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/EU
Date: 2018-03-12
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union, European Commission
Subjects: bond, capital market, credit institution, financial legislation, financial supervision, investment, investment company, issue of securities, money-market liquidity, mortgage bank

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   EUROPEAN COMMISSION  Brussels, 12.3.2018  COM(2018) 94 final 2018/0043 (COD)  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/EU (Text with EEA relevance) {SWD(2018) 50} - {SWD(2018) 51}  
 
 
EXPLANATORY MEMORANDUM 

1. 

• 

CONTEXT OF THE PROPOSAL 

Reasons for and objectives of the proposal 

The  Commission  has  today  adopted  a  package  of  measures  to  deepen  the  Capital  Markets 
Union, together with the Communication "Completing Capital Markets Union by 2019 – time 
to accelerate delivery". The package includes this proposal, as well as a proposal to facilitate 
the  cross-border  distribution  of  investment  funds,  a  proposal  on  the  law  applicable  to  the 
third-party effects of assignments of claims and a Communication on the applicable law to the 
proprietary effects of transactions in securities. 

Covered  bonds  are  debt  obligations  issued  by  credit  institutions  and  secured  against  a 
ring-fenced pool of assets to which bondholders have direct recourse as preferred creditors. At 
the  same  time,  bondholders  remain  entitled  to  claim  against  the  issuing  entity  as  ordinary 
creditors. This  double claim against the cover pool  and the issuer is referred to as the ‘dual 
recourse’ mechanism. 

Covered  bonds  are  issued  by  credit  institutions  and  are  as  such  an  important  and  efficient 
source  of funding for European banks. They facilitate the financing of mortgage and public 
sector  loans,  thereby  supporting  lending  more  broadly.  A  significant  advantage  of  covered 
bonds compared with other kinds of bank funding sources such as asset-backed securities is 
the  fact  that  banks  retain  the  risk  on  their  balance  sheets  and  investors  have  claims  directly 
with  the  bank.  Therefore,  covered  bonds  allow  banks  to  lend  not  only  more,  but  also  more 
safely. Not least for that reason, covered bonds fared well during the financial crisis compared 
with  other  funding  instruments.  They  proved  to  be  a  reliable  and  stable  funding  source  for 
European banks at a time when other funding channels were drying up. 

An enabling framework for covered bonds at EU level would enhance their use as a stable and 
cost-effective  source  of  funding  for  credit  institutions,  especially  where  markets  are  less 
developed, in order to help finance the real economy in line with the objectives of the Capital 
Markets Union  (CMU). The enabling framework  would also provide investors with a wider 
and  safer  range  of  investment  opportunities  and  would  help  preserve  financial  stability. 
Member  States  will  have  to  transpose  these  rules,  ensuring  that  national  covered  bond 
frameworks  comply  with  the  principles-based  requirements  set  out  in  this  proposal.  All 
covered  bonds  across  Europe  will  therefore  have  to  respect  the  minimum  harmonisation 
requirements as set out in this proposal. 

The enabling framework for covered bonds is featured in the Commission Work Programme 
for  20181.  In  the  letter  of  intent  following  up  his  latest  State  of  the  Union  speech,  the 
President  of  the  European  Commission  confirmed  that  an  enabling  framework  for  covered 
bonds  should  be  launched  or  completed  by  end-2018  to  ensure  a  deeper  and  fairer  internal 
market.2  The  Commission  confirmed  this  intention  in  the  Mid-Term  Review  of  the  CMU 
Action Plan of June 20173.  

The  development  of  covered  bonds  across  the  single  market  is  uneven;  they  are  very 
important  in  some  Member  States,  less  so  in  others.  Furthermore,  they  are  only  partially 
addressed  in  Union  law.  While  they  benefit  from  preferential  prudential  and  regulatory 

1 
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COM(2017) 650. 
European Commission (2017). "State of the Union 2017: Letter of intent to President Antonio Tajani 
and to Prime Minister Jüri Ratas". 
COM(2017) 292. 

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treatment in various respects in the light of the lower risks (e.g. banks investing in them do 
not have to set aside as much regulatory capital as when they invest in other assets), Union 
law  does  not  comprehensively  address  what  actually  constitutes  a  covered  bond.  Rather, 
preferential  treatments  are  granted  to  covered  bonds  as  defined  in  Directive 2009/65/EC4. 
However,  that  definition  was  drafted  with  a  specific  purpose  in  mind  –  limiting  what 
undertakings for collective investment in transferable securities (UCITS) could invest in – and 
is not fit for the broader policy objectives of the CMU. 

A  Union  legislative  framework  on  covered  bonds  should  expand  the  capacity  of  credit 
institutions  to  provide  financing  to  the  real  economy  and  contribute  to  the  development  of 
covered  bonds  across  the  Union,  particularly  in  Member  States  where  no  market  for  them 
currently exists. 

The  framework  would  also  increase  cross-border  flows  of  capital  and  investment.  It  would 
thus  contribute  to  the  CMU  and  in  particular  to  the  further  leveraging  of  credit  institution's 
capacity to support the wider economy. In particular, it would ensure that banks have a broad 
range of safe and efficient funding tools at their disposal. 

The framework consists of a Directive and a Regulation – the two instruments should be seen 
as a single package. 

This  proposed  Directive  will  specify  the  core  elements  of  covered  bonds  and  provide  a 
common definition as a consistent and sufficiently detailed point of reference for prudential 
regulation purposes, applicable across financial sectors. It will establish the structural features 
of  the  instrument,  a  covered  bond  specific  public  supervision,  rules  allowing  use  of  the 
‘European  Covered  Bonds’  label  and  competent  authorities’  publication  obligations  in  the 
field of covered bonds. 

The  proposed  Regulation  will  mainly  amend  Article 129  of  Regulation  (EU)  No 575/2013 
(Capital  Requirements  Regulation  (CRR)).  The  amendments  build  on  the  current  prudential 
treatment  but  add  requirements  on  minimum  overcollateralisation  and  substitution  assets. 
They would strengthen the requirements for covered bonds being granted preferential capital 
treatment. 

• 

Consistency with existing policy provisions in the policy area 

The proposal is part of ongoing work to ensure that covered bonds are of sufficient quality to 
justify their continuing preferential treatment. 

It  builds  on  ongoing  work  by  the  European  Banking  Authority  (EBA)  to  identify  best 
practices as regards the issuance of covered bonds5. That work is a response to the European 
Systemic Risk Board (ESRB) recommendation that best practices be identified and monitored 
so as to ensure robust and consistent frameworks for covered bonds across the Union6. 

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Directive  2009/65/EC  of  the  European  Parliament  and  of  the  Council  of  13  July  2009  on  the 
coordination  of  laws,  regulations  and  administrative  provisions  relating  to  undertakings  for  collective 
investment in transferable securities (UCITS) (OJ L 302, 17.11.2009, p. 32). 
Report on EU covered bond frameworks and capital treatment, EBA (2014); 
Report  on  covered  bonds  —  recommendations  on  harmonisation  of  covered  bond  frameworks  in  the 
EU, EBA (2016). 
Recommendation of 20 December 2012 on the funding of credit institutions, European Systemic Risk 
Board (ESRB/2012/2) (2013/C 119/01). 

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• 

Consistency with other Union policies 

One  of  the  Commission’s  most  important  objectives  is  to  stimulate  investment  and  create 
jobs. The Commission has launched a number of initiatives to ensure that the financial system 
contributes  fully  in  that  respect.  First  among  those  is  the  CMU,  which  involves  a  series  of 
initiatives  to  unlock  funding  for  Europe’s  growth.  Covered  bonds  should  be  seen  in  the 
context of the CMU, as bank financing is currently by far the most important funding channel 
in Europe and one of the CMU actions is to leverage banking capacity further in support of 
the  wider  economy.  Covered  bonds  represent  an  efficient  and  stable  funding  tool  for 
European banks. A legislative framework to harmonise covered bonds should be seen in this 
broader policy context. 

Another  important  Commission  objective in  the  realm  of  financial  markets  is  to  ensure that 
capital requirements for banks reflect the risks attached to the assets in their balance sheets. 
Accordingly, the CRR requirements ensure that covered bonds granted  the most preferential 
treatment  have  a  uniformly  high  level  of  investor  protection.  However,  because  Union  law 
does  not  comprehensively  address  what  actually  constitutes  a  covered  bond  (see  above), 
harmonisation  is  needed  to  ensure  that  covered  bonds  have  similar  structural  characteristics 
across  the  Union  that  make  them  coherent  with  the  relevant  prudential  requirements.  The 
harmonisation of covered bonds is therefore in line with  the Commission’s aim of financial 
stability, as pursued in its regulation of financial markets. 

2. 

• 

LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY 

Legal basis 

The  Treaty  on  the  Functioning  of  the  European  Union  (TFEU)  authorises  the  European 
institutions to lay down appropriate provisions that have as their objective the establishment 
and functioning of the internal market (Article 114 TFEU). This extends to legislation dealing 
with  the  functioning  of  covered  bond  markets  as  part  of  the  general  legislation  on  the 
functioning of financial markets. 

• 

Subsidiarity (for non-exclusive competence) 

Because the structural features of covered bonds are currently determined mainly at national 
level, their preferential treatment under Union law is effectively granted to different types of 
product. EU action is needed to establish a common framework for covered bonds across the 
Union, ensuring that their structural characteristics are aligned with the risk features justifying 
Union preferential treatment. EU action to establish a common framework is also necessary to 
develop covered bond markets across the Union and support cross-border investments in the 
light of the objectives of the CMU. 

• 

Proportionality 

As  outlined  in  the  accompanying  impact  assessment,  the  preferred  option  (minimum 
harmonisation  based  on  national  regimes)  should  make  it  possible  to  achieve  most  of  the 
objectives of this initiative at reasonable cost. The option balances the flexibility necessary to 
accommodate  Member  States’  specificities  with  the  uniformity  necessary  for  coherence  at 
Union level. It will be effective in achieving the objectives, while at the same time minimising 
disruption and transition costs. A fundamental aim of the approach in this package is to avoid 
disrupting  well-functioning  and  mature  national  markets  while  incentivising  a  wider  use  of 
covered  bonds.  The  proposal  includes  provisions  on  the  grandfathering  of  existing  covered 

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bonds  in  order  to  smooth  costs  for  their  issuers  and  for  markets.  As  the  impact  assessment 
shows, expected costs can be deemed proportionate in relation to expected benefits. 

• 

Choice of instrument 

A  directive  is  an  appropriate  instrument  to  establish  a  harmonised  legal  framework  for 
covered bonds at EU level. This Directive is principles-based, keeping detailed provisions to 
the minimum required to ensure that a set of common basic structural rules applies across the 
single market. Member States will have a degree of freedom in formulating their own laws to 
transpose the principles set out in the Directive. 

3. 

• 

RESULTS 
CONSULTATIONS AND IMPACT ASSESSMENTS 

EX-POST 

EVALUATIONS, 

OF 

STAKEHOLDER 

Ex-post evaluations/fitness checks of existing legislation 

This  initiative  on  covered  bonds  relates  to  an  area  which  is largely  not  addressed  by  Union 
legislation currently. 

Stakeholder consultations 

The Commission consulted stakeholders at several points in the preparation of this proposal, 
in particular by means of:  

i) 

ii) 

an open public consultation on covered bonds (September 2015 to 6 January 2016); 

publication of an inception impact assessment (9 June 2017);  

two meetings of the Expert Group on Banking, Payments and Insurance (EGBPI) and 

iii) 
one meeting of the Financial Services Committee (FSC). 

Under  the  CMU  action  plan,  the  purpose  of  the  public  consultation  was  to  evaluate 
weaknesses and vulnerabilities in national covered bond markets and to assess the merits of a 
European framework. While respondents were concerned that harmonisation based on a ‘one 
size  fits  all’  approach  could  impair  well-functioning  markets  and  reduce  flexibility  and  the 
range  of  products  on  offer,  they  also  expressed  cautious  support  for  targeted  EU  action, 
provided  that  harmonisation  is  principles-based,  builds  on  existing  frameworks  and  takes 
account of the specificities of national markets. The results of the consultation were discussed 
at a public hearing on 1 February 20167. 

The  Commission  received  four  responses  on  the  inception  impact  assessment,  all  of  which 
supported the EU legislative initiative. The respondents addressed specific aspects of national 
frameworks (e.g. liquidity) and confirmed the general view in favour of harmonisation while 
not jeopardising well-functioning national systems. 

At the first EGBPI meeting (9 June 2017), the majority of Member States expressed support 
for a Union covered bond framework based on the EBA’s 2016 advice, provided it remains 
principles-based.  At  the  second  meeting  (28  September  2017),  the  discussion  was  more 
detailed, but in  general Member States  still supported a principles-based approach. Member 
States expressed similar views at the FSC meeting in July 2017. 

