The disclosure template for the Covered Bond Label will be harmonised across jurisdictions for the first time from 2016, the Label Foundation and ECBC announced today (Tuesday), in a move that pre-empts a European Commission consultation paper due in the coming weeks.

Different jurisdictions have until now had individual national transparency templates, but the Covered Bond Label Committee and the European Covered Bond Council (ECBC) steering committee have decided to implement a common harmonised template, which they said is being finalised and will be presented at an ECBC plenary on 9 September.

The standard will enter into force in the first quarter of next year and be a binding requirement for Label renewals at the end of this year, but there will be a one year phasing-in period, which the foundation said will allow issuers to align their IT systems and disclosure policies with the new format.

“Over the last three years the covered bond community has made an immense effort to enhance transparency in the covered bond market, and the implementation of a Common Harmonised Transparency Template is the culmination of these efforts, rooted in stakeholders’ commitment and consensus,” said Carsten Tirsbæk Madsen, chairman of the ECBC.

The move was welcomed by Andreas Denger, senior portfolio manager and analyst at MEAG, who is chairman of the ICMA Covered Bond Investor Council (CBIC) and a member of the Label advisory council. The CBIC has for the past few years campaigned for greater and more standardised transparency from issuers.

“After years of intense and constructive dialogue between issuers and investors, the Common Harmonised Transparency Template represents a welcome and significant step forward, which will facilitate data comparability and investors’ due diligence, thereby contributing to building the Capital Markets Union (CMU),” said Denger.

The announcement of a harmonised Label template comes ahead of the anticipated release of a consultation paper by the European Commission, scheduled for this month, that follows up on a February CMU green paper in which the development of a more integrated European covered bond market was flagged as a priority.

The ECBC has long described the Label initiative as not only meeting investors’ needs but also anticipating greater demands being placed on the asset class by the regulatory authorities, and the Label Foundation cited the harmonised template as evidence of the covered bond community’s commitment to enhancing transparency in light of the forthcoming consultation.

“The Covered Bond Label market initiative has once more confirmed its role as a major driver of convergence for covered bond market best practices,” said Luca Bertalot, secretary general of the EMF-ECBC.

At the same time, a market participant noted that while such harmonisation has long been discussed by issuers and investors, it has taken the threat of regulatory action on this front for the covered bond industry to act.

Of covered bonds that are eligible for the Label, more than 70% are now encompassed by the initiative, according to the Label Foundation, or 60% of global outstandings in the asset class.

While Labels have only been applied to EU/EEA covered bonds so far, the foundation noted that the first non-EEA Label applications are expected to be made around the end of this year and that the new template will also have to be adopted by these issuers.

Photo: Commissioner Jonathan Hill, responsible for CMU; Source: EC.