The ICMA Covered Bond Investor Council has welcomed a review of national transparency templates that is underway as a step toward the ECBC Label Convention facilitating compliance with transparency requirements in the CRR and boosting the value of the Label.

Anticipating a European Commission public hearing today (Monday) on Liquidity Coverage Ratio (LCR) and leverage ratio requirements, the CBIC on Friday gave its view on the value of the Covered Bond Label, which it said is related to the treatment of covered bonds in LCRs.

It said that it welcomes any initiative, such as that of the European Covered Bond Council (ECBC) Covered Bond Label, that prevents dilution of the covered bond asset class and that it was “particularly interested in the progress made last year” by the Label.

Compliance with the Capital Requirements Regulation/Directive (CRR/CRD IV) was made an eligibility criterion for the Covered Bond Label last year, and the investor body noted this requirement, as well as UCITS-compliance, as a “a positive and credible step in the current regulatory context and discussions regarding liquidity ratios”. (See here for more on the CRD decision.)

However, the CBIC noted that there are still shortcomings with respect to the quality of reporting under the Covered Bond Label framework.

“[T]he current Label Convention requirement still does not provide extensive quality information about the labelled covered bonds to the investors, even though it ensures that the demarcation between covered bonds and ABS/ABS‐like products, and ‘covered bonds’ backed by other types of assets is clear,” said the CBIC. “A label of ‘quality’ as understood by investors has to rest on the reporting of quality, up-to-date and comprehensive information, in a standardised reporting format.” (CBIC’s own emphasis).

It said that it has concerns that the national transparency templates (NTTs) used under the Label Convention do not fulfil transparency requirements stipulated in article 129 (7) of the CRR.

Under this article preferential risk weighting is available for covered bonds if investors can demonstrate that they receive certain information about, inter alia, the cover pool and maturity structure of the cover assets and covered bonds on at least a semi-annual basis.

“Since the CRR became effective, investors have to meet the necessary due diligence conditions to apply a lower risk weighting to their covered bond investment,” said the investor body. “The CBIC therefore welcomes the fact that the amendments to the National Templates that are being prepared will take this requirement into account.”

The CBIC has its own transparency initiative, having several years ago launched its own transparency standard template as a “comprehensive framework for disclosure and comprehensive standardisation”.

It said that it “notes the improvement in the minimum transparency requirement” under the Label, but there is room for further improvement.

“To achieve a high quality label and for investors to fully benefit from the Label, the CBIC believes an enhanced transparency regime, converging with the CBIC transparency standards, following a coordinated and step-by-step approach, is key,” it said.

Luca Bertalot, head of the ECBC, said that feedback on the Label and the National Transparency Templates has been and will continue to be taken on board, but noted the development the Label and the transparency templates have gone through since being introduced.

“Over the few last years Label issuers and national coordinators have done an impressive and unique work in coordinating and standardising disclosure policies across Europe, providing a solid quantitative basis and facilitating investors’ due diligence,” he said. “Transparency is a moving target and, therefore, this is an on-going process, where the ECBC coordinates the continuous work stream aimed at improving the National Transparency Templates.

“It is very important that market participants provide feedback on where improvement is actually needed and we welcome these indications.”