The ECB yesterday (Wednesday) recognised efforts made by rating agencies and issuers to meet recently-introduced disclosure requirements for repo eligibility, but noted shortfalls in some cases and said it may revoke acceptance of ratings if its high standards are not met in the coming quarters.

[Updated to add reference to issuer cooperation.]

The first deadline for rating agencies to provide quarterly surveillance reports to ensure the respective rated covered bonds remained ECB repo eligible came in November, in respect of third quarter data, and at that time rating agencies reported a high level of compliance with the new regime, with only a few issuers not having provided sufficient information to be included in the reports.

It has since emerged that covered bonds of Austria’s Anadi Bank lost their repo eligibility, with an incomplete surveillance report cited as the reason for this.

The European Central Bank yesterday updated a Q&A on its website dealing with the topic to include its assessment of the first surveillance reports.

“The Eurosystem recognises the efforts undertaken and the progress made by the ECAF (Eurosystem Credit Assessment Framework)-accepted CRAs (credit rating agencies) and covered bond issuers to comply with the new disclosure requirements,” it said. “The Eurosystem notes that surveillance reports for the third quarter of 2017 were in most cases published within the eight-week deadline.

“However, in a few cases reports were published late or not at all and consequently the related covered bond ratings were considered not to have met the ECAF’s high standards.”

Either a second covered bond rating or an issuer rating can act as a fallback to maintain repo eligibility in such a situation, according to the ECB’s rules, and ultimately only Anadi’s covered bonds lost eligibility.

The ECB also in its Q&A update noted some omissions in reporting and said it could exclude more ratings, and by extension potentially the rated covered bonds, should such shortcomings persist.

“The Eurosystem found the required surveillance information contained in the published reports to be largely sufficient although a few ratings were considered not to have met the ECAF’s high standards, as there were several instances where information was missing,” it said. “The Eurosystem expects that covered bond issuers and the ECAF-accepted CRAs will promptly address any instances of missing or incomplete information. Thus, all published surveillance reports should soon provide full coverage of the required information.

“If full coverage is not achieved within the next few quarters, the Eurosystem may revoke ECAF’s acceptance of the rating related to the affected covered bond programme.”

Rating agencies have highlighted their reliance on issuers delivering timely information in order for them to complete their rating reports on time, and the ECB referred to this in its updated Q&A.

“The issuers of covered bonds eligible for Eurosystem monetary policy operations should cooperate with CRAs in helping to ensure that the ratings assigned to their covered bonds comply with the Eurosystem disclosure requirements,” it said. “To do so, issuers are expected to contribute to the timely provision of the required information to the CRAs which assign such ratings.”

The ECB also added questions clarifying certain elements of the reports and what is required in respect of multi-cédulas. An ECB spokesperson told The CBR that questions 12, 13, 17, 27, 28 and 29 had been added yesterday.

The Q&A can be found here.