The UK FSA has released further guidance on the role of asset pool monitors under the amended UK Regulated Covered Bond regime following a consultation and requests from the market for clarification.

The asset pool monitor (APM) is a new role created as a result of changes made to the UK covered bond regulatory framework last year, and market participants requested clarification of this new requirement, according to the Financial Services Authority.

Initial guidance on the role of the APM was published in July, in tandem with a seven week consultation that lasted until 14 September (click here for previous coverage). The guidance published on Wednesday is intended to set out further guidance from the FSA on the scope of the inspection and report of the APM.

“While this guidance is the result of a request from the market, we believe it will bring more consistency to existing audit reports, which currently vary a lot across RCB issuers, as well as allow cross-comparisons across RCB programmes,” said the FSA.

“This guidance does not aim to impose additional requirements to the RCB legislation, but responds to an industry request and provides guidance on the scope of the Asset Pool Monitor’s inspection.”

It said that although respondents were globally supportive of the initiative to bring more consistency to audit procedures and APM reports, the feedback received highlighted differences in issuers’ underwriting policies and procedures, and suggested these be taken into account in designing the tests to avoid a high number of meaningless exemptions being reported. The comments related to the definition of the tests, as well as the tolerance levels.

As a result of the feedback, the FSA made some changes to make the tests conducted by APMs more compatible with issuers’ underwriting policies and practices, and provided clarity on specific paragraphs of the regulation, including on the level of expected and maximum error rates.

For more information click here.