Covered bonds

The following Banking & Finance practice note provides comprehensive and up to date legal information covering:

  • Covered bonds
  • What are covered bonds?
  • UK-regulated covered bonds regime
  • RCBs—key features and structure
  • Differences between conventional ABS and RCBs
  • Advantages of RCBs—issuers
  • Advantages of RCBs—investors
  • Increased investment limits
  • Reduced risk-weighting for regulatory capital purposes
  • Listing and offering of RCBs
  • More...

Covered bonds

What are covered bonds?

Covered bonds are asset-backed securities (ABS) with the following specific features:

  1. they are issued by banks or other mortgage lenders

  2. they are secured on a pool of mortgages or public sector indebtedness (the asset pool)

  3. the asset pool is dynamic rather than static, so that assets which have been repaid or have defaulted can be replaced by new assets

  4. bondholders have recourse both to the issuer of the bonds and the pool of assets

  5. the bonds are issued under a statutory and/or regulatory regime which is intended to ensure that:

    1. the asset pool is segregated from the other assets of the issuer

    2. the asset pool is sufficient to cover repayment of the covered bonds

    3. bondholders have a priority claim over the asset pool which is unaffected by the default or insolvency of the issuer

Covered bond regimes exist in most European Union (EU) Member States.

UK-regulated covered bonds regime

The legal and regulatory regime for covered bonds in the UK is set out in:

  1. the Regulated Covered Bonds Regulations 2008, SI 2008/346, as amended by:

    1. the Regulated Covered Bonds (Amendment) Regulations 2008, SI 2008/1714

    2. the Regulated Covered Bonds (Amendment) Regulations 2011, SI 2011/2859

    3. the Regulated Covered Bonds (Amendment) Regulations 2012, SI 2012/2977, and

    4. the Capital Requirements Regulations 2013, SI 2013/3115

    5. the Capital Requirements (Amendment) (EU Exit) Regulations 2018, SI 2018/1401, and

    6. the

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