Circular 1/2023 of the Bank of Spain on information regarding covered bonds and other loan mobilization instruments

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Circular 1/2023, of February 24, from the Bank of Spain, to credit institutions, branches in Spain of credit institutions authorized in another Member State of the European Union, and financial credit establishments, regarding the information to be submitted to the Bank of Spain on covered bonds and other loan mobilization instruments, and by which Circular 4/2017, of November 27, to credit institutions, on public and reserved financial information standards and financial statement models, and Circular 4/2019, of November 26, to financial credit establishments, on public and reserved financial information standards and financial statement models, are amended. (BOE of March 2, 2023). [ 1 ]

[1]

Includes the error correction published in the BOE of April 1, 2023.

INDEX

Chapter I. General Provisions.

Standard 1. Object.

Standard 2. Scope of application.

Chapter II. Compliance and presentation standards and periodic information to be submitted.

Standard 3. Completion and presentation of reserved statements for submission to the Bank of Spain.

Standard 4. Periodic information to be submitted regarding asset eligibility and coverage pool requirements for the covered bond program.

Standard 5. Periodic information to be submitted regarding the liquidity cushion requirement of the coverage pool for the covered bond program.

Standard 6. Periodic information to be submitted regarding instruments for mobilizing credits or loans secured by a first real estate mortgage or first non-dispossessive pledge.

Standard 7. Periodic information to be submitted regarding the liquidity cushion requirement of the coverage pool for instruments for mobilizing credits or loans secured by a first real estate mortgage or first non-dispossessive pledge.

Standard 8. Periodic information to be submitted regarding the issuance of mortgage participations and mortgage transfer certificates.

Standard 9. Periodic information to be submitted regarding the organization and management of the special register of the coverage pool.

Standard 10. Periodic information to be submitted regarding the control body of the coverage pool.

Final Provision First. Amendment of Circular 4/2017, of November 27, to credit institutions, on public and reserved financial information standards and financial statement models.

Final Provision Second. Amendment of Circular 4/2019, of November 26, to financial credit establishments, on public and reserved financial information standards and financial statement models.

Final Provision Third. Entry into force.

Annex 1. Information to be submitted regarding asset eligibility and coverage pool requirements for the covered bond program.

Annex 2. Information to be submitted regarding the liquidity cushion requirement of the coverage pool for the covered bond program.

Annex 3. Information to be submitted regarding instruments for mobilizing credits or loans secured by a first real estate mortgage or first non-dispossessive pledge.

Annex 4. Information to be submitted regarding the liquidity cushion requirement of the coverage pool for instruments for mobilizing credits or loans secured by a first real estate mortgage or first non-dispossessive pledge.

Annex 5. Information to be submitted regarding the issuance of mortgage participations and mortgage transfer certificates.

I

Covered bonds have traditionally been a relevant source of resource capture for credit institutions, whose fundamental characteristic is to present a coverage pool of assets that guarantee the payment of principal and interest to the holders of these instruments.

Until the publication of Directive (EU) 2019/2162 of the European Parliament and of the Council, of November 27, 2019, on the issuance and public supervision of covered bonds, and amending Directives 2009/65/EC and 2014/59/EU, the European Union legal framework regarding covered bonds was dispersed across various directives regulating partial aspects of covered bonds, but which did not even contain a harmonized definition of the concept of covered bonds. This meant that the same preferential treatment could be granted to instruments that could differ in nature, risk, and level of investor protection, which hindered the creation of a true single market for covered bonds. Furthermore, it could also harm financial stability, insofar as preferential prudential requirement treatment was granted to bonds that could have different levels of safeguard, meaning those requirements did not adequately reflect the risk. Directive (EU) 2019/2162, of November 27, on minimum harmonization, defines the principles on which Member States must build their national legislation in this matter.