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http://ec.europa.eu/finance/consultations/2015/covered-bonds/index_en.htm  

consultation 

results 

public 

can 

the 

of 

be 

found 

here: 

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The proposal also builds on further meetings with stakeholders and EU institutions. In general 
(while  tending  to  focus  on  the  aspect  most  relevant  for  their  situation),  stakeholders 
concentrated  on  balancing  the  need  to  change  the  existing  framework  so  as  to  address 
prudential concerns with the wish to avoid disrupting well-functioning national systems. Input 
focusing on prudential concerns relating to the preferential treatment of covered bonds came 
mainly from the ESRB, the EBA and the European Central Bank, and to some extent from the 
competent  authorities  in  the  Member  States  with  well-developed  covered  bond  markets  and 
from rating agencies, while the focus on well-functioning national markets came mainly from 
Member States with well-developed covered bond markets, from issuers and from investors. 

The  European  Parliament  has  also  expressed  support  for  action,  calling  for  a  European 
legislative framework on covered bonds8. 

• 

Collection and use of expertise 

On  1  July  2014,  the  EBA  issued  a report  identifying  best  practices  with  a  view  to  ensuring 
robust  and  consistent  frameworks  for  covered  bonds  across  the  Union9.  The  report  was  in 
response to a December 2012 ESRB recommendation on the funding of credit institutions10. It 
also set out the EBA’s opinion on the adequacy of the current prudential treatment of covered 
bonds,  following  the  Commission’s  call  for  advice  in  December  2013  on  the  basis  of 
Article 503 CRR11. 

As a follow-up, the ESRB recommended that the EBA monitor the functioning of the covered 
bonds  market  by  reference  to  the  best  practices  it  had  identified  and  called  on  the  EBA  to 
recommend further action if necessary. 

In  response,  the  EBA  issued  a  Report  on  covered  bonds  —  recommendations  on  the 
harmonisation  of  covered  bond  frameworks  in  the  EU  in  December  2016.  This  includes  a 
comprehensive  analysis  of  regulatory  developments  in  covered  bond  frameworks  in 
individual  Member  States,  with  a  particular  focus  on  the  level  of  alignment  with  the  best 
practices  identified  in  the  previous  report.  Building  on  the  results  of  the  analysis,  the  EBA 
called for legislative action to harmonise covered bonds at Union level. 

This proposal builds on the EBA’s analysis and advice. It deviates only in minor areas, e.g. as 
regards  the  level  of  detail  concerning  derivatives  belonging  to  the  cover  pool;  in  the  cover 
pool monitor not being mandatory; and, in the level of overcollateralisation. 

In  August  2016,  the  Commission  had  commissioned  a  study  from  ICF12  to  assess  the 
performance  of  current  covered  bond  markets  and  the  costs  and  benefits  of  potential  EU 
action.  The  study,  which  was  published  in  May  2017,  looked  at  the  potential  benefits  and 
costs  of  the  EBA’s  recommendations.  Overall,  it  concluded  that  the  potential  benefits  of  a 
legislative  initiative  outweighed  the  potential  costs  and  there  was  therefore  a  case  for 
legislative action. 

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Resolution  of  4  July  2017  on  the  report  Towards  a  pan-European  covered  bonds  framework 
(2017/2005(INI)). 
Report on EU covered bond frameworks and capital treatment, EBA (2014). 
Recommendation  of  20  December  2012  on  funding  of  credit  institutions,  European  Systemic  Risk 
Board (ESRB/2012/2) (2013/C 119/01). 
Call to EBA for advice on covered bonds capital requirements, ref. Ares(2013) 3780921 (20.12.2013). 
Covered bonds in the European Union: harmonisation of legal frameworks and market behaviours, ICF 
(2017). 

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In  December  2017,  the  Basel  Committee  on  Banking  Supervision  (BCBS)  finalised  the 
outstanding post-crisis regulatory reforms of the Basel III international regulatory framework 
for banks13. As part of the reforms, the BCBS revised the standardised approach on credit risk 
by including, inter alia, new standards on exposures to covered bonds. For the first time, the 
new standards largely replicate at international level the EU’s approach in the CRR, allowing 
covered bond exposures to benefit from lower risk weights subject to certain conditions. It is 
thus recognised that the EU’s treatment of covered bonds is prudentially viable and justified 
by the underlying characteristics of the instrument. 

• 

Impact assessment 

This  proposal  is  accompanied  by  an  impact  assessment,  which  was  submitted  to  the 
Regulatory Scrutiny Board (RSB) on 6 October 2017  and approved on 17 November 201714. 

The RSB commended the comprehensive and well-structured nature of the impact assessment 
and  acknowledged  that  it  applies  its  intervention  logic  systematically  and  contains  a  high 
degree of quantification to substantiate its findings. The RSB recommended that the report be 
improved in some limited respects:  

a) 

the reasons for considering a ‘29th regime’ unattractive; 

and  

greater  clarity  on  the  main  elements  of  the  ‘minimum  harmonisation’  approach,  and 
b) 
whether  (and  how)  they  deviate  from  the  EBA  advice  (Annex  6  has  been  added  for  this 
purpose). 

The impact assessment has been amended accordingly, also addressing additional suggestions 
of the RSB:  

i) 

ii) 

a more detailed explanation concerning the European secured note (ESN);  

a more detailed reasoning of the advantages of issuing covered bonds;  

a  more  thorough  analysis  of  the  impact  of  regulatory  harmonisation  on  cross-border 

iii) 
trade (issuance, investing) in covered bonds; 

iv) 

a discarded option restricted to adjusting the prudential treatment of covered bonds;  

a  more  comprehensive  explanation  of  the  ‘pass-through  effect’  assessed  in  financial 

v) 
literature; and  

vi) 

a table showing the links between monitoring activity and the benchmark benefits. 

The Commission considered a number of policy options for developing covered bond markets 
and  addressing  prudential  concerns.  These  differ  in  terms  of  the  degree  of  harmonisation, 
ranging from a non-regulatory option to options involving full harmonisation, as follows: 

 

 

 

 

 

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Baseline: Do nothing; 

option 1: Non-regulatory option; 

option 2: Minimum harmonisation based on national regimes; 

option 3: Full harmonisation replacing national regimes; and 

option 4: ‘29th regime’ operating in parallel with national regimes. 

Basel III: finalising post-crisis reforms, Basel Committee on Banking Supervision (7.12.2017). 
SWD(2018) 51 and SWD(2018) 50 

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Option 1 (non-regulatory) was considered ineffective in achieving the objectives, as there is 
no  guarantee  that  Member  States  would  follow  the  best  practices.  Option 3  (full 
harmonisation)  would  probably  achieve 
the  objectives,  but  could  disrupt  existing 
well-functioning  markets.  Option 4  (‘29th  regime’  meaning  a  fully  integrated  regime  for 
issuers on a voluntary basis as an alternative to national laws on covered bonds, not requiring 
amendments  to  existing  national  laws)  depends  on  industry  take-up  to  be  effective. 
Consultations  suggest  that  such  take-up  is  unlikely;  this  would  undermine  the  chances  of 
achieving  the  stated  objectives.  Also,  a  parallel  regime  would  contribute  to  further 
fragmentation and duplication of costs. 

The retained option is option 2 (minimum harmonisation based on national regimes). It builds 
on the recommendations in the 2016 EBA report, except for some limited deviations (in line 
with strong calls from stakeholders during the consultations, some provisions are less detailed 
than  suggested  in  the  report  to  leave  more  scope  for  protecting  existing  well-functioning 
national systems). The deviations do not affect the core structural features of covered bonds 
nor their supervision. The retained option achieves most of the objectives of the initiative at 
reasonable  cost.  It  also  balances  the  flexibility  necessary  to  accommodate  Member  States’ 
specificities with the uniformity necessary for coherence at Union level. It is likely to be the 
most  effective  in  achieving  the  objectives,  while  at  the  same  time  being  efficient  and 
minimising  disruption  and  transition  costs.  It  is  also  one  of  the  more  ambitious  options  in 
regulatory terms, while enjoying the most support from stakeholders. 

Implementing  this  option  would  stimulate  the  development  of  covered  bond  markets  where 
they  do  not exist  or  are underdeveloped.  It  would  also lower  issuers’  funding  costs, help  to 
diversify  the  investor  base,  facilitate  cross-border  investments  and attract  non-EU  investors. 
Overall, it would reduce borrowing costs. 

The option would address prudential concerns, including in relation to market innovation, and 
secure  the  prudential  benefit  of  aligning  the  structural  characteristics  of  the  product  with 
preferential  prudential  treatment  at  Union  level.  It  would  strengthen  the  protection  of 
investors and its credit-enhancing features would reduce their due diligence costs. 

One-off  and  recurrent  direct  administrative  costs  under  the  preferred  option  are  expected  to 
increase  for  issuers  in  low-cost  jurisdictions  (see  impact  assessment).  Costs  would  also 
increase  for  supervisors.  At  the  same  time,  issuers  would  benefit  from  lower  funding  costs 
and  in  turn  citizens  would  enjoy  lower  borrowing  costs.  Costs  would  not  increase  for 
investors, given the lower due diligence costs. 

• 

Regulatory fitness and simplification 

The  package  on  covered  bonds,  in  particular  this  Directive,  aims  at  harmonising  an  area 
currently regulated mainly at national level. The minimum harmonisation in the Directive will 
bring simplification in terms of basic alignment of core elements of national regimes.  

• 

Fundamental rights 

The EU is  committed to high  standards of protection  of fundamental rights.  In  this context, 
the proposal is  not  likely to  have  a  direct impact on those rights,  as  listed in  the Charter  of 
Fundamental Rights of the European Union. 

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4. 

BUDGETARY IMPLICATIONS 

The proposal will have no implications for the budget of the Union. 

5. 

• 

OTHER ELEMENTS 

Implementation plans and monitoring, evaluation and reporting arrangements 

Five  years  after  the  transposition  deadline  and  in  close  cooperation  with  the  EBA,  the 
Commission  is  to  carry  out  an  evaluation  of  the  Directive  and  report  to  the  European 
Parliament,  the  Council  and  the  European  Economic  and  Social  Committee  on  its  main 
findings. The evaluation is to be conducted in line with the Commission’s Better Regulation 
Guidelines. 

Member States would regularly monitor application of the Directive on the basis of a number 
of  indicators  (e.g.  type  of  issuer,  number  of  permissions,  type  of  eligible  assets,  level  of 
overcollateralisation; issuance with extendable maturity structures). 

• 

Detailed explanation of the specific provisions of the proposal 

Subject matter, scope and definitions 

The  Directive  defines  covered  bonds  as  debt  obligations  issued  by  credit  institutions  and 
secured  against  a  ring-fenced  pool  of  assets  to  which  bondholders  have  direct  recourse  as 
preferred  creditors.  Covered  bonds  are  traditionally  issued  by  credit  institutions.  The 
Directive,  in  continuity  with  this  tradition,  only  allows  credit  institutions  to  issue  covered 
bonds. This is coherent with the inherent nature of the instrument which is to provide funding 
for  loans,  and  granting  loans  on  a  large  scale  is  a  credit  institution's  business.  In  addition, 
credit institutions have the necessary knowledge and management capability of credit risk in 
relation  to  the  loans  in  the  cover  pool  and  they  are  subject  to  sound  capital  requirements 
which  contribute  to  underpin  the  investor  protection  as  laid  down  in  the  dual  recourse 
mechanism.  

Issuers complying with this Directive may use the ‘European covered bonds’ label, which can 
be used together with specific national labels. 

Structural features of covered bonds 

This  section  envisages  a  more  articulated  series  of  structural  requirements  than  those  in  the 
UCITS  Directive  and  should  help  to  improve  the  quality  of  EU  covered  bonds.  More 
specifically: 

– 

– 

– 

dual recourse gives investors a double claim on both the issuer of covered bonds and 
the assets in the cover pool; 

bankruptcy  remoteness  means  that  covered  bonds’  maturity  cannot  be  shortened 
automatically upon the issuer’s insolvency or resolution. It is important to ensure that 
investors are repaid in line with the contractual schedule even in the event of default. 
Bankruptcy  remoteness  is  directly  linked  to  the  dual  recourse  mechanism  and  is  a 
core feature of the covered bond framework; 

the Directive contains provisions to ensure the quality of the cover pool, in particular 
ensuring  that  only  high-quality  assets  are  used  as  collateral.  There  are  related 
provisions on the segregation and location of cover assets, the uniformity of assets, 

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ensuring that assets located outside the EU present the same quality characteristics as 
those  in  the  EU,  ensuring  that  derivative  contracts  are  used  only  for  hedging 
purposes in relation to the cover pool, and the functioning of a cover pool monitor. 
Lastly, covered bond liabilities must be covered by cover assets at all times; 

as  covered bonds are  issued  mainly by large banks,  their benefits  are often beyond 
the reach of smaller institutions. The Directive allows issuers to pool cover assets by 
several  credit  institutions  under  certain  conditions.  This  is  intended  to  encourage 
issuance by smaller institutions and give them access to covered bonds funding; 

market developments in the area of covered bonds include new liquidity structures to 
address liquidity and maturity mismatches. In view of the increased use of covered 
bonds  allowing  for  extensions  of  the  maturity  and  the  fact  that  such  structures 
mitigate  default  risk,  the  Directive  regulates  the  structures  to  ensure  they  are  not 
unnecessarily complex or opaque and do not change the structural characteristics of 
covered bonds, exposing investors to increased risks; 

to address liquidity risk, the Directive lays down requirements for a liquidity buffer 
specifically  related  to  the  cover  pool,  complementing  the  prudential  liquidity 
requirements in other relevant pieces of EU financial legislation;  

the  Directive  frames  the  possibility  for  Member  States  to  require  a  cover  pool 
monitor.  The  existence  of  a  cover  pool  monitor  should  be  without  prejudice  of  the 
responsibilities  of  the  competent  authorities  as  regards  the  performance  of  the 
specific public supervision set forth by this Directive; and 

the Directive contains transparency requirements that build on initiatives by national 
legislators and market participants to disclose information to covered bond investors. 
These will ensure a uniform level of disclosure and allow investors to assess the risk 
of covered bonds. 

