EBA recommendations to the European Commission on the topic of disclosure in covered bonds should not be interpreted as criticism of industry transparency initiatives, an EBA official told The CBR, and are instead about taking the next step of common definitions.

Disclosure is one of the aspects of covered bonds that the European Banking Authority (EBA) tackled as part of an analysis of EU covered bond frameworks it carried out to fulfil two mandates it was assigned, one from the European Systemic Risk Board (ESRB) to identify best practices in covered bonds, and another from the European Commission to assess the appropriateness of preferential risk weight treatment of certain covered bonds. (See separate article.)

In a final report published yesterday (Tuesday) the EBA said that regulatory covered bond disclosure requirements are “particularly diverse” within the EU and that national transparency templates used by issuers with ECBC Covered Bond Label status differ substantially across jurisdictions and are not always aligned with either an ICMA Covered Bond Investor Council (CBIC) template or requirements in the Capital Requirements Regulation (CRR).

Its findings are behind a recommendation to the Commission that disclosure requirements linked to preferential risk weight treatment in Article 129 (7) of the CRR be further clarified by means of binding technical standards, and that provision be made for the possibility of extending the disclosure criteria in Article 129 (7).

The EBA’s disclosure recommendations “should not be heard as criticism against industry proposals”, Lars Overby, head of unit, regulation at the EBA, told The Covered Bond Report.

“We fully praise the industry for taking the first steps to improve disclosure, but what is missing is common definitions and fully aligned templates that allow comparisons across frameworks,” he said. “We believe this is the final step that needs to be taken and that is one of the reasons we have recommended that the EBA is mandated to develop technical standards in this field.

“If the Commission provides the EBA with a mandate, clearly we will look at already existing templates, such as ECBC and CBIC template initiatives, which are very useful starting points.”

‘Excessive room for interpretation’

Regulatory requirements on disclosure to covered bond investors “are particularly diverse within the European Union”, according to the EBA, which found that in 11 out of 25 jurisdictions for which reliable data is available at least one of the covered bond instruments regulated at national level is not subject to any specific disclosure requirements.

These countries, according to the EBA, are: Austria, Belgium, Czech Republic, Denmark, Estonia, Finland, Iceland, Italy, Portugal, Sweden and Slovenia.

“In the remaining jurisdictions national requirements on disclosure differ substantially,” it said.

As concerns market practice, the EBA noted the ICMA CBIC transparency template and the national transparency templates that issuers have to fill out to apply for the ECBC Covered Bond Label.

Fourteen jurisdictions have developed national transparency templates under the ECBC Label and these differ substantially, according to the EBA. This is partly a reflection of national specificities, such as the type of issuer model, the type of cover pools and covered bonds that have historically developed, and the regulatory framework in force.

The national transparency templates “constitute a valuable starting point for the harmonisation of covered bond disclosure standards”, but there are shortcomings, said the EBA.

“[T]he national templates differ and are not always aligned in terms of the type and amount of information disclosed, with the disclosure template elaborated by the investors’ association as well as with the disclosure requirements imposed on covered bonds for the purposes of preferential risk weight treatment,” it said.

“Not all the national transparency templates seem to align with the disclosure requirements provided for in Article 129 of the CRR,” it added.

In addition, “very few transparency templates are particularly developed in certain areas of information disclosure,” said the EBA.

It also said that the disclosure criteria in Article 129 (7) “may leave excessive room for interpretation to both issuers and competent authorities” and that there is uncertainty among investors about the compliance of certain covered bond programmes with the Article 129 of the CRR.