8.

Calls on the Commission to present a proposal for a European Covered Bond framework (directive) defining PCBs, OCBs and ESNs simultaneously, with a view to avoiding market disruptions during transition phases; calls on the Commission to include in this definition all of the following common principles achievable throughout the life of this issued instrument, independent of potential preferential treatment: (a) PCBs, OCBs and ESNs should be fully backed by a cover pool of assets; (b) National law should ensure dual recourse, i.e. the investor has: (i) a claim on the issuer of the debt instrument equal to the full payment obligations; (ii) an equivalent priority claim on the cover pool assets (including substitution assets and derivatives) in the event of the issuer’s default; Should these claims be insufficient to fully meet the issuer’s payment obligations, the investor’s residual claims must be pari passu with claims of the issuer’s senior unsecured creditors; (c) Effective segregation of all cover pool assets is ensured in legally binding arrangements which are easily enforceable in the event of insolvency or resolution of the issuer; the same will hold for all substitution assets and derivatives hedging risks of the cover pool; (d) PCBs, OCBs and ESNs are bankruptcy-remote, i.e. it is ensured that the issuer’s payment obligations are not automatically accelerated in the event of the issuer’s insolvency or resolution; (e) Overcollateralisation (OC) reflecting the specific risks of PCBs, OCBs and ESNs is applied, by magnitudes to be determined in national law. The value of all cover pool assets must always be greater than the value of outstanding payment obligations. The valuation methods for cover pool assets and the calculation frequency should be clearly defined in national law and should properly take all relevant downside risks into account; (f) European or national law defines maximum loan-to-value (LTV) parameters for cover pool assets. The removal of cover pool assets in breach of LTV limits should not be mandatory, but rather it must be ensured that such removal occurs only if they are replaced by eligible assets of at least the same market value; (g) A part of the cover pool assets or liquidity facilities is sufficiently liquid such that the payment obligations of the covered bond or ESN programme can be met for the next six months, except in cases with match funded bonds or bonds with a soft bullet and conditional pass through (CPT); (h) Derivative instruments are allowed only for risk hedging purposes, and derivative contracts entered into by the issuer with a derivative counterparty and registered in the cover pool cannot be terminated upon the issuer’s insolvency; (i) National law provides for a robust special public supervision framework by specifying the competent authority, the cover pool monitor and the special administrator, along with a clear definition of the duties and supervisory powers of the competent authority, to ensure that: (i) issuers have qualified staff and adequate operational procedures in place for the management of the cover pools, including in the event of stress, insolvency or resolution; (ii) the features of cover pools meet the applicable requirements both prior to issuance of and until maturity of the debt instrument; (iii) the compliance of PCBs, OCBs and ESNs with relevant requirements (including in relation to eligibility of cover assets and coverage) is subject to ongoing, regular and independent monitoring; (iv) issuers regularly carry out stress tests on the calculation of the coverage requirements, taking into account the main risk factors affecting the debt instrument, such as credit, interest rate, currency and liquidity risks; The duties and powers of the competent authority and the special administrator in the event of the issuer’s insolvency or resolution must be clearly defined; (j) The issuer is required to disclose at least biannually aggregate data on the cover pools to a level of detail that enables investors to carry out a comprehensive risk analysis. Information should be provided on the credit risk, market risk and liquidity risk characteristics of cover assets, on counterparties involved in the cover pools and on the levels of legal, contractual and voluntary OC, while there should also be a section on derivatives attached to cover pool assets and liabilities; (k) The maturity can be extended only in the event of insolvency or resolution of the issuer and with approval by the competent supervisory authority or under objective financial triggers established by national law and approved by the competent European authority; the exact conditions of the extension and potential changes to the coupon, maturity and other features should be made clear in the terms and conditions of each bond;