– 

– 

– 

– 

– 

Covered bond public supervision 

Covered bond public supervision is a core feature of many national covered bond frameworks 
and  is  specifically  meant  to  protect  investors.  This  Directive  harmonises  the  components  of 
such  supervision  and  specifies  the  tasks  and  responsibilities  of  the  national  competent 
authorities performing it. Given the scope of this directive and considering that this specific 
covered  bond  supervision  is  a  product  supervision  distinct  from  general  supervision  of  e.g. 
prudential nature, Member States should be able to appoint different competent authorities. In 
such cases, the Directive requires that the competent authorities cooperate closely. 

In order to guarantee compliance with the Directive, Member States are required to provide 
for administrative penalties and other administrative measures that are effective, proportionate 
and dissuasive, and enforced by competent authorities. The penalties and measures are subject 
to  basic  requirements  as  regards  addressees,  criteria  to  be  taken  into  account  in  their 
application, publication, key powers to impose penalties, and penalty levels. 

Labelling 

Covered bonds are often marketed in the Union under national denominations and labels. This 
Directive allows credit institutions to use the specific 'European Covered Bonds' label when 
issuing covered bonds. The use of the label would make it easier for investors to assess the 
quality of the covered bonds. It should however be facultative and Member States should be 
able to keep their own national denominations and labelling framework in place in parallel to 

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the 'European Covered Bonds' label, provided that these comply with the requirements set out 
in this Directive.  

Relationship with the resolution framework  

This  Directive  is  not  intended  to  harmonise  national  insolvency  regimes  nor  change  the 
treatment  of  covered  bonds  in  cases  of  resolution  under  Directive 2014/59/EU  (Bank 
Recovery  and  Resolution  Directive  (BRRD))15.  Rather,  it  establishes  general  principles 
governing the administration of covered bond programmes in cases of insolvency/resolution 
of the issuer. In the resolution of a credit institution, the BRRD allows the resolution authority 
to exercise control over the institution, in particular by managing and disposing of its assets 
and property, including its covered bond programme. Such tasks may be exercised directly by 
the resolution authority or indirectly by a special manager or by another person appointed by 
the resolution authority. This Directive does not change the treatment of covered bonds under 
BRRD which excludes covered bonds from the application of the bail-in tool up to the level 
of  the  collateral  in  the  cover  pool  as  laid  down  in  third  subparagraph  of  Article  44(2)  of 
BRRD. Derivative contracts included in the cover pool also serve as collateral and cannot be 
terminated  upon  the  issuer’s  insolvency  or  resolution  in  order  to  ensure  that  the  cover  pool 
remains unaffected, segregated and with enough funding. BRRD also includes safeguards to 
prevent  the  splitting  of  linked  liabilities,  rights  and  contracts  and  it  restricts  those  practices 
that  are  related  to  contracts  with  the  same  counterparty  covered  by  security  arrangements, 
including covered bonds. Where the safeguard applies, resolution authorities should be bound 
to  transfer  all  linked  contracts  within  a  protected  arrangement,  or  leave  them  all  with  the 
residual failing institution.  

Third-country regime 

There is currently no general third-country regime for covered bonds in Union law. However, 
Commission  Delegated  Regulation  (EU)  2015/61  (Delegated  Regulation  on  Liquidity 
Coverage Requirement, LCR)16 allows for the preferential treatment of foreign covered bonds 
complying with specific equivalence rules for the purpose of determining the liquidity buffer. 
The scope of the equivalence is very restricted, as it concerns the calculation of only a limited 
part of the liquidity buffer. 

This  Directive  provides  for  the  Commission,  in  close  cooperation  with  the  EBA,  to  assess 
whether a general equivalence regime for third-country covered bond issuers and investors is 
necessary or appropriate. 

Amendments of other Directives 

This  Directive  will  replace  the  definition  of  covered  bonds  in  Article  52(4)  of  the  UCITS 
Directive  and  become  the  single  point  of  reference  for  all  Union  legislation  relating  to 
covered  bonds.  The  definition  in  the  UCITS  Directive  should  therefore  be  deleted  and 
replaced  with  a  reference  to  the  definition  in  this  Directive.  Similarly,  references  in  other 

15 

16 

Directive 2014/59/EU of the European Parliament and of the Council of the 15 May 2014 establishing a 
framework  for  the  recovery  and  resolution  of  credit  institutions  and  investment  firms  and  amending 
Council  Directive  82/891/EEC,  and  Directives  2001/24/EC,  2002/47/EC,  2004/25/EC,  2005/56/EC, 
2007/36/EC, 2011/35/EU, 2012/30/EU and 2013/36/EU, and Regulations (EU) No 1093/2010 and (EU) 
No 648/2012, of the European Parliament and of the Council (OJ L 173, 12.6.2014, p. 190). 
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). 

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directives  to  the  UCITS  Directive’s  definition  should  be  replaced  with  a  reference  to  this 
Directive.

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2018/0043 (COD) 

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/EU 

(Text with EEA relevance) 

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Article 53 and114 thereof, 

Having regard to the proposal from the European Commission, 

After transmission of the draft legislative act to the national parliaments, 
Having regard to the opinion of the European Central Bank1, 
Having regard to the opinion of the European Economic and Social Committee2, 

Acting in accordance with the ordinary legislative procedure, 

Whereas: 

(1) 

Article 52(4) of Directive 2009/65/EC of the European Parliament and of the Council3 
provides  for  very  general  requirements  relating  to  the  structural  elements  of  covered 
bonds. Those requirements are limited to the need for covered bonds to be issued by a 
credit institution which has its registered office in a Member State and to be subject to 
a special public supervision as well as a dual recourse mechanism. National covered 
bond  frameworks  address  these  issues  while  regulating  them  in  much  greater  detail. 
Those national frameworks also contain other structural provisions, in particular rules 
regarding  the  composition  of  the  cover  pool,  the  eligibility  criteria  of  assets,  the 
possibility to pool assets, the transparency and reporting obligations, and the rules on 
liquidity  risk  mitigation.  Member  State  approaches  to  regulation  also  differ  on 
substance.  In  several  Member  States,  there  is  no  dedicated  national  framework  for 
covered  bonds.  As  a  consequence,  the  key  structural  elements  that  covered  bonds 
issued in the Union are to comply with are not yet set out in Union law.  

(2) 

Article  129  of  Regulation  (EU)  No  575/2013  of  the  European  Parliament  and  of  the 
Council4  adds  further  conditions  to  those  referred  to  in  Article  52(4)  of  Directive 
2009/65/EC  in  order  to  obtain  preferential  prudential  treatment  as  regards  capital 
requirements  which  allow  credit  institutions  investing  in  covered  bonds  to  hold  less 

1 
2 
3 

4 

OJ C , , p. . 
OJ C , , p. . 
Directive  2009/65/EC  of  the  European  Parliament  and  of  the  Council  of  13  July  2009  on  the 
coordination  of  laws,  regulations  and  administrative  provisions  relating  to  undertakings  for  collective 
investment in transferable securities (UCITS) (OJ L 302, 17.11.2009, p. 32). 
Regulation  (EU)  No  575/2013  of  the  European  Parliament  and  of  the  Council  of  26  June  2013  on 
prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 
648/2012 (OJ L 176, 27.6.2013, p. 1). 

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capital  than  when  investing  in  other  assets.  Whereas  those  additional  requirements 
increase the level of harmonisation of covered bonds within the Union, they serve the 
specific  purpose  to  define  the  conditions  to  receive  such  preferential  treatment  for 
covered  bond  investors,  and  are  not  applicable  outside  the  framework  of  Regulation 
(EU) No 575/2013.  

Other  pieces  of  Union  law,  including  Commission  Delegated  Regulation  (EU) 
2015/615,  Commission  Delegated  Regulation 
(EU)  2015/356  and  Directive 
2014/59/EU  of  the  European  Parliament  and  of  the  Council7,  also  refer  to  the 
definition  set  out  in  Directive  2009/65/EC  as  a  reference  for  identifying  the  covered 
bonds  that  may  benefit  from  the  preferential  treatment  those  acts  put  in  place  for 
covered bond investors. However the wording of those acts differs according to their 
purposes  and  subject-matters  and  therefore  there  is  no  consistent  use  of  the  term 
'covered bonds'. 

The treatment of covered bonds can be considered as overall harmonised regarding the 
conditions for investing in covered bonds.  There is however  a lack of harmonisation 
across the Union regarding the conditions for the issue of covered bonds and this has 
several consequences. Firstly, preferential treatment is granted equally to instruments 
which can differ in nature and their level of risk and investor protection. Secondly, the 
existence of different national frameworks or the absence thereof, creates obstacles to 
the  development  of  a  truly  integrated  single  market  for  covered  bonds  based  on  a 
commonly  agreed  definition  which  would  ensure  an  appropriate  level  of  investor 
protection.  Thirdly,  the  differences  in  the  safeguards  provided  by  national  rules  can 
create risk to of financial stability where covered bonds, presenting different level of 
investor protection, can be purchased as such across the Union and can benefit from 
preferential prudential treatment under Regulation (EU) No 575/2013 and other Union 
legislation. 

It is therefore necessary to harmonise national regimes in order to ensure a smooth and 
continuous development of  well-functioning covered bond markets in  the Union and 
to  limit  potential  risks  and  vulnerabilities  to  financial  stability.  This  principle-based 
harmonisation shall establish a common baseline for the issue of all covered bonds in 
the  Union.  Harmonisation  requires  all  Member  States  to  establish  covered  bond 
frameworks,  which  should  also  help  facilitate  the  development  of  covered  bonds 
markets in those Member States where there is not currently one. Such a market would 
provide a stable funding source for credit institutions that would on that basis be better 
placed to provide affordable mortgages for consumers and businesses and would make 
safer investments available to investors. 

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). 
Commission  Delegated  Regulation  (EU)  2015/35  of  10  October  2014  supplementing  Directive 
2009/138/EC  of  the  European  Parliament  and  of  the  Council  on  the  taking-up  and  pursuit  of  the 
business of Insurance and Reinsurance (Solvency II) (OJ L 12, 17.1.2015, p. 1). 
Directive 2014/59/EU of the European Parliament and of the Council of the 15 May 2014 establishing a 
framework  for  the  recovery  and  resolution  of  credit  institutions  and  investment  firms  and  amending 
Council  Directive  82/891/EEC,  and  Directives  2001/24/EC,  2002/47/EC,  2004/25/EC,  2005/56/EC, 
2007/36/EC, 2011/35/EU, 2012/30/EU and 2013/36/EU, and Regulations (EU) No 1093/2010 and (EU) 
No 648/2012, of the European Parliament and of the Council (OJ L 173, 12.6.2014, p. 190). 

(3) 

(4) 

(5) 

5 

6 

7 

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(6) 

(7) 

(8) 

(9) 

The  European  Systemic  Risk  Board  ('ESRB')  issued  a  recommendation8  inviting 
national competent authorities and the European Banking Authority ('EBA') to identify 
best  practices  regarding  covered  bonds  and  to  encourage  harmonisation  of  national 
frameworks.  It  also  recommends  that  EBA  coordinates  actions  taken  by  national 
supervisory authorities, particularly in relation to the quality and segregation of cover 
pools, bankruptcy remoteness of covered bonds, the asset and liability risks affecting 
cover  pools  and  disclosure  of  the  composition  of  cover  pools.  The  recommendation 
further  calls  on  EBA  to  monitor  the  functioning  of  the  market  for  covered  bonds  by 
reference to the best practices as identified by EBA for a period of two years, in order 
to assess the need for legislative action and to report such need to the ESRB and to the 
Commission. 

The Commission issued a call for advice to EBA in accordance with Article 503(1) of 
Regulation (EU) No 575/2013 in December 2013.  

In response to both the ESRB recommendation of 20 December 2012 and the call for 
advice from the Commission in December 2013, EBA issued a report on 1 July 20149. 
That  report  recommends  greater  convergence  of  national  legal,  regulatory  and 
supervisory  covered  bond  frameworks,  so  as  to  further  support  the  existence  of  a 
single preferential risk weight treatment to covered bonds in the Union. 

