EN ECB -PUBLIC  
 
OPINION OF THE EUROPEAN CENTRAL BANK  
of 3 January  2019   
on the legal framework for covered bonds   
(CON/20 19/1) 
 
Introduction and legal basis  
On 27 November 2018 the European Central Bank (ECB) received a request from the Estonian Ministry 
of Finance for an  opinion on a draft law on a covered bonds  framework1 (hereinafter the ‘draft law’ ). 
The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the 
Functioning of the European Union and the sixth  indent  of Article  2(1) of Council Decision 98/415/EC2, as 
the draft law relates to  the rules applicable to financial institutions insofar as they materially influence the 
stability of financial institutions and markets and to the basic task of the European System of Central 
Banks (ESCB) to implement monetary policy pursuant to the first indent of Article 127(2) of the Treaty . In 
accordance with the first sentence of Article 17.5 of the Rules of Procedure of the European Central 
Bank, the Governing Council has adopted this opin ion. 
 
1. Purpose of the draft law   
1.1 The purpose of the draft law is to set up a legal framework for the issuance of covered bonds by 
credit institutions  and to foster the Estonian capital market s and increase financial stability.  
1.2 The draft law : (a) defines the institutions permitted to issue covered bonds, i.e. credit institutions 
with an additional authorisation for the issuance of covered bonds ; (b) outlines the additional 
authorisation procedures concerning issuers and applicable additional requirements incl uding the 
powers of the cover pool monitor ; (c) outlines the general conditions for issuing covered bonds and 
specifies when the term covered bonds  may be used; ( d) specifies the types of covered bonds, i.e. 
mortgage covered bonds and mixed asset covered bonds, and the assets eligible for inclusion into  
the cover pool; ( e) sets out rules on valuation, composition and structure of the cover ed bond 
portfolio ; (f) sets forth special provisions for the separation of the cover ed bond portfolio, e.g. in the 
event  of an issuer’s insolvency, the requirements for a cover pool administrator and the liquidation 
and transfer of a separated covered bond portfolio; ( g) sets out transparency and disclosure 
requirements; and (h) establishes rules regarding supervision of covered bonds . 
1.3 According to the draft law, in order to issue covered bonds, the issuer must be authorised as a 
credit institution  and have an additional authorisation for the issuance of covered bonds. The 
                                                 
1  Pandikirjaseadus, eelnõu.  
2  Council Decision 98/415/EC of 29 June 1998 on the consultation of the European Central Bank by national 
authorities regarding draft legislative provisions (OJ L 189, 3.7.1998, p. 42).  
ECB -PUBLIC  
2 additional authorisation must be obtained from the E stonian Financial Supervision Authority (EFSA)  
prior to the first issuance of covered bonds and is granted for an indefinite period.  The additional 
authorisation may be revoked , inter alia,  where the issuer has provided false or misleading 
information or documents, has repeatedly or significantly breached the requirements of the draft 
law, is unable to meet its obligations under the covered bonds, its activities endanger the interests 
of the investors or other clients of the issuer, or the issuer has not is sued covered bonds within five 
years  from receiving the additional authorisation  or since the last redemption of previous covered 
bonds3. 
1.4 The draft law lists the following assets as primary assets eligible for inclusion in to the cover pool: 
(a) for mortgage covered bonds: loans issued to natural persons , secured by mortgages over 
residential real estate located in the European Union; ( b) for mixed asset covered bonds: loans 
issued to natural or legal persons , secured by mortgages over residential and commer cial real 
estate located in the European Union, as well as credit to or debt securities of Member States of 
the European Union, their regional or local authorities and bodies governed by public law4. These 
assets are regarded as primary assets of the cover  pool and must represent at least 80% of the 
total value of the cover pool; the remaining part of the cover pool may be composed of substitute 
assets5. 
1.5 In addition to primary assets , the cover pool may include substitute assets. The draft law lists which 
assets may be used as substitute assets. These assets are (a) claims against or claims backed by 
members of the ESCB or central governments, public sector institutions, regional governments or 
local municipal government units of Union member states; (b) claims against or claims backed by 
third-country central banks, central, regional and municipal governments and various public 
institutions, multilateral development banks and international organi sations – the draft law does not 
impose any additional quantity  restrictions if the assets correspond to credit quality step 1 and 
imposes a limit of 20% of nominal value of the outstanding covered bonds  for assets corresponding 
to credit quality step 2; (c) claims against credit institutions and investment firms that  meet credit 
quality step 1, provided that  such claims do not exceed 15% of the nominal value of the 
outstanding covered bonds; (d) claims against Union credit institutions and investment firms that 
meet the credit quality step  2, which have a maturity dat e of up to 100 days , provided that  such 
claims do not exceed 15% of the nominal value of the outstanding covered bonds; and (e) net 
claims arising from derivative agreements , provided that such claims do not exceed 12% of the 
nominal value of the outstandi ng covered bonds.6  
1.6 The quality of the cover pool must be ensured by the issuer throughout the entire lifetime of the 
covered bonds by monitoring and updating the valuation of the cover ed assets  secured by 
mortgages . At all times t he cover pool must exceed the sum of the present value of the covered 
bonds  and the net obligations arising from derivatives  by at least  2%7. This requirement is 
                                                 
