Reporting of mortgage bank operations

Memorandum 1 (30)
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Regulations and Guidelines 7/2012 Reporting of mortgage bank operations Summary and feedback on comments Reference Comments with justifications (and possible formatting proposal) Response from Finanssivalvonta Comment matter no. 1, commentator Ministry of Finance,
section -, subject of comment: General comments
The Ministry of Finance considers it important to update the regulations and guidelines on the official reporting of mortgage bank operations as soon as possible following the entry into force of the new Act on Mortgage Credit Banks and Covered Bonds (151/2022). Finanssivalvonta thanks the respondent for their feedback.

Memorandum 2 (30)
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Comment matter no. 2, commentator Ministry of Finance,
section -, subject of comment: General comments
The Ministry of Finance suggests considering whether, either in this context or in the subsequent development of the regulations and guidelines, housing company loans should be separated from residential loans in the reporting regarding collateral pools. This same classification has been adopted in the investor information regarding covered bonds (KLPL 36 §). The MOK (Regulations and Guidelines) is drafted from the perspective that it would cover the minimum requirements of KLPL 38 § of the Act on Mortgage Credit Banks and Covered Bonds (KLPL). Reporting is therefore not intended to provide a comprehensive picture of possible risks contained in the collateral pools or covered bonds. A precise risk position is not necessary for the supervision of compliance with the law, although it may be important information for an investor, for example, when assessing the price of a covered bond. Furthermore, it must be noted that the content of the collateral pool is always a part of its balance sheet selected by the issuer based on its business criteria. In other words, the content of the collateral pool does not directly reflect the risk position of the issuing bank or banking group, which must be examined through other reporting. However, it should be noted that in the future, it might be possible that the reporting under KLPL 36 § for investors and credit rating agencies would suffice to meet the needs of KLPL 38 § as well, in which case these reports could be combined and thus the information related to housing company loans would be collected through unified reporting. Comment matter no. 3, commentator Bank of Finland, section - , subject of comment: General comments The Bank of Finland considers that the change in regulations and guidelines is necessary as a consequence of the change in legislation and that they contain the necessary changes. Finanssivalvonta thanks the respondent for their feedback.

Memorandum 3 (30)
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Comment matter no. 4, commentator Bank of Finland, section - , subject of comment: Chapter 1 Scope No comments. No response required.
Comment matter no. 5, commentator Bank of Finland, section - , subject of comment: Chapter 2 Legal basis and international recommendations No comments. No response required.
Comment matter no. 6, commentator Bank of Finland, section - , subject of comment: Chapter 3 Objectives No comments. No response required.
Comment matter no. 7, commentator Bank of Finland, section - , subject of comment: Chapter 4 Reporting to Finanssivalvonta The Bank of Finland considers that the calculation of the liquidity requirement is described clearly enough. Finanssivalvonta thanks the respondent for their feedback. Comment matter no. 8, commentator Bank of Finland, section - , subject of comment: Chapter 4 Reporting to Finanssivalvonta The Bank of Finland does not consider it necessary to separate the reporting of funds used to cover the liquidity requirement and funds acting as additional collateral into separate parts. Finanssivalvonta thanks the respondent for their feedback. Comment matter no. 9, commentator Bank of Finland, section - , subject of comment: Chapter 4 Reporting to Finanssivalvonta Instead, the Bank of Finland proposes considering whether the percentage limit for additional collateral of 20% (KLPL 22 §) under the new law should be followed directly in the report or not. A similar limit for the old law is followed on line 55 25 of form KP02. Implemented as proposed. The calculation is performed using cell calculation on the form, which does not increase the reporting burden. However, the calculated figure on the form is beneficial in itself. It can, for example, help the reporter identify obvious reporting errors.