As envisaged by the ESRB, EBA further monitored the functioning of the market for 
covered  bonds  by  reference  to  the  best  practices  set  out  in  that  recommendation  for 
two  years.  On  that  basis,  EBA  delivered  a  second  report  on  covered  bonds  to  the 
ESRB,  to  the  Council  and  to  the  Commission  on  20  December  201610.  That  report 
concluded  that  further  harmonisation  would  be  necessary  to  ensure  more  consistent 
definitions and regulatory treatment of covered bonds in the Union. The report further 
concluded that harmonisation should build on the existing well-functioning markets in 
some Member States.  

(10)  Covered bonds are traditionally issued by credit institutions. The inherent nature of the 
instrument  is  to  provide  funding  for  loans  and  one  of  the  core  activities  of  credit 
institutions is to grant loans on a large scale. Accordingly, Union legislation granting 
preferential  treatment  to  covered  bonds  requires  them  to  be  issued  by  credit 
institutions. 

(11)  Reserving the issue of covered bonds to credit institutions ensures that the issuer has 
the  necessary  knowledge  to  manage  the  credit  risk  relating  to  the  loans  in  the  cover 
pool. It furthers ensures that the issuer is subject to capital requirements underpinning 
the  investor  protection  of  the  dual  recourse  mechanism,  which  grants  the  investor  a 
claim on both the covered bond issuer and the assets in the cover pool. Restricting the 
issue  of  covered  bonds  to  credit  institutions  therefore  ensures  that  covered  bonds 
remain  a  safe  and  efficient  funding  tool,  thereby  contributing  to  investor  protection 
and financial stability  ,  which  are  important  public  policy  objectives  in  the  general 
interest.  It  would  also  be  in  line  with  the  approach  of  well-functioning  national 
markets that only allow credit institutions to issue covered bonds. 

(12) 

It is therefore appropriate that only credit institutions as defined in Article 4(1)(1) of 
Regulation (EU) No 575/2013 should be able to issue covered bonds under Union law. 

8 

9 
10 

Recommendation  of  the  European  Systemic  Risk  Board  of  20  December  2012  on  funding  of  credit 
institutions (ESRB/2012/2) (2013/C 119/01). 
EBA Report on EU covered bond frameworks and capital treatment (2014). 
EBA  Report  on  covered  bonds  -  Recommendations  on  harmonisation  of  covered  bond  frameworks  in 
the EU (2016), EBA-Op-2016-23. 

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15 

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The  main  purpose  of  this  Directive  is  to  regulate  the  conditions  under  which  those 
credit  institutions  can  issue  covered  bonds  as  a  financing  tool  by  laying  down  the 
product requirements and specific product supervision they are subject to in order to 
ensure a high level of investor protection. 

(13)  The  existence  of  a  dual  recourse  mechanism  is  an  essential  concept  and  element  of 
many  existing  national  covered  bonds  frameworks  and  is  also  a  core  element  of 
covered bonds as referred to in Article 52(4) of Directive 2009/65/EC. It is therefore 
necessary to specify that concept so as to ensure that investors across the Union have a 
claim  on  both  the  covered  bond  issuer  and  the  assets  in  the  cover  pool  under 
harmonised conditions. 

(14)  Bankruptcy remoteness should also be an essential feature of covered bonds to ensure 
that  the  covered  bonds  investors  are  repaid  on  the  maturity  of  the  bond.  Automatic 
acceleration of repayment upon default of the issuer may disturb the ranking of those 
who  have  invested  in  covered  bonds  and  therefore  it  is  important  to  ensure  that 
covered  bonds  investors  be  repaid  in  accordance  with  the  contractual  schedule  and 
also  in  case  of  default.  Bankruptcy  remoteness  is  accordingly  directly  linked  to  the 
dual  recourse  mechanism  and  should  therefore  also  be  a  core  feature  of  the  covered 
bond framework. 

(15)  Another  core  feature  of  existing  national  covered  bond  frameworks  is  the  fact  that 
assets  serving  as  collateral  should  be  of  very  high  quality  in  order  to  ensure  the 
robustness of the cover pool. High quality assets are characterised by having specific 
features making them eligible to cover the claims attached to the covered bond. It is 
therefore appropriate to set out the general quality features that assets should respect in 
order  to  be eligible to  serve  as  collateral.  Assets  listed in  points (a)  to  (g)  of  Article 
129(1)  of  Regulation  (EU)  No  575/2013  should  be  considered  eligible  to  serve  as 
collateral  in  the  cover  pool,  within  a  covered  bond  framework,  as  should  loans 
involving  public  undertakings  as  defined  in  Article  2(b)  of  Commission  Directive 
2006/111/EC  but  also  other  assets  of  a  similar  high  quality  could  be  considered 
eligible  under  the  Directive,  provided  that  it  is  possible  to  determine  either  their 
market  value  or  mortgage  lending  value.  Furthermore,  the  Directive  should  include 
rules to ensure that assets, including guaranteed loans, can be repossessed or called in 
through  an  enforceable  protection  agreement,  whether  in  the  form  of  a  traditional 
mortgage  or  by  a  charge,  lien  or  guarantee  providing  the  same  level  of  legal 
protection,  and  thus  ensuring  the  same  level  of  safety  for  investors.  However,  those 
provisions on the eligibility of assets should not prevent Member States from allowing 
other categories of assets to serve as collateral in their national frameworks provided 
the assets comply with Union law. Member States should also be free to exclude assets 
in their national frameworks. 

(16)  Covered  bonds  have  specific  structural  features  that  aim  to  protect  investors  at  all 
times. Those features include the requirement that investors in covered bonds have a 
claim not only on the issuer but also on assets in a dedicated cover pool. To ensure that 
those assets are of good quality, specific requirements on the quality of assets that can 
be  included  in  the  pool  should  be  laid  down.  Those  structural  product  related 
requirements differ from the prudential requirements applicable to a credit institution 
issuing covered bonds. The former should not focus on ensuring the prudential health 
of  the  issuing  institution,  but  rather  aim  at  protecting  investors  by  imposing  specific 
requirements on the covered bond itself. In addition to the specific requirement to use 
high  quality  assets  in  the  cover  pool,  it  is  also  appropriate  to  regulate  the  general 
requirements of the features of the cover pool to further strengthen investor protection. 

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Those  requirements  should include specific rules aimed at protecting the cover  pool, 
including rules on the segregation (including by means of a Special Purpose Vehicle, 
an  SPV)  and  location  of  the  assets  in  the  cover  pool  to  ensure  the  fulfilment  of  the 
investor's  rights  including  in  case  of  resolution  or  insolvency  of  the  issuer.  It  is  also 
important to regulate the composition of the cover pool to ensure its homogeneity and 
facilitate  a  fair  risk  assessment  by  the  investor.  Furthermore,  requirements  for 
coverage should be defined in this Directive, without prejudice to the right of Member 
States to allow different means of mitigating e.g. currency and interest rate risks. The 
calculation of the coverage  and the conditions under which derivatives contracts  can 
be  included  in  the  cover  pool  should  also  be  defined  to  ensure  that  cover  pools  are 
subject to common high quality standards across the Union. 

(17)  A  number  of  Member  States  already  require  that  a  cover  pool  monitor  performs 
specific  tasks  regarding  the  quality  of  eligible  assets  and  ensures  compliance  with 
national  coverage  requirements.  It  is  therefore  important,  in  order  to  harmonise  the 
treatment of covered bonds across the Union, that the tasks and responsibilities of the 
cover  pool  monitor,  when  one  is  required  by  the  national  framework,  are  clearly 
defined. The existence of a cover pool monitor does not obviate the responsibilities of 
national competent authorities as regards special public supervision. 

(18)  Small  credit  institutions  face  difficulties  when  issuing  covered  bonds  as  the 
establishment of covered bond programmes often entails high upfront costs. Liquidity 
is also particularly important in covered bond markets and is largely determined by the 
volume of outstanding bonds. It is therefore appropriate to allow for joint funding by 
two or more credit institutions in order to enable the issue of covered bonds by smaller 
credit  institutions.  This  would  provide  for  the  pooling  of  assets  by  several  credit 
institutions  as  collateral  for  covered  bonds  issued  by  a  single  credit  institution  and 
would facilitate the issue of covered bonds in those Member States where there are not 
currently well-developed markets. It is important that the requirements for the use of 
joint funding agreements ensure that assets transferred to the issuing credit institutions 
meet  the  requirements  of  eligibility  of  assets  and  segregation  of  cover  assets  under 
Union law. 

(19)  Article  129  of  Regulation  (EU)  No  575/2013  sets  out  a  number  of  conditions  for 
covered  bonds  collateralised  by  securitisation  entities  to  be  met.  One  of  these 
conditions  concerns  the  extent  to  which  this  type  of  collateral  that  can  be  used  and 
limits the use of such structures to 10 or 15% of the amount of the outstanding covered 
bonds.  This  condition  may,  in  accordance  with  Regulation  (EU)  No  575/2013,  be 
waived by competent authorities. The Commission's review11 of the appropriateness of 
this waiver concluded that the possibility to use securitisation instruments or covered 
bonds as collateral for issuing covered bonds should only be allowed for other covered 
bonds  ('intragroup  pooled  covered  bond  structures')  but  should  be  allowed  without 
limits  by  reference  to  the  amount  of  outstanding  covered  bonds.  The  ability  to  pool 
covered bonds from different issuers as cover assets for intragroup funding purposes 
would  facilitate  the  development  of  the  issue  of  covered  bonds,  also  in  emerging 
markets and therefore it would be appropriate to introduce a framework for the use of 
these structures in Union law.  

(20)  Transparency of the cover pool securing the covered bond is an essential part of this 
type of financial instrument as it enhances comparability and allows investors perform 

11 

Report from the Commission to the European Parliament and the Council on Article 503 of Regulation 
(EU) No 575/2013 Capital requirement for covered bonds (COM/2015/0509 final). 

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the necessary risk evaluation. Directive 2003/71/EC12 of the European Parliament and 
of the Council includes rules on the  drawing up, the approval and the distribution of 
the prospectus to be published when securities are offered to the public or admitted to 
trading  on  a  regulated  market  situated  or  operating  within  a  Member  State.  Several 
initiatives  regarding  the  information  to  be  disclosed  to  covered  bond  investors  to 
supplement  Directive  2003/71/EC  have  been  developed  over  time  by  national 
legislators and market participants. It is however necessary to specify at Union level 
what the minimum common level of information investors should have access to prior 
to  or  when  buying  covered  bonds.  Member  States  should  be  allowed  to  supplement 
these minimum requirements with additional provisions. 

(21)  A core element in ensuring the protection of covered bond investors is mitigating the 
instrument’s  liquidity  risk.  That  is  crucial  for  ensuring  the  timely  repayment  of 
liabilities attached to the covered bond. Therefore it is appropriate to introduce a cover 
pool  liquidity  buffer  to  address  risks  of  liquidity  shortage,  such  as  mismatches  in 
maturities  and  interest  rates,  payment  interruptions,  commingling  risks,  derivatives 
and other operational liabilities falling due within the covered bond programme. The 
liquidity  buffer  for  the  cover  pool  differs  from  the  general  liquidity  requirements 
imposed on credit institutions in accordance with other acts of Union  law in that the 
former is directly related to the cover pool and seeks to mitigate liquidity risks specific 
to  it.  To  minimise  regulatory  burdens  Member  States  should  be  able  to  allow  an 
appropriate interaction with liquidity requirements established by other acts of Union 
or  national  law  and  serving  different  purposes  than  the  cover  pool  liquidity  buffer. 
Member States may therefore decide that the cover pool liquidity buffer requirement 
should  only  be  applicable  if  no  other  liquidity  requirement  is  imposed  on  the  credit 
institution  under  Union  or  national  law  during  the  period  covered  by  such  other 
requirements. 

(22) 

In a number of Member States, innovative structures for maturity profiles have been 
developed in order to address potential liquidity risks, including maturity mismatches. 
These  structures  include  the  possibility  to  extend  the  scheduled  maturity  of  the 
covered bond for a certain period of time or to allow the cash flows from the assets in 
the cover pool to pass directly to the covered bond holders. It is important in order to 
harmonise  extendable  maturity  structures  across  the  Union  that  the  conditions  under 
which Member States may allow these structures be defined to ensure that they are not 
too complex or expose investors to increased risks. 

(23)  The  existence  of  a  special  public  supervision  framework  is  an  element  defining 
covered  bonds  according  to  Article  52(4)  of  Directive  2009/65/EC.  However,  that 
Directive does not define the nature, content and authorities that should be responsible 
for performing such supervision. It is therefore essential that the constitutive elements 
of  such  covered  bond  public  supervision  are  harmonised  and  that  the  tasks  and 
responsibilities of the national competent authorities performing it are clearly set out. 

(24)  As  the  covered  bond  public  supervision  is  distinct  from  the  supervision  of  credit 
institutions in the Union, Member States should be able to appoint different national 
competent  authorities  to  perform  these  different  supervisory  roles  than  the  one 
performing  the  general  supervision  of  the  credit  institution.  However  in  order  to 
ensure  consistency  in  the  application  of  covered  bond  public  supervision  across  the 

12 

Directive  2003/71/EC  of  the  European  Parliament  and  of  the  Council  of  4  November  2003  on  the 
prospectus  to  be  published  when  securities  are  offered  to  the  public  or  admitted  to  trading  and 
amending Directive 2001/34/EC (OJ L 345, 31.12.2003, p. 64). 