Royal Decree-Law 24/2021, of November 2, transposing European Union directives in the matters of covered bonds, cross-border distribution of collective investment undertakings, open data and reuse of public sector information, exercise of copyright and related rights applicable to certain online transmissions and retransmissions of radio and television programs, temporary exemptions to certain imports and supplies, consumer persons, and for the promotion of clean and energy-efficient road transport vehicles, in its first book, transposed said directive and cohesive the legal regime applicable to covered bonds, previously dispersed in various norms, integrating the content of Law 2/1981, of March 25, on the regulation of the mortgage market; Law 44/2022, of November 22, on measures to reform the financial system, and Law 14/2013, of September 27, on support for entrepreneurs and their internationalization.

The aforementioned royal decree-law establishes, in its article 35, the information communication obligations to the Bank of Spain by credit institutions issuing covered bonds. These obligations refer, among others, to the eligibility of assets and the requirements of the coverage pool, the liquidity cushion of the coverage pool, and any other information that the Bank of Spain deems necessary for the exercise of its supervision functions regarding covered bonds. This circular addresses and regulates these obligations.

Likewise, requirements regarding mortgage participations and mortgage transfer certificates are included as established in the additional provision third of the same royal decree-law, and regarding instruments for mobilizing credits or loans secured by a first real estate mortgage or first non-dispossessive pledge that credit institutions and credit establishments regulated in its additional provision fourth may issue.

As a consequence of the establishment of these new requirements, this circular repeals, in Circular 4/2017, of November 27, to credit institutions, on public and reserved financial information standards and financial statement models, and in Circular 4/2019, of November 26, to financial credit establishments, on public and reserved financial information standards and financial statement models, the content related to covered bonds and to the instruments regulated in the additional provisions first to fourth of Royal Decree-Law 24/2021, of November 2.

II

This circular consists of ten standards, three final provisions, and five annexes.

Chapter I includes two standards, which regulate the object and scope of application of the circular. The scope of application, contemplated in standard two, comprises credit institutions, branches in Spain of credit institutions authorized in another Member State of the European Union, and financial credit establishments.

Chapter II, which contains eight standards, regulates the information and reserved statements to be submitted to the Bank of Spain, as well as their completion and presentation standards. The information is structured in seven blocks: i) information to be submitted regarding asset eligibility and coverage pool requirements for the covered bond program; ii) information to be submitted regarding the liquidity cushion requirement of the coverage pool for the covered bond program; iii) information to be submitted regarding instruments for mobilizing credits or loans secured by a first real estate mortgage or first non-dispossessive pledge; iv) information to be submitted regarding the liquidity cushion requirement of the coverage pool for instruments for mobilizing credits or loans secured by a first real estate mortgage or first non-dispossessive pledge; v) information to be submitted regarding the issuance of mortgage participations and mortgage transfer certificates; vi) information to be submitted regarding the organization and management of the special register of the coverage pool, and vii) information to be submitted regarding the control body of the coverage pool.

Furthermore, the circular includes three final provisions.

In final provision first, Circular 4/2017, of November 27, is amended to repeal the public information related to the issuance of covered bonds and other asset mobilization instruments related to the mortgage market regulated therein. For this purpose, references to individual public statements PI 11 to PI 13 in standard 4 and in annex 1 are eliminated in the latter circular, and standard 60, regarding the content of the individual annual accounts notes, is modified. Likewise, annex 8 ("Special accounting registers") and the references to them appearing in standard 70, relating to internal accounting development and management control, are suppressed.

In this same sense, in final provision second, Circular 4/2019, of November 26, is modified, which suppresses paragraphs 4 and 5 of standard 5 and eliminates the obligation that financial credit establishments had to publish certain information, adjusting to the models of statements PI 11 and PI 12 of annex 1 of Circular 4/2017, of November 27, and to submit them to the Bank of Spain.

Final provision third establishes that this circular will enter into force on March 31, 2023, and that the first statements to be prepared will be those corresponding to the first quarter of 2023, but their submission date will coincide with that of the statements corresponding to June 2023.

III

This circular is issued in the exercise of the regulatory authorizations attributed to the Bank of Spain, which are listed below:

– The ninth final provision, point three, of Royal Decree-Law 24/2021, of November 2, which establishes that the Bank of Spain may develop, through circular:

a) The additional information to that provided in article 35.1 that proves necessary for the adequate exercise of its supervision functions regarding covered bonds;

b) the format and the time at which the information provided in article 35.1 must be supplied, as well as the content and periodicity of the specific information that must be supplied to the Bank of Spain in case of insolvency or resolution of the issuing entity;

c) the information to be submitted to the Bank of Spain for the purposes of supervising compliance with the liquidity cushion defined in article 11, as well as in additional provision third, and its periodicity.

