBC has been pushing for an exemption for covered bonds from a central clearing requirement, but based on a July discussion paper on EMIR ESMA has not gone for this option.

O’Connor said that another key part of the ECBC’s work has been the Covered Bond Label initiative. Since coming online in January, the Label has attracted 71 issuers, with 4,167 bonds coming under the initiative and 85 Labels having been granted. O’Connor said that he is very appreciative of the support shown by issuers and has been particularly pleased to see new issuers seeking a label before approaching the market for the first time.

He said that the ECBC is very mindful of the need to take the Label forward and cited three areas of focus.

With regard to transparency, the ECBC has decided to leave template design at the national level, but O’Connor said that, following feedback from investors, measures have been taken to make information more current, having to be no more than three months old.

Measures to bring a global dimension to the initiative are being considered, according to O’Connor, with several issuers outside the European Union keen to participate but unable to because of the current need to comply with certain EU legislation.

The potential for CRD compliance rather than UCITS to be the key legislative criterion for the Label has also been discussed, said O’Connor, but he said that no change is being made for now, given that the initiative is still in its early days and that the EBA review of the preferential risk weighting could lead to CRD changes.

Overall, O’Connor said that the focus of the ECBC is “quality, quality and quality”, with the promotion of covered bonds’ quality key to ensuring the preferential treatment of the asset class.

El Amir future chairman

Waleed El Amir, head of strategic funding and portfolio at Italy’s UniCredit, has been voted in to be the next deputy chairman of the ECBC, starting at the end of the year, meaning that he will succeed incoming chairman Carsten Tirsbæk Madsen as chairman at the beginning of 2016.

Madsen, executive vice president at BRFkredit, who has been deputy chairman and represents the Danes within the ECBC, will take over from O’Connor at the end of the year, in keeping with the succession pattern at the industry body.