EN 

18 

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Union it is necessary to require that the competent authorities performing the covered 
bond public supervision cooperate closely with the competent authority performing the 
general supervision of credit institutions. 

(25)  Covered  bond  public  supervision  should  entail  the  granting  of  permission  for  credit 
institutions  to  issue  covered  bonds.  As  only  credit  institutions  should  be  allowed  to 
issue  covered  bonds,  authorisation  as  a  credit  institution  should  be  a  prerequisite  for 
that  permission.  This  Directive  should  include  provisions  governing  the  conditions 
under  which  credit  institutions  authorised  under  Union  law  can  obtain  permission  to 
pursue the activity of issuing covered bonds under a covered bond programme.  

(26)  As  regards  the  scope  of  permission,  a  covered  bond  programme  means  that  one  or 
more cover pools has been established for the inaugural covered bond issue. Different 
issuances  (different  International  Securities  Identification  Numbers  (ISINs))  of  the 
same  covered  bond  programme  do  not  necessarily  constitute  separate  covered  bond 
programmes.  

(27) 

In  order  to  ensure  compliance  with  the  obligations  imposed  on  credit  institutions 
issuing covered bonds and in order to ensure similar treatment and compliance across 
the  Union, Member  States  should  be  required  to  provide  for  administrative  penalties 
and other administrative measures which are effective, proportionate and dissuasive. 

(28)  Those  administrative  penalties  and  other  administrative  measures  laid  down  by 
Member  States  should  satisfy  certain  essential  requirements  in  relation  to  the 
addressees of those penalties or measures, the criteria to be taken into account in their 
application,  the  publication  obligations  of  competent  authorities  performing  the 
covered  bond  public  supervision,  the  power  to  impose  penalties  and  the  level  of 
administrative pecuniary penalties that may be imposed. 

(29)  Member States should be required to ensure that the competent authorities performing 
the  covered  bond  public  supervision  take  into  account  all  relevant  circumstances  in 
order  to  ensure  a  consistent  application  of  administrative  penalties  or  other 
administrative  measures  across  Member  States,  when  determining  the  type  of 
administrative  penalties  or  other  administrative  measures  and  the  level  of  those 
penalties. 

(30) 

In  order  to  detect  potential  breaches  of  the  requirements  relating  to  the  issue  and 
marketing  of  covered  bonds,  competent  authorities  performing  the  covered  bond 
public  supervision  should  have  the  necessary  investigatory  powers  and  effective 
mechanisms  to  encourage  the  reporting  of  potential  or  actual  breaches.  Those 
mechanisms  should  be  without  prejudice  to  the  rights  of  defence  of  any  person  or 
entity adversely affected by the exercise of those powers and mechanisms.  

(31)  Competent  authorities  performing  the  covered  bond  public  supervision  should  also 
have  the  power  to  impose  administrative  penalties  and  adopt  other  administrative 
measures in order to ensure the greatest possible scope for action following a breach 
and  to  help  prevent  further  breaches,  irrespective  of  whether  such  measures  are 
qualified as an administrative penalty or other administrative measure under national 
law. Member States should  be able to  provide for  additional  penalties to, and higher 
level of administrative pecuniary penalties than those provided for in this Directive. 

(32)  Existing  national  laws  on  covered  bonds  are  characterised  by  the  fact  that  they  are 
subject to detailed regulation on national level and a supervision of the covered bonds 
issues and programmes to ensure that the rights of the investors are upheld at all times 
in  relation  to  issue  of  covered  bonds.  That  supervision  includes  the  ongoing 

EN 

19 

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monitoring  of  the  features  of  the  programme,  the  coverage  requirements  and  of  the 
quality  of  the  cover  pool.  An  adequate  level  of  investor  information  about  the 
regulatory framework governing the issue of covered bonds is an essential element of 
investor  protection.  It  is  therefore  appropriate  to  ensure  that  competent  authorities 
publish  regular  information  concerning  their  national  measures  transposing  this 
Directive and on the way they perform their covered bond public supervision. 

(33)  Covered bonds are currently marketed in the Union under national denominations and 
labels,  some  of  which  are  well-established.  In  several  Member  States  however  such 
denominations  or  labels  do  not  exist.  It  seems  therefore  necessary  to  allow  credit 
institutions  which  issue  covered  bonds  in  the  Union  to  use  the  specific  'European 
Covered Bonds' label when selling covered bonds to both Union and third countries' 
investors under the condition that those covered bonds comply with the requirements 
set out in Union law. It is necessary to establish such label in order to make it easier 
for  those  investors  to  assess  the  quality  of  the  covered  bonds  and  hence  make  them 
more attractive as an investment vehicle both inside and outside the Union. The use of 
that  label  should  however  be  facultative  and  Member  States  should  be  able  to  keep 
their own national denominations and labelling framework in  place in parallel to the 
'European Covered Bonds' label. 

(34) 

In  order  to  assess  the  application  of  this  Directive  the  Commission  should  in  close 
cooperation  with  EBA  monitor  the  development  of  covered  bonds  in  the  Union  and 
report to the European Parliament and the Council on the level of investor protection 
and the development of the covered bond markets. The report should also focus on the 
developments regarding the assets collateralising the issue of covered bonds, including 
the possibility for Member States to allow covered bonds to be issued in order to fund 
loans involving public undertakings. 

(35)  There is currently no equivalence regime for the recognition of covered bonds issued 
by  credit  institutions  in  third  countries  by  the  Union  except  in  a  prudential  context 
where preferential treatment regarding liquidity is granted to some third-country bonds 
under certain conditions. The Commission should therefore in close cooperation with 
EBA  assess  the  need  and  relevance  for  an  equivalence  regime  to  be  introduced  for 
third-country issuers of and investors in  covered bonds. The Commission  should, no 
more than 3 years after the date from which Member States are to apply the provisions 
transposing  this  Directive,  submit  a  report  to  the  European  Parliament  and  to  the 
Council, together with a legislative proposal, if appropriate, on this issue. 

(36)  Covered bonds are characterised as having a scheduled maturity of several years. It is 
therefore  necessary  to  include  transitional  measures  to  ensure  that  covered  bond 
already issued on the [OP: Please insert the date laid down in the second subparagraph 
of Article 32(1) of this Directive] are not affected.  

(37)  As  a  consequence  of  laying  down  a  uniform  framework  for  covered  bonds,  the 
description  of  covered  bonds  in  Article  52(4)  of  Directive  2009/65/EC  should  be 
modified. Directive 2014/59/EU defines covered bonds by referring to Article 52(4) of 
Directive  2009/65/EC  and  given  that  this  description  is  modified,  Directive 
2014/59/EU  should  be  modified  as  well.  Furthermore,  to  avoid  affecting  covered 
bonds  issued  in  accordance  with  Article  52(4)  of  Directive  2009/65/EC  before  [OP: 
Please  insert  the  date  laid  down  in  the  second  subparagraph  of  Article  32(1)  of  this 
Directive], those covered bonds should continue to be referred to or defined as covered 
bonds until their maturity. Directive 2009/65/EC and 2014/59/EU should therefore be 
amended accordingly. 

EN 

20 

  EN 

 
(38) 

In  accordance  with  the Joint  Political  Declaration  of  28  September  2011  of  Member 
States  and  the  Commission  on  explanatory  documents13,  Member  States  have 
undertaken  to  accompany,  in  justified  cases,  the  notification  of  their  transposition 
measures  with  one  or  more  documents  explaining  the  relationship  between  the 
components  of  a  directive  and  the  corresponding  parts  of  national  transposition 
instruments. With regard to this Directive, the legislator considers the transmission of 
such documents to be justified. 

(39)  Since the objectives of this Directive cannot be sufficiently achieved by the Member 
States  it  is  necessary  to  establish  a  common  framework  for  covered  bonds,  ensuring 
that the structural characteristics of covered bonds across the Union are aligned with 
the risk features underlying Union preferential treatment, but can rather, by reason of 
the need to further develop covered bond markets across the Union and support cross-
border investments, be better achieved at Union level, the Union may adopt measures, 
in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on 
European Union. In accordance with the principle of proportionality, as set out in that 
Article, this Directive does not go beyond what is necessary in order to achieve those 
objectives. 

(40)  The  European  Data  Protection  Supervisor  was  consulted  in  accordance  with  Article 
28(2) of Regulation (EC) No 45/2001 of the European Parliament and of the Council14 
and delivered an opinion on…15,  

HAVE ADOPTED THIS DIRECTIVE: 

TITLE I 
SUBJECT MATTER, SCOPE AND DEFINITIONS  

This Directive lays down the following investor protection rules concerning: 

Article 1 
Subject matter 

(1) 

(2) 

(3) 

(4) 

requirements for issuing covered bonds;  

the structural features of covered bonds; 

covered bond public supervision; 

publication requirements for competent authorities in relation to covered bonds. 

Article 2 
Scope 

This Directive applies to covered bonds issued by credit institutions established in the Union. 

For the purposes of this Directive, the following definitions shall apply: 

Article 3 
Definitions 

13 
14 

15 

OJ C 369, 17.12.2011, p. 14. 
Regulation (EC) No 45/2001 of the European Parliament and of the Council of 18 December 2000 on 
the  protection  of  individuals  with  regard  to  the  processing  of  personal  data  by  the  Community 
institutions and bodies and on the free movement of such data (OJ L 8, 12.1.2001, p.1). 
[OJ C (…).] 

EN 

21 

  EN 

 
                                                 
(1) 

(2) 

(3) 

(4) 

(5) 

(6) 

(7) 

(8) 

(9) 

(10) 

(11) 

(12) 

(13) 

(14) 

(15) 

'covered bond' means a debt obligation issued by a credit institution and secured by a 
cover  pool  of  assets  which  covered  bond  investors  have  direct  recourse  to  as 
preferred creditors; 

'covered bond programme' means the assets and liabilities as referred to in Article 15 
as  well  as  activities  of the  credit  institution  related  to  the  issuing  of  covered  bonds 
under one permission granted in accordance with Article 19;  

'cover pool' means the assets that constitute the collateral for the covered bonds and 
that  are  segregated  from  other  assets  held  by  the  credit  institution  issuing  covered 
bonds; 

'credit  institution'  means  credit  institution  as  defined  in  point  (1)  of  Article  4(1)  of 
Regulation (EU) No 575/2013; 

'specialised mortgage credit institution' means a credit institution which funds loans 
solely  through  the  issue  of  covered  bonds,  which  is  permitted  by  law  to  carry  out 
mortgage and public sector lending only and which is not permitted to take deposits 
but can take other repayable funds from the public; 

'acceleration  of  a  covered  bond'  means  a  situation  in  which  a  covered  bond  is 
declared  by  the  credit  institution  which  issued  the  covered  bond  or  the  credit 
institution's  representative  to  be  immediately  due  and  payable  and  in  respect  of 
which  the  payments  to  the  covered  bond  investors  are  to  be  repaid  earlier  than  the 
original maturity date; 

'market  value'  means,  for  the  purposes  of  immovable  property,  market  value  as 
defined in point (76) of Article 4(1) of Regulation (EU) No 575/2013; 

'mortgage  lending  value'  means,  for  the  purposes  of  immovable  property,  the 
mortgage lending value as defined in point (74) of Article 4(1) of Regulation (EU) 
No 575/2013; 

'residential  property'  means  residential  property  as  defined  in  point  (75)  of  Article 
4(1) of Regulation (EU) No 575/2013; 

'primary  asset'  means  a  dominant  asset  in  the  cover  pool  determining  the  nature  of 
the cover pool; 

'substitution  asset'  means  an  asset  contributing  to  the  coverage  requirements,  other 
than the primary assets; 

'overcollateralisation' means the statutory or contractual level of collateral exceeding 
the coverage requirement as set out in Article 15; 

'match  funding  requirement'  means  rules  requiring  that  the  cash  flows  between 
liabilities  and  assets  falling  due  be  matched  by  ensuring  that  payments  from 
borrowers be received prior to making payments to covered bond investors and that 
the  amounts  received  from  the  borrowers  are  at  least  equivalent  in  value  to  the 
payments to be made to the covered bond investors; 

'net liquidity outflow' means all liabilities, including principal and interest payments 
and  payments  under  derivative  contracts  of  the  covered  bond  programme  after 
having deducted the inflows derived from the assets in the cover pool; 

'extendable  maturity  structure'  means  a  mechanism  providing  for  the  possibility  to 
extend the scheduled maturity of covered  bonds for a certain period of time and in 
the event that a specific trigger occurs; 

EN 

22 

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(16) 

(17) 

'covered  bond  public  supervision'  means  the  supervision  of  covered  bonds 
programmes  ensuring  compliance  with  and  enforcement  of  the  requirements 
applicable to the issue of covered bonds; 

'special administrator' means the person or entity appointed to administrate a covered 
bond programme in the event of insolvency of the credit institution issuing covered 
bonds under that programme. 

