The European Covered Bond Council this (Friday) morning released criteria – including a transparency element – that issuers will have to satisfy to be eligible for a covered bond label under an initiative it has been working on.

Proposals for implementation of the Covered Bond Label Convention, as it has been dubbed, will be put to an ECBC plenary in spring 2012.

“The Covered Bond Label is a key priority for the ECBC, which is developing the initiative in co-operation with issuers, investors and regulators with the aim of ensuring that the views of all stakeholders are incorporated,” said the council.

The ECB has welcomed the labelling initiative, while the ECBC has been liaising with the Covered Bond Investor Council as to how to co-ordinate with the investor body’s transparency standards initiative.

The core characteristics the ECBC has drawn up and which issuers will have to satisfy are (in the ECBC’s words):

I Legislation safeguards

a)      The CB programme is embedded in a dedicated national CB legislation;

b)      The bond is issued by – or bondholders otherwise have full recourse, direct or indirect [including pooling models consisting only of covered bonds issued by credit institutions] to – a credit institution which is subject to public regulation and supervision;

c)      The obligations of the credit institution in respect of the cover pool are supervised by public supervisory authorities.

II Security features intrinsic to the CB product

a)      Bondholders have a dual claim against:

• The issuing credit institution as referred at the point I b);
• A cover pool of financial assets (typically mortgage and/or public sector loans), in priority to the unsecured creditors of the credit institution; the financial assets eligible to be part of the cover pool and their characteristics such as credit quality criteria are defined in the national covered bond legislation which complies with the requirements of Article 52(4) of the UCITS Directive.

b)      The credit institution has the ongoing obligation to maintain sufficient assets in the cover pool to satisfy the claims of covered bondholders at all times.

c)      Issuers are committed to providing regular information enabling investors to analyse the cover pool, following the guidelines developed at national level (see Annex I).

The transparency element is introduced in the last of these. National bodies will determine what information issuers in their jurisdiction can satisfy and provide based upon guidelines listed in an annex.

“This definition of the required characteristics is complemented by a transparency tool to be developed at national level based on ‘Voluntary Label Transparency Guidelines’,” said the ECBC.

The labelling process will be based upon a process of self-certification, said the ECBC. The ECBC steering committee will be the decision-making and supervisory body, with market participants able to provide input through an advisory council. The practical operations of the labelling process will be run by a label secretariat.

The ECBC said that the initiative highlights to investors the value and quality of covered bonds and further enhances the recognition of and trust in the asset class.

“The label will also improve access to relevant and transparent information for investors, regulators and other market participants,” it said. “The long term objective of the initiative is to promote liquidity and strengthen covered bonds’ secondary market activity.”

Full details can be found via the ECBC website here (opens new window/tab):

http://ecbc.hypo.org/Content/Default.asp?

[Apologies for earlier broken direct link.]