Issuer ratings look set to have been scrapped as LCR eligibility criteria for covered bonds and a transparency requirement introduced, according to a leaked EC document on the delegated regulation that the Commission is likely to finalise in September.

Minimum issuer ratings had only recently been added as a precondition for covered bonds to count toward Liquidity Coverage Ratio (LCR) requirements, appearing in a leaked EC paper seen by The Covered Bond Report in June. This was thought to serve as the basis for discussions at the European Commission (EC) on 16 June.

As previously reported by The CBR, the clauses on issuer ratings had not been anticipated and, if implemented, could have resulted in certain covered bonds losing LCR status despite meeting minimum rating requirements for the bonds themselves.

However, the Commission held a further meeting on the LCR regulation on Friday and a document linked to this does not include the minimum issuer rating requirement.

A new LCR eligibility criterion, however, has been added, for Level 1 and Level 2A assets, and sets transparency standards stemming from a requirement in the Capital Requirements Regulation (CRR) thus: “the credit institution investing in the covered bonds must meet the transparency requirement laid down in Article 129(7) of Regulation (EU) No. 575/2013”.

The two changes to the preconditions for LCR eligibility are thought to be positive in the eyes of the industry, as the scrapping of the issuer rating criteria would prevent certain covered bonds from being excluded.

And Luca Bertalot, secretary general of the European Covered Bond Council, welcomed the prospect of the transparency standards being included in the LCR delegated act, seeing it as a nod to the ECBC Label initiative.

“We are pleased that the delegated act looks set to include an implicit recognition of the pivotal and hard work undertaken in the last years by the covered bond Label community in enhancing transparency in the covered bond market,” he said.

The EC was initially due to finalise secondary legislation on the LCR by the end of June, but this deadline was missed and a final decision is understood to be likely to be taken in September, with the effective date expected to be pushed back beyond the original start of January 2015.