TITLE II 
STRUCTURAL FEATURES OF COVERED BONDS 

Chapter 1 
Dual recourse and bankruptcy remoteness 

Article 4 
Dual recourse 

1. 

Member  States  shall  lay  down  rules  entitling  the  covered  bonds  investors  to  the 
following claims: 

(a) 

(b) 

(c) 

a claim on the credit institution issuing covered bonds; 

in  case  of  insolvency  or  resolution  of  the  credit  institution  issuing  covered 
bonds,  a  priority  claim  on  the  principal  and  any  accrued  interest  from  assets 
included in the cover pool; 

in case of insolvency of the credit institution issuing covered bonds and in the 
event that the priority claim as referred to in point (b) cannot be fully satisfied, 
a  claim  on  the  insolvency  estate  of  that  credit  institution,  which  ranks  pari 
passu  with  the  claims  of  the  credit  institution's  ordinary  unsecured  creditors 
determined  in  accordance  with  the  national  laws  governing  the  ranking  in 
normal insolvency procedures. 

2. 

3. 

The claims referred to in paragraph 1 shall be limited to the full payment obligations 
attached to the covered bonds. 

For  the  purposes  of  point  (c)  of  paragraph  1,  in  the  case  of  insolvency  of  a 
specialised mortgage credit institution, Member States may lay down rules granting 
the covered bond investors a claim that ranks senior to the claim of that specialised 
mortgage  credit  institution's  ordinary  unsecured  creditors  determined  in  accordance 
with  the  national  laws  governing  the  ranking  of  creditors  in  normal  insolvency 
procedures, but junior to any other preferred creditors. 

Article 5 
Bankruptcy remoteness of the covered bonds 

Member States shall ensure that the payment obligations attached to the covered bonds are not 
subject  to  automatic  acceleration  upon  the  insolvency  or  resolution  of  the  credit  institution 
issuing covered bonds. 

EN 

23 

  EN 

 
Chapter 2 
Cover pool and coverage 

SECTION I 
ELIGIBLE ASSETS 

Article 6 
Eligible assets 

1. 

Member States shall ensure investor protection by requiring that covered bonds are at 
all times collateralised by high quality assets referred to in points (a) to (g) of Article 
129(1) of Regulation (EU) No 575/2013 or by other high quality assets that meet at 
least the following requirements: 

(a) 

(b) 

(c) 

(d) 

either  the  market  value  or  mortgage  lending  value  of  the  assets  can  be 
determined; 

a mortgage, charge, lien or other guarantee on the asset is enforceable; 

all legal requirements for establishing the mortgage, charge, lien or guarantee 
on the asset have been fulfilled; 

the  mortgage,  charge,  lien  or  guarantee  securing  the  asset  enable  the  credit 
institution issuing covered bonds to realise the value of the asset without undue 
delay. 

For the purposes of point (a), Member States shall lay down rules on valuation of assets. 

For the purposes of point (b), Member States shall lay down rules ensuring the prompt filing 
and registration of mortgages, charges, liens or guarantee on assets in the cover pool. 

2. 

3. 

1. 

2. 

For  the  purposes  of  points  (b)  and  (d),  Member  States  shall  ensure  that  credit 
institutions issuing covered bonds assess the enforceability of assets before including 
such assets in the cover pool. 

Member  States  shall  ensure  investor  protection  by  requiring  that  credit  institutions 
issuing  covered  bonds  have  in  place  procedures  to  monitor  that  the  assets  used  as 
collateral are adequately insured against the risk of damage. 

For  the  purposes  of  paragraphs  1  and  2,  Member  States  shall  require  credit 
institutions issuing covered bonds to document the assets used as collateral and their 
lending policies regarding their compliance with those paragraphs. 

Article 7 
Assets located outside of the Union 

Subject to the provision in paragraph 2, Member States may allow credit institutions 
issuing  covered  bonds  to  include  assets  located  outside  of  the  Union  in  the  cover 
pool. 

Where Member States allow for the inclusion referred to in paragraph 1, they shall 
ensure  investor  protection  by  verifying  whether  the  assets  located  outside  of  the 
Union meet all the requirements set out in Article 6 and that the realisation of such 
assets is legally enforceable in a way similar to assets located within the Union. 

EN 

24 

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Article 8 
Intragroup pooled covered bond structures 

Member States may lay down rules regarding the use, by way of an intragroup transaction, of 
covered bonds issued by a credit institution belonging to a group ('internally issued covered 
bonds')  as  collateral  for  the  external  issue  of  covered  bonds  by  another  credit  institution 
'belonging to the same group ('externally issued covered bonds'). Member States shall ensure 
investor protection by including at least the following requirements in those rules: 

(a) 

(b) 

the  internally  issued  covered  bonds,  which  are  used  as  collateral  for  the 
externally issued covered bonds, are recorded on the balance sheet of the credit 
institution which issues the externally issued covered bonds; 

the credit institution issuing the externally issued covered bond has a claim on 
the  credit  institution  issuing  the  internally  issued  covered  bonds,  which  is 
secured by the internally issued covered bonds; 

(c) 

the externally issued covered bonds are sold to covered bond investors outside 
the group;  

(d)  both  the  internally  and  the  externally  issued  covered  bonds  qualify  for  credit 
quality  step  1  as  referred  to  in  Part  Three,  Title  II,  Chapter  2  of  Regulation 
(EU) No 575/2013 and are collateralised by residential or commercial property 
mortgages. 

Article 9 
Joint funding 

1. 

2. 

Subject to the provisions in paragraph 2, Member States shall allow the use of loans 
collateralised  by  residential  or  commercial  property  mortgages,  charges,  liens  or 
other comparable security rights granted by a credit institution as assets in the cover 
pool for the issue of covered bonds by another credit institution. 

Member States shall ensure investor protection by laying down rules regulating the 
transfer  of  loans  and  mortgages,  charges,  liens  or  other  comparable  security  rights 
from the credit institution which issued them to the credit institution issuing covered 
bonds. Those rules shall ensure that all requirements laid down in Articles 6 and 12 
are met. 

Article 10 
Composition of the cover pool 

Member  States  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 profile. 

Article 11 
Derivative contracts in the cover pool  

1. 

Member States shall ensure investor protection by allowing derivative contracts to be 
included in the cover pool only where at least the following requirements are met:  

(a) 

the  derivative  contracts  are  included  in  the  cover  pool  exclusively  for  risk 
hedging purposes; 

(b) 

the derivative contracts are sufficiently documented; 

EN 

25 

  EN 

 
(c) 

(d) 

(e) 

the derivative contracts are segregated in accordance with Article 12; 

the derivative contracts cannot be terminated upon the insolvency or resolution 
of the credit institution issuing covered bonds; 

the  derivative  contracts  comply  with  the  rules  laid  down  in  accordance  with 
paragraph 2. 

2. 

For the purposes of ensuring compliance with the requirements listed in paragraph 1, 
Member States shall lay down rules for cover pool derivative contracts including at 
least: 

(a) 

(b) 

(c) 

the eligibility criteria for the hedging counterparties; 

the limits on the amount of derivative contracts in the cover pool; 

the necessary documentation to be provided in relation to derivative contracts. 

Article 12 
Segregation of assets in the cover pool 

1. 

Member  States  shall  ensure  investor  protection by  requiring  that  the  segregation  of 
assets in the cover pool complies with at least the following requirements: 

(a) 

(b) 

(c) 

all  assets  in  the  cover  pool  are  identifiable  by  the  credit  institution  issuing 
covered bonds; 

all  assets  in  the  cover  pool  are  subject  to  legally  binding  and  enforceable 
separation by the credit institution issuing covered bonds; 

all assets in the cover pool are protected from any third party claims and do not 
form  part  of  the  insolvency  estate  of  the  credit  institution  issuing  covered 
bonds. 

For  the  purposes  of  the  first  subparagraph,  the  assets  in  the  cover  pool  shall  include  any 
collateral received in connection with derivative contract positions. 

2. 

1. 

2. 

The segregation of assets in the cover pool referred to in paragraph 1 shall also apply 
in the case of insolvency or resolution of the credit institution issuing covered bonds. 

Article 13 
Cover pool monitor  

Member  States  may  require  that  credit  institutions  issuing  covered  bonds  appoint  a 
cover pool monitor to perform ongoing monitoring of the cover pool with regard to 
the requirements set out in Articles 6 to 12 and Articles 14 to 17. 

Where  Member  States  use  the  option  provided  for  in  paragraph  1,  they  shall  lay 
down rules at least on the following aspects: 

(a) 

(b) 

(c) 

(d) 

the appointment and dismissal of the cover pool monitor; 

any eligibility criteria for the cover pool monitor; 

the  role  and  duties  of  the  cover  pool  monitor,  including  in  the  case  of 
insolvency or resolution of the credit institution issuing covered bonds; 

the  obligation  to  report  to  the  competent  authority  designated  pursuant  to 
Article 18(2); 

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26 

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3. 

4. 

1. 

2. 

(e) 

the  right  of  access  to  necessary  information  for  the  performance  of  the  cover 
pool monitor's duties. 

A  cover  pool  monitor  shall  be  separate  and  independent  from  the  credit  institution 
issuing covered bonds and from that credit institution's auditor. 

Where Member States use the option provided for in paragraph 1, they shall notify 
EBA. 

Article 14 
Investor information 

Member States shall ensure that the credit institution issuing covered bonds provides 
information  on  covered  bond  programmes  that  is  sufficiently  detailed  to  allow 
investors to assess the profile and risks of that programme and to carry out their due 
diligence. 

For the purposes of paragraph 1, Member States shall ensure that the information is 
provided  to  investors  at  least  on  a  quarterly  basis  and  includes  the  following 
minimum portfolio information: 

(a) 

(b) 

the value of the cover pool and outstanding covered bonds; 

the  geographical  distribution  and  type  of  assets  in  the  cover  pool,  their  loan 
size and valuation method; 

(c)  details  as  to  risks  in  relation  to  interest  rates,  currency,  credit,  market  and 

liquidity; 

(d) 

(e) 

(f) 

the maturity structure of assets in the cover pool and covered bonds; 

the levels of required coverage, contractual and voluntary overcollateralisation; 

the percentage of loans that are more than ninety days past due. 

Member  States  shall  ensure  that  the  information  is  provided  to  investors  on  an  aggregated 
basis. Member States may also require the information to be provided on a loan-by-loan basis.  

3. 

Member  States  shall  ensure  investor  protection  by  requiring  credit  institutions 
issuing covered bonds to publish on their website the information made available to 
investors in accordance with paragraphs 1 and 2. 

SECTION II 
COVERAGE AND LIQUIDITY REQUIREMENTS  

Article 15 
Requirements for coverage  

1. 

Member  State  shall  ensure  investor  protection  by  requiring  covered  bond 
programmes to comply at all times with at least the following coverage requirements: 

(a) 

(b) 

all liabilities of the covered bonds, including the obligations for the payment of 
principal  and  any  accrued  interest  of  outstanding  covered  bonds  and  costs 
related  to  maintenance  and  administration  of  a  covered  bond  programme,  are 
covered by the assets in the cover pool; 

the calculation of the level of coverage required ensures that the total nominal 
amount of all assets in the cover pool are at least of the same value as the total 
nominal amount of outstanding covered bonds ('nominal principle'); 

EN 

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(c) 

the following assets in the cover pool contribute to the coverage requirement: 

(i) 

primary assets; 

(ii) 

substitution assets; 

(iii) 

liquid assets held in accordance with Article 16; 

(iv)  derivative contracts held in accordance with Article 11; 

(v) 

statutory overcollateralisation; 

(d)  uncollateralised  claims  where  a  default  is  considered  to  have  occurred  in 
accordance with Article 178 of Regulation (EU) No 575/2013 do not contribute 
to the cover pool. 

For  the  purposes  of  point  (b)  of  the  first  subparagraph,  Member  States  may  allow  for  other 
principles  of  calculation  provided  they  do  not  result  in  a  lower  level  of  coverage  than  that 
calculated under the nominal principle. 

2. 

1. 

2. 

3. 

Member  States  shall  ensure  that  the  calculation  of  coverage  and  the  calculation  of 
liabilities is based on the same methodology. 

Article 16 
Requirement for a cover pool liquidity buffer 

Member  States  shall  ensure  investor  protection  by  requiring  that  the  cover  pool 
includes  at all  times  a  liquidity  buffer  composed  of  liquid  assets  available  to  cover 
the net liquidity outflow of the covered bond programme.  

The cover pool liquidity buffer shall cover the net liquidity outflow for 180 calendar 
days. 

Member  States  shall  ensure  that  the  cover  pool  liquidity  buffer  referred  to  in 
paragraph 1 consists of the following types of assets: 

(a) 

assets qualifying as level 1, level 2A and level 2B assets pursuant to Articles 
10, 11 and 12 of Delegated Regulation (EU) 2015/61, valuated in accordance 
with Article 9 of that Delegated Regulation and segregated in accordance with 
Article 13 of this Directive; 

(b) 

exposures  to  credit  institutions  that  qualify  for  the  credit  quality  step  1,  in 
accordance with Article 129(1)(c) of Regulation (EU) No 575/2013. 

