Just over a week ago, the Council of Ministers approved the draft law for a new Covered Bonds Act (CBA), which is to be presented to Parliament by the Minister of Finance and subsequently adopted after going through the relevant legislative procedure. The Bill aims, as explicitly mentioned in its additional provisions, to harmonise in our national legislation the prescriptions of Directive (EU) 2019/2162 of the European Parliament and of the Council of 27 November 2019 on the issuance and public supervision of covered bonds and amending Directives 2009/65/EC and 2014/59/EU.
Should the Bill be voted on and passed, the new CBA would expressly repeal the current Mortgage Bonds Act. The CBA introduces a number of additional rules and provisions. First, the Bill details the pool of assets (the so-called “Cover Pool”) that can be used to secure covered bonds. The pool is to be expanded compared to the current regime by adding a number of new eligible assets. The bill also contains a detailed regulation on the possibility of including derivative contracts in the pool.
The Bill contains the possibility to create so-called “intra-group covered bond structures”. This enables the relevant issuing bank in a particular group, subject to certain conditions, to include covered bonds issued by it in the pool of covered bonds issued by another bank in the same group.
The Bulgarian National Bank (BNB) is designated as the competent authority for the supervision of covered bonds. In particular, it carries out dedicated public supervision, which gives it special powers in the exercise of this function. These powers include: the right of free access to the business premises of the entities subject to supervision, to adopt guidelines for issuing banks, to impose coercive administrative measures and administrative sanctions, etc. It is also the authority authorising the issue or programme of covered bonds. The relevant application procedure for the issuance of covered bonds to be submitted by the issuing bank to the BNB and the documents to be attached thereto are reflected in the draft law.
Another point of interest is the figure of the cover monitor, whose appointment is regulated by the draft law as an option in the hands of the issuing bank. His functions consist primarily of monitoring and controlling the cover pool to ensure that the collateral within the pool is maintained in a lawful manner, compliance with cover recordkeeping requirements, compliance with pool liquidity requirements, etc. Reporting and disclosure requirements regarding covered bonds and the range of their collateral are also detailed.
The BNB, as the authority exercising specialised public supervision, is given the possibility in certain cases to appoint an extraordinary manager to manage the covered bonds of the issuing bank. These cases include, for example, the event of revocation of the banking licence of the issuing bank, as well as cases where the issuing bank has been authorised for voluntary liquidation.
Last but not least, the draft law provides for the procedure of issuance (by the BNB Board of Governors) and the time limits for appeals against administrative acts in relation to covered bonds and their management and supervision. The latter Section III reflects the different types and amounts of sanctions provided for in the case of breach of the provisions of the relevant provisions of the CBA.
According to the explanatory memorandum to the draft law, some of the main objectives of the new CBA are: facilitating the use of covered bonds by credit institutions, further developing the legal framework for covered bonds to ensure higher levels of reliability of this instrument and protection of investors, overall stimulation of investments and diversification of the range of investors, etc.