3  See Section 6 of the draft law.  
4  See Sections 25(1) and 30(1) of the draft law . 
5  See Sections 19(1) and 20(1) of the draft law . 
6  See Section 20 (1) of the draft law.  
7  See Sections 18(1) of the draft law.  
ECB -PUBLIC  
3 considered to be fulfilled if the aggregate nominal value of assets in the cover pool exceeds the 
aggregate nominal val ue of the covered bonds  by at least 5% . In any case the nominal value of the 
cover pool must at all times at least equal or exceed the nominal value of the covered bonds.  
1.7 To mitigate the liquidity  risk of the covered bonds portfolio,  a liquidity reserve m ust be formed which 
may consist only of level 1 and 2A assets and certain exposures to credit institutions as listed in the 
draft law which  meet specified additional criteria. The minimum amount of liquidity reserves must 
be calculated for the following 18 0 days based on the difference in daily cash flow between the 
payments for the covered bonds and derivatives entered in the covered bond register and the 
revenue from underlying assets. Thereafter , the sum of such accumulated daily differences is 
calculate d for the next 180 days and the largest negative result of such calculations must be 
covered by the liquidity buffer .8 The liquidity reserve should be at least 2%  of the nominal value of 
the assets in the cover pool.  
1.8 The draft law allows  the issuer to mitigate risks arising from covered bonds with derivative 
instruments  and to include such agreements in the cover pool  subject to certain requirements , 
including that derivative transactions are made under a framework agreement that allows for 
netting and that  derivative transactions do not automatically terminate upon the insolvency of the 
issuer . The primary and substitution assets , the liquidity reserves  and the derivative instruments 
must be entered in a cover pool register maintained by the issuer.  
1.9 For th e purposes of ensuring sufficient collateral and compliance with applicable requirements, the 
draft law obliges  the issuer to appoint an independent cover pool monitor  whose responsibilities 
include, among others,  ensur ing that covered bond portfolio stres s tests are conducted in 
compliance with applicable regulations  and that there are sufficient cover assets and that these 
cover assets comply with the requirements 9. Under the draft law , the authorisation to issue 
covered bonds  can be sought only if the name and approval of a person to act as a cover pool 
monitor have been included in the application for authorisation.  
1.10 The draft law pre-defines situations where the cover ed bond portfolio is separated from the issuer  
and specifies that in such cases the right to manage the cover ed bond portfolio is transferred to a 
cover pool administrator . One such circumstance is the insolvency of the issuer. Separation of the 
cover ed bond portfolio is intended to segregate the cover pool from the issuer, including f rom the 
bankruptcy estate of the issuer . After segregation, the cover pool will constitute a pool of assets, 
which , together with the income received therefrom , may be used only for the satisfaction of the 
claims of the respective covered bondholders and claims arising from derivative instrument s, and 
to cover the costs of managing the cover pool10. To the extent that the proceeds of the cover pool 
are insufficient to satisfy in full the claims of covered bondholders, covered bondholders have 
recourse to the issuer’s bankruptcy estate for the balance of the claim, ranking pari passu with 
unsecured creditors11. 
                                                 