For  the  purposes  of  point  (b)  of  the  first  subparagraph,  Member  States  shall  ensure  that 
uncollateralised  claims  from  defaulted  exposures  in  accordance  with  Article  178  of 
Regulation (EU) No 575/2013 cannot contribute to the cover pool liquidity buffer. 

4. 

5. 

6. 

Where the credit institution issuing covered bonds is subject to liquidity requirements 
set out in other acts of Union law, Member States may decide that the national rules 
transposing  paragraphs  1,  2  and  3  do  not  apply  throughout  the  period  foreseen  in 
those acts of Union law. 

Member States may allow for the calculation of the principal for extendable maturity 
structures to be based on the final maturity date of the covered bond. 

Member  States  shall  ensure  that  the  requirements  set  out  in  in  paragraph  1  do  not 
apply to covered bonds that are subject to match funding requirements. 

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Article 17 
Conditions for extendable maturity structures 

1. 

Member  States  may  allow  for  the  issue  of  covered  bonds  with  extendable  maturity 
structures where investor protection is ensured by at least the following: 

(a) 

(b) 

(c) 

(d) 

(e) 

(f) 

the maturity extension triggers are specified in contract or statute; 

the maturity extension is not triggered at the discretion of the credit institution 
issuing covered bonds; 

the  information  provided  to  the  investor  about  the  maturity  structure  is 
sufficient  to  enable  them  to  determine  the  risk  of  the  covered  bond,  and 
includes a detailed description of: 

(i) 

the maturity extensions trigger; 

(ii) 

(iii) 

the consequences for the maturity extensions in the case of insolvency or 
resolution of the credit institution issuing covered bonds; 

the role of the competent authority designated pursuant to Article 18(2) 
and  of  the  special  administrator  with  regard  to  the  maturity  extension, 
where relevant; 

the final maturity date of the covered bond can at all times be determined; 

the maturity extension does not affect the ranking of covered bond investors; 

the  maturity  extension  does  not  change  the  structural  features  of  the  covered 
bonds  regarding  dual  recourse  as  referred  to  in  Article  4  and  bankruptcy 
remoteness as referred to in Article 5. 

2. 

Member  States  which  allow  the  issue  of  covered  bonds  with  extendable  maturity 
structures shall notify EBA of their decision. 

TITLE III 
COVERED BOND PUBLIC SUPERVISION 

Article 18 
Covered bond public supervision 

1. 

2. 

3. 

4. 

5. 

Member States shall ensure investor protection by providing that the issue of covered 
bonds is subject to a covered bond public supervision. 

For the purposes of the covered bond public supervision referred to in paragraph 1, 
Member States shall designate one or more competent authorities. They shall inform 
the  Commission  and  EBA  of  those  designated  authorities  and  shall  indicate  any 
division of functions and duties. 

Member  States  shall  ensure  that  the  competent  authorities  designated  pursuant  to 
paragraph 2 monitor the issue of covered bonds so as to assess compliance with the 
requirements laid down in the national provisions transposing this Directive. 

Member States shall ensure that credit institutions issuing covered bonds register all 
their  transactions  in  relation  to  the  covered  bond  programme  and  have  in  place 
adequate and appropriate documentation systems and processes. 

Member States shall further ensure that appropriate measures are in place to enable 
the  competent  authorities  designated  pursuant  to  paragraph  2  to  obtain  the 

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6. 

1. 

2. 

1. 

2. 

information  needed  in  order  to  assess  the  compliance  with  the  requirements  laid 
down  in  the  national  provisions  transposing  this  Directive,  investigate  possible 
breaches  of  those  requirements,  and  impose  administrative  penalties  and  remedial 
measures in accordance with the national provisions transposing Article 23.  

Member  States  shall  ensure  that  the  competent  authorities  designated  pursuant  to 
paragraph  2,  have  the  expertise,  resources,  operational  capacity,  powers  and 
independence  necessary  to  carry  out  the  functions  relating  to  covered  bond  public 
supervision. 

Article 19 
Permission for covered bond programmes  

Member States shall ensure investor protection by requiring permission for a covered 
bond programme to be obtained before issuing covered bonds under that programme. 
Member States shall confer the power to grant such permissions upon the competent 
authorities designated pursuant to Article 18(2). 

Member  States  shall  lay  down  the  requirements  for  the  permission  referred  to  in 
paragraph 1, including at least the following: 

(a) 

(b) 

an adequate programme of operations setting out the issue of covered bonds; 

adequate  policies,  processes  and  methodologies  aimed  at  investor  protection 
for  the  approval,  amendment,  renewal  and  refinance  of  loans  included  in  the 
cover pool; 

(c)  management  and  staff  dedicated  to  the  covered  bond  programme  which  have 
adequate  qualifications  and  knowledge  regarding  the  issue  of  covered  bonds 
and the administration of the covered bond programme; 

(d) 

an  administrative  set-up  of  the  cover  pool  that  meets  the  applicable 
requirements laid down in the national provisions transposing this Directive. 

Article 20 
Covered bond public supervision in insolvency or resolution 

Competent authorities designated pursuant to Article 18(2) shall cooperate with the 
resolution  authority  in  the  event  of  the  resolution  of  a  credit  institution  issuing 
covered  bonds  in  order  to  ensure  that  the  rights  and  interests  of  the  covered  bond 
investors  are  preserved,  including  at  least  by  verifying  the  continuous  management 
of the covered bond programme during the period of the resolution process. 

Member States may provide for a special administrator to be appointed in the case of 
the insolvency of a credit institution issuing covered bonds to ensure that the rights 
and  interests  of  the  covered  bond  investors  are  preserved,  including  at  least  by 
verifying  the  continuous  management  of  the  covered  bond  programme  during  the 
period of the insolvency process. 

Where  Member  States  use  that  option,  they  shall  require  that  the  competent  authorities 
designated pursuant to Article 18(2) be consulted regarding the appointment and dismissal of 
the special administrator. 

3. 

Where  Member  States  provide  for  the  appointment  of  a  special  administrator  in 
accordance  with  paragraph  2,  they  shall  adopt  rules  laying  down  the  tasks  and 
responsibilities of that special administrator at least in relation to: 

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4. 

1. 

2. 

(a)  discharging the liabilities attached to the covered bonds; 

(b)  managing  and  realising  assets  in  the  cover  pool,  including  their  transfer 
together  with  covered  bond  liabilities  to  another  credit  institution  issuing 
covered bonds; 

(c) 

carrying  out  legal  transactions  necessary  for  the  proper  administration  of  the 
cover  pool,  for  the  on-going  monitoring  of  the  coverage  of  the  liabilities 
attached to the covered bonds, to initiate proceedings in order to recover assets 
in the cover pool and to transfer those remaining assets after all covered bond 
liabilities are met to the insolvency estate of the credit institution which issued 
the covered bonds.  

Member  States  shall  ensure  the  coordination  and  exchange  of  information  for  the 
purposes  of  the  insolvency  or  resolution  process  between  the  competent  authorities 
designated  pursuant  to  Article  18(2),  the  special  administrator  where  such  an 
administrator has been appointed and the resolution authority. 

Article 21 
Reporting to the competent authorities 

Member  States  shall  ensure  investor  protection  by  requiring  credit  institutions 
issuing  covered  bonds  to  report  the  information  set  out  in  paragraph  2  on  covered 
bond programmes to competent authorities designated pursuant to Article 18(2). The 
reporting shall be on a regular basis and upon request. Member States shall lay down 
rules on the frequency of the reporting on a regular basis. 

The reporting obligations to be laid down pursuant to paragraph 1  shall require the 
information  to  be  provided  at  least  on  the  following  requirements  of  the  covered 
bond programme: 

(a)  dual recourse in accordance with Article 4; 

(b)  bankruptcy remoteness of the covered bond in accordance with Article 5; 

(c) 

(d) 

(e) 

(f) 

(g) 

(h) 

(i) 

the  eligibility  of  assets  and  cover  pool  requirements  in  accordance  with 
Articles 6 to 11; 

the segregation of assets in the cover pool in accordance with Article 12; 

the functioning of the cover pool monitor in accordance with Article 13; 

the investor information requirements in accordance with Article 14; 

the coverage requirements in accordance with Article 15; 

the cover pool liquidity buffer in accordance with Article 16; 

the conditions for extendable maturity structures in accordance with Article 17. 

3. 

Member States shall provide for rules on the reporting on the requirements set out in 
paragraph  2  by  the  credit  institutions  issuing  covered  bonds  to  the  competent 
authority designated pursuant to Article 18(2) in the event of insolvency or resolution 
of a credit institution issuing covered bonds. 

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Article 22 
Powers of competent authorities for the purposes of covered bonds public supervision 

1. 

Member  States  shall  ensure  investor  protection  by  giving  competent  authorities 
designated  pursuant  to  Article  18(2)  all  supervisory,  investigatory  and  sanctioning 
powers that are necessary to perform the task of covered bond public supervision. 

2. 

The powers referred to in the paragraph 1 shall include the following: 

(a) 

(b) 

(c) 

(d) 

(e) 

the power to grant or refuse permissions pursuant to Article 19; 

the power to regularly review the covered bond programme in order to assess 
compliance with this Directive; 

the power to carry out on-site and off-site inspections; 

the  power  to  impose  administrative  sanctions  or  penalties  and  remedial 
measures in accordance with the national provisions transposing Article 23; 

the power to adopt and implement supervisory guidelines relating to the issue 
of covered bonds. 

Article 23 
Administrative penalties and remedial measures 

1. 

Member States shall lay down rules establishing appropriate administrative penalties 
and remedial measures applicable at least in the following situations: 

(a) 

(b) 

(c) 

(d) 

(e) 

(f) 

(g) 

(h) 

(i) 

(j) 

a  credit  institution  has  acquired  a  permission  to  issue  covered  bonds  through 
false statements or other irregular means; 

a  credit  institution  no  longer  fulfils  the  conditions  under  which  a  permission 
was given; 

a  credit  institution  issues  covered  bonds  without  obtaining  the  permission  in 
accordance with the provisions transposing Article 19; 

a credit institution issuing covered bonds fails to meet the requirements set out 
in the provisions transposing Article 4; 

a credit institution issuing covered bonds issues covered bonds not complying 
with the requirements set out in the provisions transposing Article 5; 

a  credit 
issuing  covered  bonds 
collateralised in accordance with the provisions transposing Article 6; 

institution 

issues  covered  bonds  not 

a  credit  institution  issuing  covered  bonds  issues  covered  bonds  collateralised 
by assets located outside the Union in breach of the requirements laid down in 
the provisions transposing Article 7; 

a  credit  institution  issuing  covered  bonds  collateralises  covered  bonds  in  an 
intragroup  pooled  covered  bonds  structure  in  breach  of  the  requirements  laid 
down in the provisions transposing Article 8; 

a credit institution issuing covered bonds fails to fulfil the conditions for joint 
funding laid down in the provisions transposing Article 9; 

a  credit  institution  issuing  covered  bonds  fails  to  meet  the  requirements  of 
composition of the cover pool laid down in the provisions transposing Article 
10; 

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(k) 

(l) 

a  credit  institution  issuing  covered  bonds  includes  derivative  contracts  in  the 
cover  pool  other  than  for  hedging  purposes  or  fails  to  meet  the  requirements 
laid down in the provisions transposing Article 11; 

the  credit  institution  issuing  covered  bonds  fails  to  comply  with  the 
requirements of segregation of assets in the cover pool in accordance with the 
provisions transposing Article 12; 

(m)  a credit institution issuing covered bonds fails to report information or provides 
incomplete  or  inaccurate  information  in  breach  of  the  provisions  transposing 
Article 14; 

(n) 

(o) 

(p) 

a  credit  institution  issuing  covered  bonds  repeatedly  or  persistently  fails  to 
maintain  a  cover pool  liquidity  buffer in  breach of the provisions transposing 
Article 16; 

a  credit  institution  issuing  covered  bonds  fails  to  fulfil  the  conditions  for 
extendable maturity structures laid down in the provisions transposing Article 
17; 

a credit institution issuing covered bonds fails to report information or provides 
incomplete  or  inaccurate  information  on  the  obligations  in  breach  of  the 
provisions transposing points (a) to (i) of Article 21(2). 

2. 

The  penalties  and  measures  referred  to  in  paragraph  1  shall  be  effective, 
proportionate and dissuasive and shall include at least the following: 

(a) 

(b) 

(c) 

a withdrawal of permission to issue covered bonds; 

a  public  statement,  which  indicates  the  identity  of  the  natural  or  legal  person 
and the nature of the breach in accordance with Article 24; 

an order requiring the natural or legal person to cease the conduct and to desist 
from a repetition of that conduct; 

(d) 

administrative pecuniary penalties. 

3. 

4. 

Member States shall also ensure that administrative penalties and remedial measures 
are effectively implemented. 

