Opinion of the European Central Bank of 22 February 2022 on covered bonds (CON/2022/6)
Date: 2022-02-22
Institutions: European Central Bank
Subjects: financial stability, legal basis

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 22 February 2022  

on covered bonds 

(CON/2022/6) 

Introduction and legal basis 

On 24 January 2022 the European Central Bank (ECB) received a request from the Bulgarian Minister of 

Finance for an opinion on a draft law on covered bonds (hereinafter the ‘draft law’). 

The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the 

Functioning  of  the  European  Union  and  the  third  and  sixth  indents  of  Article 2(1)  of  Council  Decision 

98/415/EC1, as the draft law relates to Българска народна банка (Bulgarian National Bank, BNB) and to 

rules  applicable  to  the  financial  institutions  insofar  as  they  materially  influence  the  stability  of  financial 

institutions and markets. In accordance with the first sentence of Article 17.5 of the Rules of Procedure of 

the European Central Bank, the Governing Council has adopted this opinion. 

1. 

Purpose of the draft law 

1.1  The main purpose of  the draft law  is to implement  Directive (EU) No 2019/2162  of the  European 

Parliament and of the Council2 in Bulgarian law. Under the draft law only authorised credit institutions 

may  issue  covered  bonds.  The  draft  law  accordingly  designates  BNB  as  the  competent  authority 

responsible for the public supervision of covered bonds issued by credit institutions and confers on 

it  supervisory,  investigatory  and  sanctioning  powers  in  relation  to  the  compliance  with  the 

requirements of the draft law of credit institutions issuing covered bonds, including under covered 

bond  programmes.  More  particularly,  BNB  is  to  authorise  the  issuance  by  credit  institutions  of  a 

covered bonds programme and to concur with the appointment of the monitoring body for the cover 

pool. BNB may impose various supervisory measures on issuer credit institutions. BNB may appoint 

a special administrator for the covered bond in the event the respective conditions of the draft law 

are met. BNB is also required to make certain disclosures, including the publication on its website of 

the list of credit institutions permitted to issue covered bonds. The draft law supplements Article 16 

of the Law on BNB3 to reflect the new powers of BNB. 

1.2 

In addition, the draft law repeals the Law on mortgage bonds4.  

1  

2  

3  
4  

Council Decision 98/415/EC of 29 June 1998 on the consultation of the European Central Bank by national authorities 
regarding draft legislative provisions (OJ L 189, 3.7.1998, p. 42). 
Directive (EU) 2019/2162 of the European Parliament and of the Council of 27 November 2019 on the issue of covered 
bonds  and  covered  bond  public  supervision  and  amending  Directives  2009/65/EC  and  2014/59/EU  (OJ  L  328, 
18.12.2019, p. 29).  
Law on BNB (Закон Българската народна банка, обн. ДВ, 46 от 10.06.1997 г.).  

Law on mortgage bonds (Закон за ипотечните облигации, обн. ДВ, бр. 83 от 10.10.2000 г.).  

 
 
 
 
 
ECB-PUBLIC 

1.3  Finally, the draft law amends a number of other laws. Most notably, the draft law amends the Law on 

credit institutions 5 to provide that the Directorate for the Protection of the Financial Interests of the 

European Union of the Ministry of the Interior may have access to the central credit register and the 

bank account register operated by BNB. 

2. 

General observations 

The ECB welcomes the draft law’s introduction of a new legal regime for covered bonds, which aims to 

contribute to the development of the Bulgarian capital market and improve the level of protection and legal 

certainty for investors6. 

3. 

Conferral of new tasks on BNB regarding the supervision of covered bonds 

3.1  New tasks of BNB 

3.1.1  The draft law confers tasks concerning the supervision of covered bonds on BNB. There is no existing 

national legislation on covered bonds in Bulgaria and BNB does not have any relevant supervisory 

tasks under the existing Law on mortgage bonds which is repealed by the draft law. Therefore, the 

draft law confers new tasks on BNB. 