8  See Sections 21(3) of the draft law.  
9  See Sections 12 to 14 of the draft law.  
10  See Section 33 and 34 of the draft law.  
11  See Section 53(2) of the draft law.  
ECB -PUBLIC  
4 1.11 The draft law allows, with the approval of the EFSA, the whole cover ed bond portfolio to be 
transferred to another Estonian credit institution that has been granted a licence to issue covered 
bonds and wh ich has not during the last five years repeatedly or materially breached requirements 
applicable to it as an  issuer . The c overed bond portfolio may also be transferred, with the approval 
of the EFSA, to a credi t institution  incorporated in another Member State. A transfer to a credit 
institution incorporated in another Member State is allowed if that  credit institution proves that it 
meets certain conditions: (a) the credit institution fulfils the requirements  applicable to a credit 
institution and to an issuer and has not during the last five years repeatedly or materially breached  
such  requirements ; (b) the rights of bondholders and derivative counterparts are secured at least to 
the same extent as they are in Estonia ; (c) the rights of the debtors  of claims in the cover pool are 
protected at least to the same extent as they are in Estonia and the transfer would not cause 
additional costs or other burden to the debtors ; (d) the acquirer’s home state law  permits the 
acquisition of the covered bonds portfolio;  and (e) the acquirer has all the required approvals and 
licences . The acquirer must present a legal o pinion in order to satisf y conditions (b), (c) and (d).  
1.12 The EFSA is tasked with supervis ing the issuer of the cover ed bonds and the activities of the cover 
pool administrator to ensure compliance with the standards of the draft law and requirements 
stipulated in other applicable legal acts . The supervisory powers of the EFSA are the same as 
envisaged in other relevant legal acts. The EFSA specifically has the additional right to request  
transfer  of additional assets into the cover pool, the remov al from the cover pool of  assets that do 
not meet the requirements of the law, the conduct of a stress test, the change of cover pool 
monitor , etc.12 
1.13 For the draft law to take effect , several delegated regulations  still need to be adopted.  
 
2. General observations   
2.1 The ECB welcomes the aim of the draft law to establish a legal framework for issuing covered 
bonds , thereby  diversifying  the sources of potential financing for credit institutions and further 
developing the financial markets in Estonia. As previously noted, the ECB is in favour of a 
developed, harmonised, high- quality and transparent covered bond market in the Unio n.13 The 
Eurosystem accepts covered bonds which fulfil the eligibility criteria for collateral in Eurosystem 
monetary policy operations. The ECB has issued several opinions expressing its views on covered 
bonds legislation in various Members States14 with the aim of ensuring fur ther convergence 
towards common high standards  in covered bonds in all Member States.  
2.2 The Union is taking considerable steps to ensure harmonised and common high standards 
regarding covered bonds across Members States. To this end, the Commission has published a 
legislative proposal for the Union framework on covered bonds  on 12 March 2018 including a 
                                                 
12  See Section 56(4) of the draft law.  
13 See par agraph 2.1 of the Opinion CON/ 2018/37. All ECB opinions are published on the ECB’s website at 
www.ecb.europa.eu.  
14 See Opinion CON/2007/3, Opinion CON/2010/47, Opinion CON/2010/73, Opinion CON/ 2011/27, Opinion 
CON/2012/92, Opinion CON/2013/94, Opinion CON/2015/11, Opinion CON/2017/36, Opinion CON/2018/39.  
ECB -PUBLIC  
5 proposal for a directive of the European Parliament and of the Council on the issue of covered 
bonds and covered bond public supervision  and amending Directive 2009/65/EC and Directive 
2014/59/EU15 (hereinafter the ‘ proposed directive’)  and a proposal for a regulation  of the European 
Parliament and of the Council on amending Regulation (EU) No 575/2013 as regards exposures  in 
the form of covered bonds16, on both of which the ECB has opined17. Also , the European Banking 
Authority (EBA) has identified best practices  in relation to covered bonds .18 Nevertheless, Union 
legislative proposals are still developing . The Estonian authorities are invited to continue to follow 
the ongoing drafting of the proposed directive and to take this into account in the Estonian 
legislative process, including as regards the various delegated regulations that are to be introduced 
under the draft law, as appropriate.  
 