– The fourth additional provision of Royal Decree-Law 24/2021, of November 2, which establishes that article 35 of said royal decree-law shall apply to instruments for mobilizing credits or loans secured by a first real estate mortgage or first non-dispossessive pledge that credit institutions and financial credit establishments issue, so the Bank of Spain is authorized to request adequate information for the exercise of its supervision functions regarding these instruments.

– The Order of the Ministry of Economy and Finance of March 31, 1989, and the third additional provision of Order ECE/228/2019, of February 28, by which the Bank of Spain is empowered to establish and modify the accounting standards of credit institutions and financial credit establishments, respectively.

This circular complies with the principles of good regulation required by article 129 of Law 39/2015, of October 1, on the common administrative procedure of Public Administrations.

In application of the principles of necessity and efficacy, the standard responds to the need to have a complete and standardized information framework in the matter of supervision of covered bonds issued by credit institutions (including the Official Credit Institute), in order to guarantee the adequate exercise of the supervision activity of said entities. The same applies to the titles that credit institutions, branches in Spain of credit institutions authorized in another Member State of the European Union, and financial credit establishments may issue under the additional provisions of Royal Decree-Law 24/2021, of November 2. In application of the principle of legal certainty, the new information replaces existing requirements and increases the level of detail. The principles of efficiency and proportionality established in the aforementioned law are also attended to, since only those information requirements indispensable to comply with the supervision function of covered bonds issued by credit institutions, and the other titles, which can also be issued by financial credit establishments, offering protection mechanisms to investors, are foreseen.

The principle of transparency in the elaboration of this circular is achieved through prior public consultation to persons and potentially affected entities, fixed by article 133 of Law 39/2015, of October 1, and through the procedure of public hearing and information to interested parties, both procedures being part of the processing process of this circular. Both the prior public consultation and the public hearing and information have been carried out, during the elaboration process of this circular, through its publication on the Bank of Spain website, and the opportunity has been given to the recipients of the standard, competent bodies, and interested parties in general to manifest their observations.

Consequently, in use of the powers conferred, the Governing Council of the Bank of Spain, on proposal of the Executive Commission, and in agreement with the Council of State, has approved this circular, which contains the following standards:

CHAPTER I

General Provisions

Standard 1. Object.

This circular aims to establish the content, periodicity, and deadline for submission of reserved statements that must be submitted to the Bank of Spain regarding the issuance of covered bonds, mortgage participations, mortgage transfer certificates, and instruments for mobilizing credits or loans secured by a first real estate mortgage or first non-dispossessive pledge, as well as the liquidity cushion requirements of the coverage pool for the covered bond program, the organization and management of the special register of the coverage pool, and the control body of the coverage pool, as established in Royal Decree-Law 24/2021, of November 2, transposing European Union directives in the matters of covered bonds, cross-border distribution of collective investment undertakings, open data and reuse of public sector information, exercise of copyright and related rights applicable to certain online transmissions and retransmissions of radio and television programs, temporary exemptions to certain imports and supplies, consumer persons, and for the promotion of clean and energy-efficient road transport vehicles.

Standard 2. Scope of application.

This circular shall apply, with the scope provided in the following standards, to credit institutions, to branches in Spain of credit institutions authorized in another Member State of the European Union, and to financial credit establishments.

Any reference in the circular to "the entity" or "the entities" shall be understood to refer to all the aforementioned entities, unless the content of the standard clearly implies otherwise.

CHAPTER II

Compliance and presentation standards and periodic information to be submitted

Standard 3. Completion and presentation of reserved statements for submission to the Bank of Spain.

1. Entities may not modify the statement models established.

The information referred to monetary units in the statements shall be expressed in euros, unless otherwise indicated in them. Rounding shall be performed to the nearest unit, with rounding up in case of equidistance, allowing a maximum rounding to the thousand euros. The completion of each of the cells of the different statements shall be performed independently, although the sums of the rounded partials may not coincide with the totals.

