The ICMA Covered Bond Investor Council will explore the development of a central portal for cover pool data and pursue other recommendations set out in a report published today (Thursday) on how progress could be made on the CBIC’s transparency initiative after a slow take-up of its disclosure template.

The International Capital Market Association (ICMA) commissioned Richard Kemmish Consulting to prepare a report on ways to progress the Covered Bond Investor Council’s transparency initiative, after disappointing progress toward meeting disclosure standards set out in a standardised template and guiding principles revealed in May 2012.

Other disclosure projects, such as National Transparency Templates (NTTs) linked to the European Covered Bond Council (ECBC) Covered Bond Label initiative and responses to national regulatory requirements, have taken precedence for issuers over the CBIC template, according to Kemmish’s report, entitled “Covered bond pool transparency: the next stage for investors”.

ICMA today (Thursday) said that the report compares a sample of the national templates against the CBIC standard “and concludes that there is still a clear need for data that is easily accessible, comparable and which goes beyond the requirements of the ECBC label”.

Richard Kemmish – formerly head of covered bond origination at Credit Suisse and chairman of the European Covered Bond Council (ECBC) market-related issues working group – makes three recommendations to the CBIC, which, according to ICMA, are to:

• Support a single central data repository for information on cover pools;
• Refine investors’ data needs, particularly for structural features that are not readily available, for example more details of swap arrangements effecting the cover pool; and
• Promote, through further disclosure in line with the recommendations of the CBIC template, greater transparency in covered bonds at national and European level.

The CBIC welcomed the report.

“The CBIC has always seen transparency to be key to the success of the covered bond market,” said Andreas Denger, acting chair of the investor body. “Therefore the CBIC template has pushed higher level of transparency. For the analysed countries, Richard’s report contributes to identify the gaps left and investors’ needs in general.

“The CBIC will certainly take the recommendations forward.”

Luca Bertalot, secretary general of the EMF-ECBC, welcomed the CBIC’s pursuit of improved transparency standards, but cautioned against a duplication of efforts.

“It is extremely important to bring together our and the CBIC’s efforts and achieve synergies,” he said. “Market consensus is essential in achieving transparency. Indeed, looking at the call for harmonisation coming from European supervisors, it is clear that transparency will play a pivotal role in the upcoming regulatory environment.

“The CBIC’s goals can be integrated into the ECBC Label initiative and the investor council has an entry point for this via its representation on the Label advisory committee.”

To take forward the first recommendation of a central data repository, Kemmish suggested that the CBIC consider meeting with data aggregators, such as Bloomberg of the European Data Warehouse, to discuss, among other aspects, ways in which cross-border comparability can be improved and analytical tools can be developed.

A “document library”, meanwhile, could help meet investors’ needs for more information, in particular on structural features on which data is not easily available in a central site but is potentially significant.

“In this regard for example, note that the Dutch national template provides information on swap counterparties and the UK template also details programme trigger events,” said the report. “As one investor in particular highlighted the importance of swaps to the overall creditworthiness of covered bond programmes and given the lack of information on this topic currently, it would seem important that disclosure of these details in particular would be highly desirable.”

Kemmish also noted that although data requested by the CBIC on issuers themselves is “a ‘nice to have’, the obstacles to its delivery and the relatively small benefit that can derive from this information for most covered bond investors suggest that significant progress on this objective is unlikely”.

However, it is clear that there is a need for increased disclosure, he added, notably with respect to cover pool data.

Martin Scheck, ICMA chief executive, expressed ICMA’s hopes that “this new initiative will facilitate further progress towards greater disclosure of the information that matters to investors in a format that they can use easily”.

“We will work closely with potential data providers and will launch a consultation of our members on the structural features, such as swaps, where they feel that disclosure currently falls short of the ideal,” he said.

CBIC criticises EMIR covered definition

Meanwhile, the CBIC on Monday called on the European Securities & Markets Authority (ESMA) to stick with existing covered bond regulatory frameworks rather than creating a de facto new framework with its own criteria in a consultation paper on central clearing obligations under the European Market Infrastructure Regulation (EMIR). ESMA has proposed exempting covered bond derivatives from having to be centrally cleared as long as they meet certain criteria.

In its response to the consultation, the CBIC does not concern itself with the technical aspects of the proposals and welcomed the regulator’s acknowledgement of the special features of covered bonds, but criticised the way ESMA goes about defining those covered bonds whose derivatives could be exempted.

“The CBIC is concerned that whilst the consultation should centre on covered bond derivatives, ESMA is in effect making a legal statement regarding the European covered bonds regulatory framework, through statements on the posting of collateral and listing criteria related to the inclusion/exclusion of contracts associated to defined covered bonds programmes,” said the CBIC. “At the same time this discussion seems to disregard the existing regulatory framework, set in CRD 129(7) and UCITs 52(4), but also more importantly the current review of covered bonds as noted in the European Commission communication on long term financing of the European economy and the EBA (European Banking Authority) report on EU Covered Bond Frameworks and Capital Treatment.”

For example, in its consultation ESMA proposes that covered bonds would have to be “subject to legal overcollateralisation of at least 102%” for the associated derivatives to be exempted, while there is no such requirement in existing European regulatory frameworks.

“Council members urge the ESMA recommendation to maintain the proper functioning of the covered bond market in general and not add confusion to the regulatory developments, and therefore rely on the existing frameworks in place,” said the CBIC.

Photo: Martin Scheck at the ICMA CBIC/The Covered Bond Report conference in May.