3. Specific observations on the draft law  
3.1 In order to ensure a continuously high level of supervision over the issuers of covered bonds , an 
appropriate oversight system should be in place. Thus, t he ECB welcomes the additional licencing 
and supervisory regim e to be introduced in relation to credit institutions intending to issue covered 
bonds.19 The ECB notes that the draft law ’s provisions regarding the right to both issue and revoke 
additional  general  authorisations for the issuance of covered bonds must be interpreted in line with 
Council Regulation (EU) No 1024/201320. In particular,  Article 4(1) (a) of Regulation (EU) No 
1024/2013 gives the ECB the exclusive task of authoris ing credit institutions and withdraw ing 
authorisations of credit institutions . In acc ordance with Article 6(4) of Regulation (EU) No 
1024/2013,  the ECB exercises this responsibility  both for significant and less significant institutions . 
The ECB understands that this task is exercised for all banking activities listed in Annex I of the 
Directive  2013/36/EU of the European Parliament and of the Council21 as well as for  any additional 
activity allowed under  national law, such as the general authorisation to issue covered bonds  as 
provided for under the draft law . Furthermore, the ECB is compet ent to ensure that the prudential 
risks arising from covered bond issuances as well as from investments in covered bonds are 
adequately managed and assessed by credit institutions.  For the sake of clarity, any possible 
authorisation for a specific covered bond programme or supervision of covered bonds as a financial 
product would be considered as a product -specific regulation and,  as such , to fall under the 
supervision of a national competent authority.  
                                                 
15  COM(2018) 94 final.  
16 COM(2018) 93 final . 
17 Opinion CON/2018/37.  
18 See the EBA Report on Covered Bonds: Recommendations on harmonisation of covered bond frameworks in the 
EU of 20 December 2016 (EBA -Op-2016- 23), available on the EBA ’s website at www.eba.europa.eu.  
19 See Section 3 et seq. of the draft law.  
20  Council Regulation (EU) No 1024/2013 of 15 October 2013 conferring specific tasks on the European Central Bank 
concerning policies relating to the prudential supervision of credi t institutions (OJ L 287, 29.10.2013, p. 63).  
21  Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of 
credit institutions and the prudential supervision of credit institutions and investment firms,  amending Directive 
2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC (OJ L 176, 27.6.2013, p.338).  
ECB -PUBLIC  
6 3.2 As regards publication requirements in relation to the granting of the covered bonds 
authorisation,22 the ECB understands that these will be duly exercised in line with the ECB ’s 
confidentiality and data protection regime.  
3.3 It is the understanding of the ECB that the referred licencing regime would require an application 
prior to the first issuance of covered bonds and that no obligation to  give the EFSA an ex ante 
notification prior to the issuance of subsequent covered bonds or prior to the establishment of a 
new covered bond programme will be introduced. The attention of the Estonian  legislat ure is drawn 
to the best practices  and recommendations  identified by the EBA ; an ex ante approval obligation 
prior to any  new covered bond programme and a notification obligation for subsequent issuance s 
are recommended even in cases where a special licencing regime exists for credit institutions 
aiming to issue covered bonds .23  
3.4 The ECB  welcomes the mandatory appointment of the cover pool monitor and its specified duties 
which include , among others, to ensure that the stre ss tests conducted on portfolios  of covered 
bonds comply  with applicable regulations and that there are sufficient cover assets and that these 
cover assets comply with the requirement s set out in the law .24 In order to further facilitate investor 
due diligence and enhance transparency , consideration should be given to making the results of 
the portfolio stress tests , including the parameters used,  publicly available.  
3.5 The draft law does not include any statutory maturity extension triggers and allows for cont ractual 
maturity extension triggers  if they meet specific conditions .25 Moreover, the draft law does not 
specify those circumstances which the issuer cannot control which would be a pre- condition for 
maturity extension. In the ECB ’s experience,  it is not po ssible to fully exclude discretionary  
triggering of a maturity extension. By allowing the extension triggers to be contractually defined, the 
proposed directive could result in significant heterogeneity across covered bonds, which hinders 
harmonisation26. Since the proposed directive will be  a minimum harmonisation directive , Member 
States are free to go further when transposing the proposed directive into national law. The 
Estonian legislat ure is therefore invited to consider  further limit ing the conditions  under which a 
maturity extension of covered bonds can occur , and to allow only statutory maturity extension 
triggers with a set of specific conditions as proposed by  the EBA. These measures strengthen the 
high quality of the  cover  pool and harmonisation. According to the EBA’s proposal , the maturity 
extension may only be effected upon the following triggers taking place (both triggers must occur  
simultaneously ): (i) the covered bond issuer must have defaulted and (ii) the covered bond 
breaches certain pre- defined criteria/tests , indicating a likely failure of the covered bond to be 
repaid at the scheduled maturity date.27 The Estonian legislat ure could consider  replac ing the 
                                                 