3.1.2  The  ECB  emphasises  that  a  proposed  conferral  of  new  tasks  on  a  national  central  bank  (NCB) 

participating  in  the  European  System  of  Central  Banks  (ESCB)  must  be  assessed  against  the 

prohibition  on  monetary  financing  under  Article  123(1)  of  the  Treaty.  For  the  purposes  of  that 

prohibition,  Article  1(1)(b)(ii)  of  Council  Regulation  (EC)  No  3603/937  defines  ‘other  type  of  credit 

facility’ as, inter alia, ‘any financing of the public sector’s obligations vis-à-vis third parties’. 

3.1.3   Ensuring that Member States implement a sound budgetary policy is one of the key objectives of the 

prohibition on monetary financing. Therefore, the task of financing measures, which are normally the 

responsibility of the Member States, and which are financed from their budgetary sources rather than 

by  the  NCBs,  must  not  be  entrusted  to  NCBs.  To  decide  what  constitutes  financing  of  the  public 

sector’s obligations vis-à-vis third parties, which can be translated as the provision of central bank 

financing outside the scope of central bank tasks, it is necessary to carry out, on a case-by-case 

basis, an assessment of whether the task to be undertaken by an NCB is a central bank task or a 

government task, i.e. a task within the responsibility of the Member States. 

3.1.4  As part of its discretion in the exercise of its duty, on the basis of Article 271(d) of the Treaty and 

Article 35.6 of the Statute of the European System of Central Banks and of the European Central 

Bank (hereinafter the ‘Statute of the ESCB’), to ensure that NCBs honour the obligations laid down 

by the Treaty, the Governing Council has endorsed safeguards in the form of criteria for determining 

what may be considered as falling within the scope of ‘the public sector’s obligations vis-à-vis third 

parties’ within the meaning of Article 1(1)(b)(ii) of Regulation (EC) No 3603/93 or, in other words, 

5  
6  

7  

Law on credit institutions (Закон за кредитните институции, обн. ДВ, бр. 59 от 21.07.2006 г.).  

See  paragraph  4.1  of  Opinion  CON/2017/36  and  paragraph  4.1  of  Opinion  CON/2018/18.  All  ECB  opinions  are 
published on EUR-Lex. 
Council Regulation (EC) No 3603/93 of 13 December 1993 specifying definitions for the application of the prohibitions 
referred to in Articles 104 and 104b (1) of the Treaty (OJ L 332, 31.12.1993, p. 1). 

2 

 
  
 
ECB-PUBLIC 

what constitutes a government task, as follows: 

First, central bank tasks are, in particular, those tasks that are related to the tasks that have been 

conferred upon the ECB and the NCBs by the Treaty and the Statute of the ESCB. These tasks are 

mainly defined in Article 127(2), (5) and (6), and Article 128(1) of the Treaty, as well as in Article 22 

and Article 25.1 of the Statute of the ESCB. 

Second,  as Article 14.4 of  the  Statute of the ESCB  allows NCBs to perform ‘functions other  than 

those specified in [the Statute of the ESCB]’, new tasks, i.e. tasks that are not related to tasks that 

have been conferred upon the ECB and the NCBs, are not precluded per se. However, new tasks 

that are undertaken by an NCB and which are atypical of NCB tasks or which are clearly discharged 

on behalf of, and in the exclusive interest of the government or of other public sector entities, should 

be considered government tasks. 

Third, an important criterion for qualifying a new task as atypical of an NCB task, or as being clearly 

discharged on behalf of and in the exclusive interest of the government or other public sector entities, 

is the impact of the task on the institutional, financial and personal independence of that NCB. 

In particular, the following aspects should be taken into account: 

(a)  whether the performance of the new task creates conflicts of interest with existing central bank 

tasks  which  are  not  adequately  addressed,  and  its  performance  does  not  necessarily 

complement those existing central bank tasks. If a conflict of interest arises between existing 

and  new  tasks,  sufficient  safeguards  to  mitigate  that  conflict  should  be  in  place.  The 

complementarity between a new task and existing central bank tasks should not be interpreted 

broadly  so  that  it  could  lead  to  the  creation  of  an  indefinite  chain  of  ancillary  tasks.  Such 

complementarity should be examined in relation to the financing of those tasks; 

(b)  whether without new financial resources the performance of the new task is disproportionate 

to  the  NCB’s  financial  or  organisational  capacity,  and  may  have  a  negative  impact  on  the 

capacity to properly perform the existing central bank tasks; 

(c)  whether the performance of the new task fits into the institutional set-up of the NCB in the light 

of central bank independence and accountability considerations; 

(d)  whether the performance of the new task harbours substantial financial risks; 

(e)  whether the performance of the new task exposes the members of the NCB decision-making 

bodies to political risks that are disproportionate and may also have an impact on their personal 

independence and, in particular, on the guarantee of term of office set out in Article 14.2 of the 

Statute of the ESCB. 

3.1.5  The systematic categorisation of tasks assigned to NCBs as central banking or government tasks 

applies to genuinely new tasks that did not exist in the past or did not form an integral part of the 

central banking tasks already assigned to the NCB in the past. In recognition of the different Member 

States’  legal  frameworks,  central  banking  traditions  and  national  set-ups,  the  tasks  currently 

discharged by an NCB as central banking tasks are not reviewed and re-categorised, but may be 

reassessed if they are subject to legislative amendments of substance 8. On the basis of the criteria 

8  

This statement of the approach taken reflects, for example, paragraph 2.3.1 of Opinion CON/2015/22. 

3 

 
ECB-PUBLIC 

set out in paragraph 3.1.4, the following paragraphs assess whether the draft law is in line with the 

prohibition on monetary financing. 

3.2  Tasks related to the tasks conferred upon the ECB and the NCBs by the Treaty and the Statute of 

the ESCB 

BNB’s proposed new task of supervising covered bonds is not related to the tasks conferred upon 

the ECB and the NCBs by the Treaty and the Statute of the ESCB. 

3.3  Tasks which are atypical of central bank tasks 

The task of supervising covered bonds is not atypical of central bank tasks. This task complements 

the  existing  role  of  several  NCBs  as  supervisors  of  credit  institutions.  A  central  bank  acting  as  a 

banking supervisor may be entrusted with the task of supervising covered bonds due to its specific 

expertise regarding credit institutions’ balance sheets, which is relevant to ensuring compliance with 

the  requirements  relating  to  the  high  quality  of  covered  assets  with  the  purpose  of  ensuring  the 

robustness of the covered pool. 

In the implementation of Directive (EU) 2019/2162, or under other relevant provisions of national law, 

Member States have conferred supervisory tasks in relation to covered bonds on a wide range of 

public authorities including central banks, financial supervisory authorities (some of which are central 

banks),  and  securities  market  supervisors.  More  concretely,  the  ECB  has  identified  ten  Member 

States that have directly conferred these supervisory tasks or a substantial part of these supervisory 

tasks  on  their  NCBs 9.  The  ECB  also  understands  that  in  the  implementation  of  Directive  (EU) 

9  

In Belgium, the law of August 3, 2012 establishing a legal regime for Belgian covered bonds designates the National 
Bank  of  Belgium  (NBB)  as  the  relevant  authority  to  grant  two  types  of  authorisations  to  credit  institutions  for  the 
issuance of  covered bonds.  A first  type  is to  verify that  credit  institutions  have the  organisational capacity  to issue 
covered  bonds.  In  this  respect,  the  NBB  is  responsible  for  granting  such  authorisation  vis-à-vis  less  significant 
institutions. The second type, which is granted by the NBB regardless of the significance of the institution, aims to 
verify whether the credit institution satisfies all requirements specifically related to the issuance of the covered bonds. 
In Cyprus, Law (130 (I)/2010) on covered bonds, designates the Central Bank of Cyprus (CBC) as the competent 
authority for the purpose of the inscription and maintenance of a covered bonds register (sections 12 to 17). The CBC 
is also entitled to appoint a covered bond monitor in certain circumstances. Administrative Decision 463/2006 issued 
under  the provisions  of the  above Law  constitutes  the regulatory  framework  for  the issue  of covered bonds. In  the 
Czech Republic, Act No. 6/1993 on Czech National Bank (CNB) refers to the supervisor of entities operating in the 
financial market as one of the functions of CNB. On this basis, Act No. 190/2004 Coll., on Bonds, refers to CNB as the 
authority which must be informed by the issuer institutions of their compliance with the terms of the Act (Article 32) or 
the authority in charge of appointing the forced administrator of covered pools (Article 32.d). In Greece, article 152 of 
Law 4261/2014 and the Bank of Greece’s Governor’s Act No 2620/2009 currently set the conditions for qualifying the 
bonds issued by credit institutions as covered bonds for supervisory purposes. Bank of Greece has been designated 
as the competent authority in this respect and has been empowered, among other things, to define the assets that 
form the cover pool, to establish rules on the assets’ valuation and to ensure proper monitoring of the coverage. In 
addition, the covered bond program must be authorized by the Bank of Greece before issuance takes place. Bank of 
Greece may also appoint an administrator in the event of the issuer’s insolvency. In Ireland, under section 54 of the 
Asset  Covered  Securities  Act,  2001,  the  Central  Bank  of  Ireland  (CBI)  is  entitled  to  have  access  to  the  issuing 
institution’s  register  of  public  credit  covered  securities.  On  the  basis  of  this  same  provision,  the  CBI  may  specify 
requirements in relation to the valuation of the assets in the covered pool held by the issuer institutions. The CBI may 
appoint  the  cover  assets  monitor  in  specific  circumstances  and  possesses  investigative  powers  in  relation  to  the 
activities that the issuer institutions carry out on the basis of the Act (Part 5). In Netherlands, sections 3:33a and 3:33b 
of the amendment of the Financial Supervision Act (Wet op het financieel toezicht), Section 40d up to and including 
Section 40k of the Decree on Prudential Rules for Financial Undertakings (Besluit prudentiële regels), and section 20d 
up to and including Section 20i of the Regulation Implementing the Financial Supervision Act (Uitvoeringsregeling), 
set the conditions and minimum requirements that an issuing institution must meet if bonds issued or to be issued by 
that institution are to qualify as covered bonds that may be entered in the public register of covered bonds maintained 
by De Nederlansche Bank (DNB). In addition to maintaining the public register of covered bonds, DNB is responsible 
to assess the conditions and minimum requirements referred to above. In the Explanatory Memorandum (memorie 
van toelichting) accompanying the introduction of this legal framework, it is mentioned that the scope of supervision 
by DNB is extended with the introduction of this legal framework. In Romania, Law no.304/2015 on mortgage bonds 
issuance  and  Regulation  no.  1/2016  on  the  activity  of  issuing  mortgage  bonds  confers  supervisory  powers  on  the 
Banca Naţională a României regarding mortgage bonds issued by credit institutions, such as the prior authorisation of 

4 

 
ECB-PUBLIC 

2019/2162  several  Member  States  are  considering  conferring  tasks  relating  to  the  supervision  of 

covered bonds on their respective NCBs. 

BNB is the body responsible for the supervision of credit institutions on the basis of Article 1(2) of 

the Law on credit institutions, which in accordance with the draft law are the only entities that may 

issue covered bonds in Bulgaria. Given BNB’s existing role in the supervision of credit institutions, a 

role which numerous other ESCB NCBs fulfil in relation to such institutions in their respective Member 

States, its new tasks under the draft law are not atypical of central bank tasks. 

3.4 

Tasks clearly discharged on behalf of and in the exclusive interest of the government 

For the same reasons, BNB’s new supervisory tasks in relation to covered bonds issued by credit 

institutions are not tasks discharged on behalf of and in the exclusive interest of the government. 

BNB already plays a role in the prudential supervision of credit institutions. There is no indication 

that, in carrying out the new tasks conferred by the draft law, BNB would be acting exclusively in the 

interest of another public authority. 

3.5  Extent to which performance of the new tasks creates conflicts of interest with existing central bank 

tasks 

Since  BNB’s  new  tasks  under  the  draft  law  complement  its  existing  tasks,  no  conflicts  of  interest 

arise with other aspects of BNB’s mandate. 

3.6  Extent  to  which  the  performance  of  the  new  tasks  is  disproportionate  to  BNB’s  financial  or 

organisational capacity 

BNB must have sufficient resources, including personnel, for the performance of assessments and 

the issuance of directions under the draft law, so that its capacity to perform its ESCB-related tasks 

is not affected. In this regard, the draft law does not specifically address how the additional expenses 

that arise from granting BNB these additional powers will be financed. The ECB understands that 

the  additional  resources  required  by  BNB  to  exercise  these  additional  powers  will  be  financed 

through its existing budgetary framework and so there will be no specific cost recovery mechanism 

designed to ensure the full recovery of the costs incurred in carrying out the supervision of covered 

bonds. However, the performance of the new tasks by BNB is not disproportionate to its financial or 

organisational capacity. 

3.7  Extent to which performance of the new tasks fits into BNB’s institutional set-up, in the light of central 

bank independence and accountability considerations 

The  performance  of  the  new  tasks  appears  to  be  aligned  with  BNB’s  institutional  set-up  and,  as 

mentioned in paragraph 3.3, its role as the prudential supervisor of credit institutions. 

each  issuance  of  mortgage  bonds  by  the  issuer  institution.  In  Slovakia,  according  to  the  law  amending  and 
supplementing the Act No 483/2001 Coll. on Banks, Národná banka Slovenska, as a national competent authority for 
supervision of the financial market, is designated as the only competent authority for the purpose of Division Twelve 
(“Covered  Bonds  Programmes”)  of  the  Act.  In  Slovenia,  the  Mortgage  Bond  and  Municipal  Bond  Act  (Zakon  o 
hipotekarni in komunalni obveznici) requires from the issuing institution the need to obtain an authorisation from Banka 
Slovenije  before  issuing  mortgage  and  municipal  bonds.  To  that  end,  this  Act  establishes  the  methodology  for 
determining the conditions for obtaining such authorisation (Articles 8 and 9). Banka Slovenije is also responsible for 
issuing and withdrawing the authorisation to the custodian of the cover register (Article 43). With regard to Spain see 
Opinion CON/2021/34 and Royal Decree 24/2021 of 2 November 2021 (Real Decreto-ley 24/2021). 

5 

 
ECB-PUBLIC 

3.8  Extent to which the performance of the new tasks harbours substantial financial risks 

The performance of the new tasks does not harbour substantial financial risks for BNB. The draft law 

provides  that  BNB  and  its  authorised  officials  are  not  liable  for  damage  in  the  exercise  of  their 

covered bond public supervision functions, unless they acted intentionally or with gross negligence. 

3.9  Extent  to  which  the  performance  of  the  new  tasks  exposes  members  of  BNB’s  decision-making 

bodies to disproportionate political risks and has an impact on their personal independence 

The performance of the new tasks conferred by the draft law does not expose members of BNB’s 

decision-making  bodies  to  any  disproportionate  political  risk  or  have  an  impact  on  their  personal 

independence. 

3.10  Conclusion 

The  new  tasks  conferred  by  the  draft  law  on  BNB  regarding  the  supervision  of  the  issuance  of 

covered  bonds  by  credit  institutions  can  be  regarded  as  central  bank  tasks,  as  they  would 

complement BNB’s existing functions in relation to the prudential supervision of credit institutions. 

The  new  tasks  conferred  by  the  draft  law  are  not  atypical  of  central  bank  tasks  and  have  been 

conferred on a number of other ESCB NCBs. 

This opinion will be published on EUR-Lex. 

Done at Frankfurt am Main, 22 February 2022. 

[signed] 

The President of the ECB 

Christine LAGARDE 

6