Member  States  shall  ensure  that  when  determining  the  type  of  administrative 
penalties  or  other  remedial  measures  and  the  amount  of  those  administrative 
pecuniary  penalties,  that  competent  authorities  take  into  account  all  the  following 
circumstances, where relevant: 

(a) 

(b) 

(c) 

(d) 

the gravity and the duration of the breach; 

the  degree  of  responsibility  of  the  natural  or  legal  person  responsible  for  the 
breach; 

the financial strength of the natural or legal person responsible for the breach, 
including  by  reference  to  the  total  turnover  of  a  legal  person  or  the  annual 
income of a natural person; 

the importance of profits gained or losses avoided because of the breach by the 
natural  or  legal  person  responsible  for  the  breach,  insofar  as  they  can  be 
determined; 

(e) 

the losses caused to third parties by the breach, insofar as those losses can be 
determined; 

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33 

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5. 

6. 

7. 

1. 

2. 

3. 

4. 

5. 

(f) 

the  level  of  cooperation  by  the  natural  or  legal  person  responsible  for  the 
breach with the competent authority; 

(g)  previous breaches by the natural or legal person responsible for the breach; 

(h) 

any actual or potential systemic consequences of the breach. 

Where  the  provisions  referred  to  in  paragraph  1  apply  to  legal  persons,  Member 
States  shall  also  ensure  that  competent  authorities  designated  pursuant  to  Article 
18(2) apply the administrative penalties and remedial measures set out in paragraph 2 
of  this  Article,  to  members  of  the  management  body,  and  to  other  individuals  who 
under national law are responsible for the breach. 

Member States shall ensure that before taking any decision imposing administrative 
penalties  or  remedial  measures  as  set  out  in  paragraph  2,  the  competent  authorities 
designated pursuant to Article 18(2), give the natural or legal person concerned the 
opportunity to be heard. 

Member  States  shall  ensure  that  any  decision  imposing  administrative  sanctions  or 
remedial measures as set out in paragraph 2 is properly reasoned and is subject to the 
right of appeal. 

Article 24 
Publication of administrative sanctions and remedial measures 

Member  States  shall  ensure  that  the  provisions  transposing  this  Directive  include 
rules  requiring  that  administrative  sanctions  and  remedial  measures  be  published 
without undue delay on the official website of the competent authorities designated 
pursuant to Article 18(2). 

The rules adopted pursuant to paragraph 1 shall require at a minimum the publication 
of  any  decision  from  which  no  appeal  lies  and  which  is  imposed  for  breach  of  the 
provisions transposing this Directive. 

Member States shall ensure that such a publication includes information on the type 
and nature of the breach and the identity of the natural or legal person on whom the 
penalty  is  imposed.  They  shall  further  ensure  that  such  information  is  published 
without  undue  delay  after  that  person  is  informed  of  those  penalties  and  subject  to 
paragraph 4. 

Where  Member  States permit publication of penalties  against which  an appeal  lies, 
competent  authorities  designated  pursuant  to  Article  18(2)  shall,  without  undue 
delay, also publish on their official website information the status of the appeal and 
the outcome thereof. 

Member States shall ensure that competent authorities designated pursuant to Article 
18(2)  publish  the  penalties  on  an  anonymous  basis  and  in  a  manner  in  accordance 
with national law, in any of the following circumstances: 

(a)  where  the  penalty  is  imposed  on  a  natural  person  and  the  publication  of 

personal data is found to be disproportionate; 

(b)  where  publication  would  jeopardise  the  stability  of  financial  markets  or  an 

ongoing criminal investigation; 

(c)  where  publication  would  cause, 

insofar  as 

it  can  be  determined, 

disproportionate damage to the institutions or the natural persons involved. 

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6. 

7. 

8. 

9. 

In  the  case  of  a  decision  to  publish  a  sanction  or  measure  on  an  anonymous  basis, 
Member States may allow for the publication of the relevant data to be postponed. 

Member States shall ensure that any final court ruling annulling a decision imposing 
an administrative sanction or a remedial measure be also published. 

Member  States  shall  ensure  that  any  publication  referred  to  in  paragraphs  2  to  6 
remains  on  the  official  website  of  the  competent  authority  designated  pursuant  to 
Article  18(2)  for  at  least  five  years after  its  publication.  Personal  data  contained  in 
the  publication  shall  only  be  kept  on  the  official  website  for  the  period  which  is 
necessary and in accordance with the applicable personal data protection rules. 

Competent authorities designated pursuant to Article 18(2) shall inform EBA of any 
administrative  sanctions  and  remedial  measures 
including,  where 
appropriate, any appeal in  relation thereto and the outcome thereof. Member States 
shall  ensure  that  competent  authorities  receive  information  and  details  of  the  final 
judgement in relation to any criminal sanction imposed which they shall also submit 
to EBA. 

imposed, 

10. 

EBA  shall  maintain  a  central  database  of  administrative  sanctions  and  remedial 
measures  communicated  to  them.  That  database  shall  be  only  accessible  to 
competent authorities and shall be updated on the basis of the information provided 
by the competent authorities in accordance with paragraph 9. 

Article 25 
Cooperation obligations 

1. 

2. 

3. 

4. 

5. 

Member States shall ensure that competent authorities designated pursuant to Article 
18(2)  cooperate  closely  with  the  competent  authority  performing  the  general 
supervision of credit institutions in accordance with relevant Union law applicable to 
those institutions. 

Member States shall further ensure that competent authorities designated pursuant to 
Article  18(2)  cooperate  closely  with  each  other.  That  cooperation  shall  include 
providing one another with any information which is relevant for the exercise of the 
other  authorities'  supervisory  tasks  under  the  national  provisions  transposing  this 
Directive. 

For the purposes of the second sentence of paragraph 2, Member States shall ensure 
that  the  competent  authorities  designated  pursuant  to  Article  18(2)  carry  out  the 
following: 

(a) 

(b) 

communicate  all  relevant  information  upon  request  from  another  such 
competent authority; 

communicate  on  their  own  initiative  any  essential  information  to  other 
competent authorities in other Member States. 

Member  States  shall  also  ensure  that  the  competent  authorities  referred  to  in 
paragraph 1 cooperate with EBA for the purposes of this Directive. 

For the purposes of this Article, information shall be regarded as essential if it could 
materially influence the assessment of the issue of covered bonds in another Member 
State. 

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Article 26 
Disclosure requirements 

1. 

Member  States  shall  ensure  that  the  following  information  is  published  by  the 
competent authorities designated pursuant to Article 18(2) on their official website: 

(a) 

(b) 

(c) 

the  texts  of  their  national  laws,  regulations,  administrative  rules  and  general 
guidance adopted in relation to the issue of covered bonds; 

the list of credit institutions permitted to issue covered bonds; 

the list of covered bonds allowed to use the European Covered Bonds label. 

2. 

3. 

The  information  published  in  accordance  with  paragraph  1  shall  be  sufficient  to 
enable  a  meaningful  comparison  of  the  approaches  adopted  by  the  competent 
authorities of the different Member States. This information shall be updated to take 
account of any changes. 

For  the  purposes  of  points  (b)  and  (c)  of  paragraph  1,  competent  authorities 
designated pursuant to Article 18(2) shall on an annual basis notify EBA of the lists 
of credit institutions and covered bonds.  

TITLE IV 
LABELLING  

Article 27 
Labelling 

Member  States  shall  allow  credit  institutions  to  use  the  label  European  Covered  Bonds  in 
respect of covered bonds which meet the requirements laid down in the provisions transposing 
this Directive. 

TITLE V 
AMENDMENTS TO OTHER DIRECTIVES 

Article 28 
Amendment to Directive 2009/65/EC 

Article 52(4) of Directive 2009/65/EC is amended as follows:  

(1) 

the first subparagraph is replaced by the following: 

"Member States may raise the 5 % limit laid down in the first subparagraph of paragraph 1 to 
a maximum of 25 % where bonds were issued before [OP: please insert the date laid down in 
the second subparagraph of Article 32(1) of this Directive + 1 day] and met the requirements 
set out in this paragraph, in the version applicable on the date of their issue, or where bonds 
fall  under  the  definition  of  covered  bonds  in  accordance  with  point  (1)  of  Article  3  of 
Directive (EU) 20XX/XX of the European Parliament and of the Council*. 

____________________________ 

[OP: Please insert reference to Directive (EU) …/… of the European Parliament and 
* 
of the Council of … on the issue of covered bonds and covered bond public supervision and 
amending Directive 2009/65/EU and Directive 2014/59/EU (OJ C […], […], p. […])]."; 

(2) 

the third subparagraph is deleted. 

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Article 29 
Amendment to Directive 2014/59/EU 

In Article 2(1) of Directive 2014/59/EU, point 96 is replaced by the following: 

"(96) 
‘covered  bond’  means  an  instrument  as  referred  to  in  Article  52(4)  of  Directive 
2009/65/EC of the European Parliament and of the Council*, in the version applicable on the 
date  of  its  issue,  and  issued  before  [OP:  please  insert  the  date  laid  down  in  the  second 
subparagraph of Article 32(1) of this Directive + 1 day] or a covered bond as defined in point 
(1)  of  Article  3  of  Directive  (EU)  20XX/XX  of  the  European  Parliament  and  of  the 
Council**; 

__________________________________ 

Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 
* 
on the coordination of laws, regulations and administrative provisions relating to undertakings 
for collective investment in transferable securities (UCITS) (OJ L 302, 17.11.2009, p. 32). 

[OP: Please insert reference to Directive (EU) …/… of the European Parliament and 
** 
of the Council of … on the issue of covered bonds and covered bond public supervision and 
amending Directive 2009/65/EU and Directive 2014/59/EU (OJ C […], […], p. […])].". 

TITLE VI 
FINAL PROVISIONS 

Article 30 
Transitional measures 

Member States shall ensure that covered bonds issued before XX [OP: please insert the date 
laid  down  in  the  second  subparagraph  of  Article  32(1)  of  this  Directive  +  1  day"]  and 
complying with the requirements laid down in Article 52(4) of Directive 2009/65/EC, in the 
version  applicable  on  the  date  of  their  issue,  are  not  subject  to  the  requirements  set  out  in 
Articles  5  to  12  and  Articles  15,  16,  17  and  19  of  this  Directive,  but  may  continue  to  be 
referred to as covered bonds in accordance with this Directive until their maturity. 

Article 31 
Reviews and reports 

1. 

2. 

By XX [OP: please insert the date laid down in the second subparagraph of Article 
32(1)  of  this  Directive +  3  years],  the  Commission  shall,  in  close  cooperation  with 
EBA,  submit  a  report  to  the  European  Parliament  and  to  the  Council  whether  an 
equivalence  regime  could  be  introduced  for  third-country  credit  institutions  issuing 
covered  bonds  and  for  investors  in  covered  bonds,  taking  into  consideration 
international  developments  in  the  area  of  covered  bonds,  in  particular  the 
development of legislative frameworks in third countries.  

By XX [OP: please insert the date laid down in the second subparagraph of Article 
32(1)  of  this  Directive +  3  years],  the  Commission  shall,  in  close  cooperation  with 
EBA,  submit  a  report  to  the  European  Parliament  and  to  the  Council,  on  the 
implementation of this Directive with regard to the level of investor protection and 
the developments regarding the issue of covered bonds in the Union, including: 

(a)  developments regarding the number of permissions to issue covered bonds; 

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(b)  developments  regarding  the  number  of  covered  bonds  issued  in  compliance 
with  the  provisions  transposing  this  Directive  and  with  Article  129  of 
Regulation (EU) No 575/2013; 

(c)  developments regarding the assets collateralising the issue of covered bonds;  

(d)  developments regarding the level of overcollateralisation; 

(e) 

(f) 

cross  border  investments  in  covered  bonds,  including  inward  and  outward 
investment from and to third countries; 

developments  regarding  the  issue  of  covered  bonds  with  extendable  maturity 
structures 

For the purposes of paragraph 2 by XX [OP: please insert the date laid down in the 
second  subparagraph  of  Article  32(1)  of  this  Directive  +  2  years]  Member  States 
shall transmit information on points (a) to (f) to the Commission. 

Article 32 

Transposition 

Member States shall adopt and publish, by [to be inserted – entry into force + 1 year] 
at the latest, the laws, regulations and administrative provisions necessary to comply 
with this Directive. They shall forthwith communicate to the Commission the text of 
those provisions. 

3. 

1. 

They shall apply those provisions from [to be inserted – same as first subparagraph + 1 day]. 

When  Member  States  adopt  those  provisions,  they  shall  contain  a  reference  to  this 
Directive  or  be  accompanied  by  such  a  reference  on  the  occasion  of  their  official 
publication. Member States shall determine how such reference is to be made. 

2. 

Member States shall communicate to the Commission the text of the main provisions 
of national law which they adopt in the field covered by this Directive. 

Article 33 

Entry into force 

This Directive shall enter into force on the twentieth day following that of its publication in 
the Official Journal of the European Union. 

Article 34 

Addressees 

This Directive is addressed to the Member States. 

Done at Brussels, 

For the European Parliament 
The President 

For the Council 
The President  

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