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Q&As on the Eurosystem’s disclosure requirements for covered bond ratings

This document contains updates to the Frequently Asked Questions published on the ECB’s website regarding the Eurosystem’s disclosure requirements for covered bond ratings.

General topics

  1. There are currently several initiatives in development on covered bonds which aim to increase transparency in the market. Why is the ECB introducing another requirement on the industry now?

    According to Article 18.1 of the Statute, the Eurosystem is legally required to only conduct credit operations against adequate collateral. It therefore has to ensure that it has an appropriate framework for assessing instruments which are used as collateral in credit operations. Specifically, the requirements will ensure that there is sufficient and timely information available to the Eurosystem so that it can understand the credit ratings and ensure their reliability both at the beginning of a covered bond programme, with the new issue reports, and on an ongoing basis, with the quarterly surveillance reports.

    Furthermore, the requirements reinforce the Eurosystem’s efforts to avoid a mechanistic reliance on external ratings and are a result of an analysis of the Eurosystem Credit Assessment Framework (“ECAF”) approved rating agencies methodologies and processes. This is in line with the various initiatives by international authorities aimed at reducing over-reliance on external ratings in legal, regulatory and other public frameworks, as prescribed by the G20’s Financial Stability Board.

  2. Where can we find further information on the Eurosystem’s disclosure requirements for covered bond ratings?

    The Eurosystem’s disclosure requirements for covered bond ratings are explained in detail in Annex IXb of Guideline ECB/2014/60 (the ‘General Documentation’).

  3. How should the information be made available?

    The reports should be posted by the rating agency on its website, in a clear and easy-to-download manner using a standard format, and disclosed publicly or distributed by subscription in a way consistent with the covered bond rating.

  4. Should the data be reported in a specific format?

    To allow timely and efficient checks on compliance, credit rating agencies (CRAs) should aim to facilitate standardisation and automation of the compliance check process. To this end, the surveillance reports should be made available in CSV format. The CSV files should have a consistent layout and common field identifiers across the different programmes and the format should remain unchanged, to the extent possible, over time. If any changes to the layout or format are made, they should ideally be explained at the time of the change(s).

    Provided the files can be easily downloaded, CRAs may opt to publish two separate files, one containing the list of rated international securities identification numbers (ISINs) and the other containing all other required data. Each file should contain a link to the other file as well as the programme identifier.

  5. When must the reports be made available?

    As stipulated in Paragraph 1 of Annex IXb of the General Documentation, the minimum requirements took effect on 1 July 2017. Therefore, from that date, it has been expected that the credit rating report (new issue report) complying with the requirements set out in Paragraph 2(a) will be made available on the respective CRA’s website for all newly rated covered bond programmes.

    Surveillance reports complying with the requirements set out in Paragraph 2(b) must be made available “no later than eight weeks after the end of each quarter”. Reports must be provided on a quarterly basis corresponding to each calendar quarter.

    CRAs are invited to contact the ECB before the applicable deadlines in order to facilitate a smooth implementation of the requirements.

  6. Do the minimum disclosure requirements apply only to programme ratings or also to stand-alone bond ratings?

    According to Article 83 of the General Documentation, for the purpose of determining compliance with the credit quality requirements applicable to marketable assets, an issue rating refers to “an ECAI credit assessment assigned to either an issue or, in the absence of an issue rating from the same ECAI, the programme or issuance series under which an asset is issued”. Therefore, in line with the provisions of the General Documentation, the minimum disclosure requirements set out in Annex IXb of the General Documentation apply to all individual asset ratings as well as to all programme ratings.

  7. Do the minimum disclosure requirements apply to all covered bonds?

    Yes. The requirements apply to the issue rating for all assets classified as covered bonds for Eurosystem monetary policy operations, including multi-cédulas and structured covered bonds defined respectively in Article 2(66) and 2(88) of the General Documentation.

  8. What will happen to the eligibility of a covered bond for Eurosystem monetary policy operations if the first-best issue rating does not meet the minimum disclosure requirements?

    If the requirements are not fulfilled for a given rating, then this rating will be considered as not meeting the high standards of the ECAF and, as a result, may not be used to determine the credit quality of the respective covered bond. However, the eligibility of the covered bond may not be affected since, in the event that a second issue rating from another ECAF-approved CRA meets the requirements, that other rating can be used to satisfy the ECAF standards. Furthermore, if a second issue rating is not available, the rating of the issuer/guarantor can be used for monetary policy operations, provided it meets the relevant requirements of Part Four, Title II, Chapter 2 of the General Documentation.

  9. How did the Eurosystem select the information requirements outlined in Annex IXb?

    The requirements were defined after extensive discussions with the ECAF-approved rating agencies on their covered bond rating methodologies and the information that they already collect to determine and monitor the credit profile of covered bonds.

  10. What should CRAs report in the event that a non-disclosure agreement (NDA) is in place with the issuer with respect to certain key transaction counterparties and/or the issuer rating is not public?

    The CRA should clearly state in both the new issue report and the surveillance report if there is an NDA in place and/or that the issuer rating is not public. The compliance of such reports with the Eurosystem minimum disclosure requirements will be assessed on a case-by-case basis.

  11. Will there be any feedback to the ECAF-approved CRAs should the disclosures not meet the expected standards of the Eurosystem?

    The Eurosystem provided feedback to the CRAs after the first reports were made available and continues to do so as part of the annual ECAF formal dialogue process.

  12. What is the Eurosystem assessment of the first surveillance reports published for the third quarter of 2017?

    The Eurosystem recognises the efforts undertaken and the progress made by the ECAF-accepted CRAs and covered bond issuers to comply with the new disclosure requirements.

    The Eurosystem notes that surveillance reports for the third quarter of 2017 were in most cases published within the eight-week deadline. However, in a few cases reports were published late or not at all and consequently the related covered bond ratings were considered not to have met the ECAF’s high standards.

    The Eurosystem found the required surveillance information contained in the published reports to be largely sufficient although a few ratings were considered not to have met the ECAF’s high standards, as there were several instances where information was missing. The Eurosystem expects that covered bond issuers and the ECAF-accepted CRAs will promptly address any instances of missing or incomplete information. Thus, all published surveillance reports should soon provide full coverage of the required information. If full coverage is not achieved within the next few quarters, the Eurosystem may revoke ECAF’s acceptance of the rating related to the affected covered bond programme.

  13. To what extent are covered bond issuers expected to be involved in the Eurosystem disclosure requirements for covered bond ratings?

    The issuers of covered bonds eligible for Eurosystem monetary policy operations should cooperate with CRAs in helping to ensure that the ratings assigned to their covered bonds comply with the Eurosystem disclosure requirements. To do so, issuers are expected to contribute to the timely provision of the required information to the CRAs which assign such ratings.

New issue reports

  1. When is a “publicly available credit rating report” (new issue report) required?

    A credit rating report is required for newly rated covered bond programmes rated after 1 July 2017. A new issuance (ISIN) under an existing covered bond programme is not considered a new programme and therefore in such cases the publication of a new issue report is not required.

    A significant change to the terms and conditions of an existing covered bond programme which materially affects the investors’ interests is viewed as equivalent to issuing a new covered bond programme and therefore a credit rating report is also expected in this instance, for example a change from hard bullet to conditional pass-through. These reports are also referred to as “new issue reports”.

  2. What is meant by a “comprehensive analysis”? How does this apply to the requirements set out in paragraph 2(a) of the disclosure requirements (Annex IXb of the General Documentation)?

    The term “comprehensive analysis” means a thorough assessment which provides a clear picture of the requirements set out in paragraph 2(a). The analysis should be supplemented by further information, as deemed necessary, to allow external parties to perform due diligence on the programme.

Surveillance reports

  1. What information are the rating agencies expected to use when preparing the surveillance reports?

    CRAs collect data from issuers at regular intervals, in a format specified by each CRA. The Eurosystem therefore envisages that rating agencies will use this information in order to fulfil the reporting requirements.

    With regard to information that is not deemed relevant for the analysis by the CRA in determining the rating, this must be clearly stated by the CRA and an explanation for its non-inclusion should be included in the report.

  2. What information are the surveillance reports for multi-cédulas expected to contain?

    In the case of multi-cédulas, CRAs should use a separate template for the surveillance reports, tailored to the differing nature of these assets compared with other covered bonds.

    The surveillance reports must address the information requirements enumerated in Annex IXb of the General Documentation, by covering all required liability-specific information, including the list of the relevant originators and their respective shares in the multi-cédula. Asset-specific information must be provided either directly within the multi-cédula’s surveillance report or through links to the surveillance reports for each cédula rated by the CRA.

  3. What are the implications for the credit rating if the required surveillance report is published after the eight-week time frame?

    If the required surveillance report is published after the eight-week time frame, the respective rating may be considered as not meeting the high standards of the ECAF. The Eurosystem will monitor compliance with the requirements on at least a quarterly basis and therefore the rating could be re-used by the Eurosystem in the following quarter, provided the CRAs publish the surveillance report within the required time frame.

  4. What are the implications for the credit rating if the required surveillance report is published with incomplete information?

    The Eurosystem will assess all the information requirements enumerated in Annex IXb of the General Documentation to ascertain if the report complies with the minimum disclosure criteria on a case-by-case basis. Given that the disclosure requirements have been designed after extensive discussions with the CRAs to reflect information already collected, the Eurosystem does not expect that significant difficulties will arise in providing complete information.

Questions on specific disclosure items

  1. How often are the CRAs expected to update their proprietary metrics?

    The CRAs must include the latest available dynamic proprietary metrics in each surveillance report and include the date to which these outputs refer. As per Article 8(5) of Regulation No 1060/2009 on credit rating agencies, CRAs are required to monitor credit ratings at least annually. Therefore, these proprietary metrics should be updated in line with the regulatory requirements and consequently be valid for one year only.

  2. What is meant by the following terms?

    1. Key transaction parties: refers to those parties which the rating agency has considered in its analysis of counterparty risk when determining its covered bond rating.
    2. Proprietary metrics: refers to the outputs of a rating agency’s own rating methodology.
    3. Issuer identifiers: refers to the Legal Entity Identifier, a unique 20-character code that identifies distinct legal entities.
    4. Committed over-collateralisation: The level of over-collateralisation that, according to the CRA, the issuer has contractually or statutorily committed to provide.
  3. How should the weighted average life of the covered bonds be calculated?

    The weighted average life of the covered bonds should be calculated in line with the rating agencies’ internal procedures. The rating agency methodology should be made available in accordance with the requirements.

  4. What is meant by “loan-to-value ratios”?

    This refers to all loan-to-value ratios (original, current, other) captured by the CRA in its assessment of the covered bond programme.

  5. As regards the distribution of currencies in terms of value, should the rating agencies use the current value or the original value in the surveillance report?

    The current value of the currencies, as at the latest data collection date available to the CRA, should be used.

  6. As regards cover pool substitute assets, does this refer to all substitute assets or only a partial list? Should the rating agencies use the current or original asset balance?

    This refers to all assets considered substitute assets and the current asset balance, as at the latest data collection date available to the CRA. The list of data definitions should include information about whether substitute assets are included in the total asset balance.

  7. If an ISIN is no longer outstanding, should this be updated in the subsequent surveillance report?

    According to Annex IXb paragraph 2(b.ix) of the General Documentation, the list should only include rated ISINs. It is assumed that should an ISIN be redeemed during the relevant quarter, it would no longer have a valid rating from the rating agency.

  8. How should distributions be reported?

    As regards the distributions required in paragraphs 2( and 2(b.vii) of Annex IXb of the General Documentation, where individual data items are reported as continuous distributions in intervals, the limit points should ideally be finite and should include only assets or liabilities relevant to the information criterion reported (e.g. assets in arrears should be clearly separated from the performing assets).

    The regional and currency distributions should be reported to present, at a granular level, at least 90% of the cover pool, while the marginal remaining share could be grouped in the last distributional interval, namely “Other”. In the case of the regional distribution, if a cover pool consists of loans originated in different countries, the surveillance report should, as a minimum, present the distribution across countries and the regional distribution for the main country of origin. Currency distributions should include the share of euro-denominated assets and liabilities.

  9. When reporting information, how should CRAs distinguish between information which is not available to them and information which is not relevant to the programme?

    Surveillance reports must include a reference to each individual information requirement enumerated in Annex IXb of the General Documentation. If the required information is not relevant to a particular programme (e.g. no committed over-collateralisation), the field should be included in the surveillance report and presented as not relevant (e.g. NR). The potential instances of information that is not relevant should be explained in the list of data definitions. Alternatively, if the information is not available to the CRA, the respective field should not be left empty but instead reported as being not available (e.g. NA) or as having no data (e.g. ND). The latter cases will be treated by the Eurosystem as not being in compliance with the disclosure requirements.

  10. What information should CRAs present in the list of data definitions and data sources?

    The list of data definitions should present all definitions used by a CRA when it presents data for each information requirement of Annex IXb of the General Documentation. Hence, the list should be comprehensive enough to allow the user of the report to understand the construction of the required individual data and to be able to disentangle potential differences among rating agencies. Different data sources within one report should be listed with a clear reference to the related information requirement.

  11. In case we have further questions that are not addressed here, who should we contact?

    Questions that have not been answered here should be addressed either to the respective national central bank assessing the eligibility of the instrument in question, or to the ECB at


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