22  See Section 8(1) of the draft law.  
23 See the EBA Report on Covered Bonds: Recommendations on harmonisation of covered bond frameworks in the 
EU of 20 December 2016 (EBA -Op-2016- 23), page 72 and 131.  
24  See S ection 14(1) of the draft law.  
25 The ECB understands that under Section 17(4) the contractual maturity extension triggers are severely limited, the 
triggers must not be influenceable by the issuer and it must be possible to determine the maturity date at all times.  
26 See paragraph 4 of Opinion CON/2018/37.  
27 See the EBA Report on Covered Bonds: Recommendations on harmonisation of covered bond frameworks in the 
EU of 20 December 2016 (EBA -Op-2016-23), page 137. See also paragraph 4. 3 of Opinion CON/2018/37.  
ECB -PUBLIC  
7 condition requiring an ‘issuer default ’ with a condition  which refer s to the circums tances in  which 
the covered bond portfolio is considered to be separated (as specified in Section 33(1) of the draft 
law). Alternatively , it could  consider requiring  that any extension of maturity must have the 
permission of the cover pool administrator .  
3.6 The ECB welcomes the detailed specification of the requirements for the cover pool assets 
including the primary cover pool assets, the substitution assets  and the liquid assets  – this should 
help ensure that the covered bonds  are of high quality . 
3.7 The proposed directive specifies that a Member State shall ensure investor protection by providing 
for a sufficient level of homogeneity of the assets in the cover pool so that they shall be of a similar 
nature in terms of structural features, lifetime of assets or  risk profile28. The need to ensure 
homogeneity has been emphasised by both the ECB and the EBA  and therefore primary cover 
assets consisting of one asset class are preferable.29 The draft law introduces  two different types of 
covered bonds: (a) mortgage cov ered bonds , whereby  the primary assets in the cover pool must be 
only residential mortgage loans , i.e. credit provided to natural persons which is secured by 
mortgages over residential real estate;30 and (b) mixed asset covered bonds , whereby the  primary 
assets in the cover pool may be residential mortgages  as well as  other assets listed in the draft 
law, such as  commercial mortgages and public sector assets .31 Although primary cover assets 
consisting of one asset class are preferable f or mixed asset covered bonds , the Estonia n 
legislat ure should consider  including  further  provisions to ensure that the assets in the cover pool 
are of a sufficiently similar nature and that t he composition of the cover pool does not materially 
change over time.  The legislat ure is also invited to introduce requirements to better ensure the 
homogeneity of the cover pool  over time.  
3.8 The ECB notes that t he cover pool liquidity buffer should cover the entire net liquidity outflow for 
180 calendar days , as liquidity buffers should also cover potential issuer insolvency scenarios.32 
Therefore, it is suggested that Section 21(3) of the draft law be clarified to make it clear that the 
cover pool liquidity buffer covers the full net liquidity outflow of the covered bond programme for 
180 days , and not just the largest negative result on a daily basis over the next 180 days. The ECB 
appreciates the introduction of a minimum cover pool liquidity buffer of at least 2%  of the nominal 
value of the cover pool assets.  The ECB welcomes the fact that t he Estonian legislat ure has not 
resolved to use the option under the proposed directive that would enable disapplication of the 
cover ed bond portfolio liquidity requirements for certain periods , subject to rules on liquidity 
specified in other Union legal acts33 and understands that  under  the draft law, liquid assets in the 
form of securities may be held on the account of the issuer in a manner that these assets are 
deemed to be unencumbered in accordance with Commission Delegated Regulation (EU) 
                                                 
28  See Article 10 of the proposed directive.  
29  See paragraphs 2.3, 3.1 and Amendment 21 of Opinion CON/2018/37; the EBA Report on Covered Bonds: 
Recommendations on harmonisation of covered bond frameworks in the EU of 20 December 2016 (EBA -Op-2016-
23), page 36.  
30 Section 25 of the draft law.  
31 Section 30 of the draft law.  
32  See paragraph 3.3 of Opinion CON/2018/37.  
33  See Article 16(4) of the proposed directive.  
ECB -PUBLIC  
8 2015/6134 to avoid potential double liquidity requirements. In this respect it should be clarified that 
such liquid assets may only contribute towards those liquidity requirements up to the amount of the 
net liquidity outflow of the covered bond programme.  
3.9 Consider ation should be given to clarifying  that for the calculation of the cover pool liquidity buffer 
in the case of principal redemptions for covered bonds with extendable maturity structures , the 
scheduled maturity date instead of extended maturity date is to be  used, unless the maturity date 
has been extended.  
3.10 The ECB welcomes the fact that level 2B assets are not permitted as contributions  to the cover 
pool liquidity buffer and that assets cannot be own- issued. In order to enable a rapid liquidation if 
necessar y, the Estonian legislat ure may consider provisions ensuring a sufficient level of 
diversification of the cover pool liquidity buffer.  
3.11 The high quality of assets in the cover pool is one of the key elements in ensuring confidence in the 
whole asset class and ensuring the dual -recourse nature of the claims by bondholders. The draft 
law specifies that claims should not be in default at the time of inclusion in the cover pool .35 The 
ECB would suggest that the Estonian legislat ure should also consider  obliging i ssuers to exclude 
on an ongoing basis from the calculation of coverage any claims already in default or likely to 
default .36  
3.12 Under the proposed directive , Member States are to lay down rules for derivative contracts that 
could be included in the cover pool . This would include at least the eligibility criteria applicable to  
hedging counterparties. The draft law lays  down general conditions for eligible counterparties .37 
The drafting notes to  the draft law specify that the aim of these conditions is to ensure that a 
counterparty of any hedging arrangement is also sufficiently solvent  during turbulent market 
conditions.38 The ECB welcomes th e consideration given to this issue , but more specific qualitative 
and quantitative conditions could be introduced to ensure that the hedging counterparty used is 
sufficiently solvent and that potentially costly re -hedging would not have to be undertaken.  These 
could  include triggers related to the creditworthiness of the hedging  counterparty (i) for 
collateralising the derivat ive exposure or (ii) for the replacement of the hedging counterparty .  
3.13 For an instrument such as a covered bond to be effective,  the title over the assets in the cover pool 
must be transferable following the separation of the cover ed bond portfolio from the originator (e.g. 
to enable the transfer of the entire cover ed bond portfolio under the draft law39). The assets in the 
                                                 
34  Commission Delegated Regulation (EU) 2015/61 of 10 October 2014 to supplement Regulation (EU) No 575/2013 of 
the European Parliament and the Council with regard to liquidity coverage requirement for Credit Institutions (OJ L 
11, 17.1.2015, p. 1).  
35 See Section 25(4) and Section 30(3) of the draft law.  
36 See paragraph 3.1 of Opinion CON/2018/37.  
37 Under Section 23(1)(2) of the draft law the following entities are considered to be suitable counterparties: (i) credit 
institutions, investment firms, management companies, investment funds, insurance undertakings and other financial 
institutions subject to financial supervision; (ii) the Republic of Estonia, foreign states, regional governments or the 
central banks of Estonia or a foreign state; (ii i) international institutions or organis ations, including the International 
Monetary Fund, the ECB, and the European Investment Bank; and (iv) financial institutions whose only business 
activity is investment in securities, market traders in commodities and commodity derivatives.  
38 Page 40 of Se letuskiri. Pandikirjade Eelnõu juurde. 14. november 2018, available at www.riigikogu.ee .  
39 See Section 45 et seq. of the draft law.  
ECB -PUBLIC  
9 cover pool consist of credit agreements. In general, national contractual laws require approval to be 
obtained from the counterparty to the agreement  prior to transferring it to a third party . The ECB 
understands that for Estonian law -governed agreements such counterparty approvals are excluded 
by the draft law40. For agreements governed by other national laws than Estonian law it is unclea r, 
and perhaps unlikely, that an obligation to seek approval from the counterparty can be overridden 
by Estonian national law . Hence, the issuer of covered bonds must itself ensure that the transfer of 
non-Estonian law-governed agreements in the cover pool  is valid and enforceable. It is suggested 
that the Estonian legislat ure includes  a specific obligation to this effect in the draft law. In addition, 
the legislat ure is invited to consider encouraging issuers to obtain pre- approvals from all debtors 
under  the credit agreements it wishes to include in the cover poo l, in order  to ensure legal certainty 
regarding the transferability of the cover ed bond portfolio after separation of the portfolio from the 
originator . 
3.14 The ECB welcomes the fact that the draft law  clarifies the cases in which the right to manage the 
cover ed bond portfolio is transferred to a separate cover pool administrator.  The draft law could  
clarify that in the event  of transfer of the entire covered bond portfolio this transfer of the right to 
manage covers  all forms of overcollateralisation, as well as  overcollateralisation provided on a 
voluntary basis . 
3.15 The existence in a ny covered bond law of obligations that requir e sufficient information to be 
provided to investors to facilitate adequate due diligence by investors  is a key feature in 
encouraging  investor  confidence.41 The ECB welcomes the disclosure obligations introduced into 
the draft law  but considers that the issuers should be obliged to include further information in their 
reports.42 This could include in addition various levels of overcollateralisation, separate lists of 
international securities identification numbers (ISINs) for cover ed bonds issued, loan- to-value 
distributions and the valuation and indexation method, an overview of transaction parties and in 
addition a glossary with definitions . In addition,  the disclosure standards are still evolving in the 
Union and it is important to ensure that the level of disclosure remains sufficient over time  and in 
keeping with market practices . This requires that  the national authorities monitor the type and level 
of detail of information that must be disclosed as a minimum requirement. To enable flexible 
amendments to these provisions of the draft law , the Estonian legislat ure could consider 
introducing a right for an appropriate national body to modify the specific scope of disclosure 
obligations , for example by authorising such a body to issue a disclosure template in the form of a 
delegated regulation under the draft law . 
3.16 The draft law envis ages  the adoption of several delegated regulations which have not been 
provided to the ECB . These includes regulations on (i) maintaining the covered bonds register; (ii) 
the calculation of the present value of collateral assets; (iii) the methodology of s tress testing the 
covered bond portfolios ; and (iv) the additional requirements relating to the independent value of 
real estate securing a mortgage loan, including the report ing, methodology and procedure for  
                                                 
40 See Section 45(8) of the draft law.  
41 See paragraph 4.3 of Opinion CON/2017/36.  
42 Section 55 of the draft law.  
ECB -PUBLIC  
10 valuation43. The use of delegated regulations would provide an effective means to ensure the 
flexibility of the  draft law  in this respect . The national authorities should remain mind ful of  regulatory 
developments in the Union when drafting such regulations . 
 
This opinion will be published on the ECB’s website.  
 
 
Done at Frankfurt am Main, 3 January  2019. 
 
[signed]  
 
The President of the ECB  
Mario DRAGHI  
                                                 
43 See Sections 11(9), 18(8), 22(3) and 28(2) of the draft law.