2. The reference period of the declaration shall coincide with the natural quarter. The statements shall be submitted within the deadlines indicated for each one in the corresponding standards. When the date corresponding to the maximum deadline for sending the statements is a non-working day in Madrid, in the municipality, or in the autonomous community where the entity has its domicile, the statements shall be submitted, at the latest, on the next working day.

The statements shall be sent by the entity to which they refer. Nevertheless, they may be sent by third parties when justified by reasons of organization of a group of entities, although this shall not relieve the persons and governing bodies of the entity to which they refer from responsibility.

The submission of statements to the Bank of Spain must be made through telematic transmission, in accordance with the technical specifications communicated for this purpose.

3. The Bank of Spain may communicate to entities indications to facilitate the preparation of the different statements, as well as the correlations and reconciliations within each statement and between each of them.

4. The Bank of Spain may require entities, generally or specifically, any information it deems necessary as clarification and detail of the information and statements regulated in this circular, or for any other purpose arising in the development of supervision functions regarding covered bonds, mortgage participations, mortgage transfer certificates, and instruments for mobilizing credits or loans secured by a first real estate mortgage or first non-dispossessive pledge.

5. The Bank of Spain may individually require an entity to deliver statements with a frequency higher than that indicated in this circular when necessary for supervision reasons.

Standard 4. Periodic information to be submitted regarding asset eligibility and coverage pool requirements for the covered bond program.

Credit institutions shall submit to the Bank of Spain the individual reserved statements indicated below, in the formats included in annex 1, with a maximum submission deadline of the 25th day of the second month following the quarter to which the data refer:

The statements indicated in the previous point shall collect information on the issuance of covered bonds and their coverage assets, both of issuances in Spain and those carried out outside Spain, provided that such issuances are carried out subject to Royal Decree-Law 24/2021, of November 2.

Standard 5. Periodic information to be submitted regarding the liquidity cushion requirement of the coverage pool for the covered bond program.

1. Credit institutions shall submit to the Bank of Spain the reserved statements indicated below, in the formats collected in annex 2, with a maximum submission deadline of the 15th day of the month following the quarter to which the data refer:

2. Issuing entities shall report each of the coverage pools of their covered bond programs, identifying them in the submitted statements and including the liquid assets, outflows, and liquidity cushion affected to each coverage pool.

3. The statements shall take into account the information of the reference date and the information on the entity's cash flows during the one hundred eighty natural days following.

Standard 6. Periodic information to be submitted regarding instruments for mobilizing credits or loans secured by a first real estate mortgage or first non-dispossessive pledge.

Credit institutions and financial credit establishments shall submit to the Bank of Spain the individual reserved statements indicated below, in the formats included in annex 3, with a maximum submission deadline of the 25th day of the second month following the quarter to which the data refer:

Standard 7. Periodic information to be submitted regarding the liquidity cushion requirement of the coverage pool for instruments for mobilizing credits or loans secured by a first real estate mortgage or first non-dispossessive pledge.

1. Credit institutions and financial credit establishments shall submit to the Bank of Spain the reserved statements indicated below, in the formats collected in annex 4, with a maximum submission deadline of the 15th day of the month following the quarter to which the data refer:

2. Issuing entities shall report each of the coverage pools of their programs of instruments for mobilizing credits or loans secured by a first real estate mortgage or first non-dispossessive pledge, identifying them in the submitted statements and including the liquid assets, outflows, and liquidity cushion affected to each coverage pool.

3. The statements shall take into account the information at the reference date and the information on the entity's cash flows during the one hundred eighty natural days following.

Standard 8. Periodic information to be submitted regarding the issuance of mortgage participations and mortgage transfer certificates.

Credit institutions, branches in Spain of credit institutions authorized in another Member State of the European Union, and financial credit establishments shall submit to the Bank of Spain the individual reserved statement indicated below, in the format included in annex 5, with a maximum submission deadline of the 25th day of the second month following the quarter to which the data refer: