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Covered Bonds

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Covered bonds - workshop outline.pdf (260kb)

Regulated Covered Bonds

The regulated covered bond regime has been the subject of regulatory “guidance”. This focuses on compliance, management information, systems and controls. Many responsibilities now pass to those who hereto haven’t been closely involved. This creates skills mismatches which are addressed by this in-house course.

 What is covered:

  • How covered bonds work
  • The regulatory environment
  • Covered bond reporting
  • Investor analysis
  • Governance

More details are below:

Morning 2.5 hours

1. Introduction

  • What a covered bond is
  • Why covered bonds are issued
  • Why investors buy them
  • Market liquidity & prices

2. The regulatory environment

  • Why regulators are interested
  • Regulations from HM Treasury/FSA
  • The changes in 1/1/2013
  • Strengths & weaknesses for issuers, investors and regulators

3. Covered bonds structure & investor reporting

  • Types of bonds issued (Fixed/FRN/Registered)
  • Governance, committees and role
  • The monthly investor report, who compiles it, where the data comes from, the regulatory requirements
  • What it tells investors and what they look for (who the counterparties are and what's in the ledgers, how arrears are measured and monitored, how loan to values are measured and monitored, regional distribution and its importance, repayment types and seasoning, mortgage size and interest type).
  • Standardisation - what banks and societies provide to investors

Afternoon, 2.5 hours

4. The mechanics of covered bonds

  • Eligibility of assets for the pool, how this is determined & by whom
  • The asset coverage test how it is done and why it is important
  • The maximum percentage of assets required to cover the pool/over-collateralisation - how it is determined
  • The limits on coverage and over-collateralisation
  • The Guaranteed Investment Contract - what it is and its purpose
  • The impact of swaps on covered bonds (asset swap & liability swap including FX swaps)
  • Substituting assets and arrears - how they are dealt with
  • Role and responsibility of the asset pool monitor
  • Asset Pool Notification (compliance with FSA and RCB)
  • Insolvency, what would happen should this occur, how investors are protected
  • Role of rating agencies and how they assess and monitor covered bonds

 5. Identifying potential weaknesses

  • The importance of robust controls for the covered bond programme and its ongoing integrity
  • What failure in compliance could potentially mean
  • Where weaknesses could arise in the management of a covered bond programme and the questions that need to be considered in order to mitigate this risk.

End of workshop & review

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