Memorandum 4 (30)
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Comment matter no. 10, commentator Bank of Finland, section - , subject of comment: Chapter 4 Reporting to Finanssivalvonta The Bank of Finland also proposes considering whether to separately monitor the number of loans that remain in the Collateral Pool, given that under the new law, loans do not need to be removed from the Collateral Pool correspondingly as under the old law. For the old law, this matter is monitored on line 85 of form KP02. The proposal is not considered necessary to implement. The Bank of Finland's proposal could be interesting for understanding the dynamics of the collateral pool and thus assessing possible risks associated with it. However, there is no obvious need for this from the perspective of reporting under KLPL 38 §. Comment matter no. 11, commentator Bank of Finland, section - , subject of comment: Chapter 5 Change history No comments. No response required.

Memorandum 5 (30)
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Comment matter no. 12, commentator Finnish Financial Industry Federation (Finanssiala ry), section -, subject of comment: General comments Finanssiala requests clear separation of reporting under the old and new laws.

• The regulations and guidelines (MOK) under the old and new laws should be clearly separated from each other.
  This can be done primarily by retaining the old MOK alongside the new MOK under the new law, or secondarily by presenting the matters separately within a single MOK.
• A single reporting tab should cover only collateral pools under one law, meaning there should be separate tabs for collateral pools under the new and old laws.
  The proposal has been implemented by separating the reporting of pools under different laws onto different tabs. In connection with the implementation, improvements related to other comment matters were made. Where reporting was copied from the KP2 form, the order was changed to a more logical technical order. In connection with the copying, minor clarifying changes were also made. Comment matter no. 13, commentator Finnish Financial Industry Federation (Finanssiala ry), section -, subject of comment: General comments The industry sees the MOK reform as necessary. In the future, either the new or the old law's rules will apply to collateral pools. For this reason, it is important that reporting also enables the reporting of collateral pools under both laws as clearly as possible. See response to comment matter no. 12 above.

Memorandum 6 (30)
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Comment matter no. 14, commentator Finnish Financial Industry Federation (Finanssiala ry), section -, subject of comment: General comments The same collateral pool cannot secure both covered bonds to which the old law applies and covered bonds to which the new law applies, due to, among other things, investors' different priority positions. This is an important clarification of the matter and supports the view that Finanssivalvonta has also held on this issue. Comment matter no. 15, commentator Finnish Financial Industry Federation (Finanssiala ry), section -, subject of comment: General comments For this reason, Finanssiala (FA) sees that reports under different laws should be distinguishable from each other. This can be done primarily by retaining the old MOK for the reporting of collateral pools under the old law, which would be the clearest method. A new MOK would be drafted for the reporting rules of collateral pools under the new law. It is not appropriate to separate reporting into two different MOKs. In national legislation, risks are assessed primarily on a pool-by-pool basis, which would support this separation. However, Article 129 of the EU Capital Requirements Regulation 575/2013 contains requirements that must be met at the issuer level. For this reason, it is appropriate to implement reporting related to KLP (Mortgage Credit Bank) activities with a single report. The separation itself can be considered a justified measure, and in this regard, we refer to the response to comment matter no. 12 above. Comment matter no. 16, commentator Finnish Financial Industry Federation (Finanssiala ry), section -, subject of comment: General comments A single reporting tab should cover only collateral pools under one law, meaning there should be separate tabs for collateral pools under the new and old laws. See response to comment matter no. 12 above.

Memorandum 7 (30)
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Comment matter no. 17, commentator Finnish Financial Industry Federation (Finanssiala ry), section -, subject of comment: Chapter 1 Scope
Chapter 1.2 Definitions
Section (4)
We propose the following addition:
By collateral mass is meant the entirety consisting of real estate-secured loans, public sector loans, additional collateral, funds used to cover the liquidity requirement, and hedges, calculated as the total amount of collateral. The proposal is justified and implemented as proposed. Comment matter no. 18, commentator Finnish Financial Industry Federation (Finanssiala ry), section -, subject of comment: Chapter 2 Legal basis and international recommendations

• No response required.
  Comment matter no. 19, commentator Finnish Financial Industry Federation (Finanssiala ry), section -, subject of comment: Chapter 3 Objectives
• No response required.

Memorandum 8 (30)
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Comment matter no. 20, commentator Finnish Financial Industry Federation (Finanssiala ry), section (7), subject of comment: Chapter 4 Reporting to Finanssivalvonta
Chapter 4.1 Submission of Supervisory Information
Section (7)
Information must be reported on a collateral pool-by-collateral pool basis, taking into account the rows mentioned in section (8) below. Each collateral pool has its own column in the workbook. Collateral pool-specific information sums up to the "Collateral pools total" column. The supervised entity must ensure the correctness of both the collateral pool-specific information and the information in the "Collateral pools total" column. Comment:
Is it reported in Excel on the KP02 and KP03 tabs that both pools under the new and old laws are included, or is KP02 only for pools under the old law and KP03 only for pools under the new law?
A separation into MOKs under the new and old laws or a clear separation of collateral pools under the new and old laws into different MOKs (hereinafter "MOK separation") would be necessary.
The question is to be resolved through the separation mentioned in comment matter no. 12.

Memorandum 9 (30)
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Comment matter no. 21, commentator Finnish Financial Industry Federation (Finanssiala ry), section (8), subject of comment: Chapter 4 Reporting to Finanssivalvonta As an exception to the information provided on a collateral pool-by-collateral pool basis, the rows mentioned below in the KP2 table are to be filled by the supervised entity in the "Collateral pools total" column. (And the reporting rows related to section 8). Comment:
The items concerning average LTV should not apply to covered bonds/collateral pools to which the new law (KLPL) applies. Similarly, the last item on this list should apply only to covered bonds/collateral pools under the old law. The matter might become apparent through the legal reference, but this is not sufficient. The old law did not require the reporting of average LTV; the requirement was only in the MOK, so there should be special justification for requiring it. MOK separation would also help in this matter. In the future, it would be better if reporting were pool-specific and pools under the new law were excluded from this. Pursuant to KLPL 38.1.3 §, "information concerning the assessment of the collateral of credit claims included in the collateral pool" can be collected to the extent necessary for supervision. LTV is a very key indicator related to the collateral of credit claims when assessing the quantitative adequacy of the collateral of credit claims. LTV information is requested to be reported in a very limited and partially even ineffective form. It would have been very justified to request LTV distribution reporting instead of a single indicator, as this has become a standard practice in reporting to investors in the industry. However, the threshold for modifying the old reporting was high due to technical changes, so this was not included in the original proposal. The separation presented in the response to comment matter no. 12 would technically enable the request for LTV distribution now. However, the reporting of the distribution was decided to be omitted at this stage, because mortgage credit banks in Finland do not have a fully established way of presenting LTV distribution, and slightly different presentation formats are visible in the reporting to investors. A more justified presentation format, the continuous presentation of LTV distribution, is established in use only by some reporters, while other reporters use an LTV distribution presentation format that is less appropriate from the perspective of KLP activities and reporting. For these reasons, the reporting is not changed from the proposal. This matter can be returned to when the MOK is updated next time. It should also be noted in this matter that after the separation in accordance with comment matter no. 12, the "Collateral pools total" reporting will be omitted from reporting requirements when applying the new law.

Memorandum 10 (30)
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Comment matter no. 22, commentator Finnish Financial Industry Federation (Finanssiala ry), section (10), subject of comment: Chapter 4 Reporting to Finanssivalvonta Except as provided in later sections, the following KP2 table information is reported only for those collateral pools to which KLP applies pursuant to KLPL 51 §, paragraph 1: (all reporting rows of this section) Comment Should something (Zero? Or leave empty?) be entered on the KP02 tab for the pool under the new law as well? This section is not in the new law, so MOK separation would help. The second to last item in the list apparently also has an incorrect row reference; it should be 85 15 instead of 80 15.
Section (10) has been removed from the new proposal, so comment matter is no longer relevant in this regard.

Memorandum 11 (30)
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Comment matter no. 23, commentator Finnish Financial Industry Federation (Finanssiala ry), section (11), subject of comment: Chapter 4 Reporting to Finanssivalvonta When reporting the information intended in these regulations and guidelines, for bond loans issued before 7.8.2022 and derivative contracts registered in the bond loan register before the aforementioned date, the repealed KLP is applied as stipulated in KLPL 51 § of the new KLPL, to the extent that the new law has not yet been applied. (Given xx2022, effective 30.6.2023). Comment Incorrect date. It should be 8.7.2022. The date is corrected to the correct one.

Memorandum 12 (30)
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Comment matter no. 24, commentator Finnish Financial Industry Federation (Finanssiala ry), section (13), subject of comment: Chapter 4 Reporting to Finanssivalvonta Collateral Pool Name The names of the collateral pools are entered in the KP1 table. The names provided must remain the same from one reporting period to the next. If it is necessary to change the name for technical or other reasons, the supervised entity must contact Finanssivalvonta. Comment The law applicable to the collateral pool should be indicated in the table. A column for indicating the law (drop-down menu, etc.) or e.g., two separate Excel files/data collections. Implemented as proposed. This is a welcome change that clarifies reporting and enables verification of the correctness of the information. The change is not strictly necessary from Finanssivalvonta's perspective, as the matter can be deduced from other reported information. Comment matter no. 25, commentator Finnish Financial Industry Federation (Finanssiala ry), section (14), subject of comment: Chapter 4 Reporting to Finanssivalvonta Is it not the case that KP02 concerns only old collateral pools, or are both included, new and old? This relates to the same matter that these should be clearly separated from each other. Furthermore, it does not seem clear why these are reported using a sum function. MOK separation would help. At least separate tables and correct legal references would be needed for the new and old laws. KP2 concerns collateral pools under both laws. The matter will become clearer through the separation mentioned in comment matter no. 12.

Memorandum 13 (30)
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Comment matter no. 26, commentator Finnish Financial Industry Federation (Finanssiala ry), section (17), subject of comment: Chapter 4 Reporting to Finanssivalvonta In the sections concerning overcollateralization (17) – (21), reference is made only to the corresponding sections of the old law. Reporting on overcollateralization for collateral pools under the new law is completely missing from the guidelines. If the intention is that these same sections also apply to collateral pools under the new law, a reference to KLPL 24 § should be added, and it should be noted, among other things, that the new law requires both nominal value-based and present value-based overcollateralization calculations. Deduction costs are missing from the form's formula. The OC calculation formula should be defined consistently in the risk guidelines and in this table. The formula is different under the new and old laws. Under both the old and new laws, overcollateralization is determined primarily on a present value basis. Under the new law, however, "If the present value-based calculation method yields a higher total collateral pool value for covered bonds than the nominal value-based calculation method, overcollateralization must be determined on a nominal value basis." In the old reporting, overcollateralization was already reported calculated by both methods, so there was no need for special changes in this regard. On KP2 form line 20, overcollateralization is reported on a nominal value basis, and on KP2 form line 35, it is reported on a present value basis. It is true that in the proposed MOK, a reference to the corresponding section of the old law under the new law was left out in this regard. However, the substantive content has not changed significantly in this respect. The matter has been corrected in the MOK text taking comments into account. When the conditions of the law are met, the following applies: Both reported overcollateralization percentages (lines 20 and 35) must meet the threshold value stipulated by the law. Thus, it is not necessary to calculate separately on the form which condition applies. Furthermore, this threshold must be exceeded such that the deduction costs reported on form KP3 (line 10) are also covered. It is not necessary to calculate the inclusion of deduction costs explicitly on the form.

Memorandum 14 (30)
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Comment matter no. 27, commentator Finnish Financial Industry Federation (Finanssiala ry), section (23), subject of comment: Chapter 4 Reporting to Finanssivalvonta The items concerning average LTV and/or average loan amount should not apply to covered bonds/collateral pools to which the new law (KLPL) applies. The same applies to items (24), (26), (29), (30), and (32). These items are not relevant even for the old law, so it is proposed to remove them completely. LTV reporting may cause problems especially in collateral pools under the new law, where at least in principle LTVs over 100% or division by zero (resulting in infinity) may occur. KLPL 12 § "The value of the collateral of a real estate-secured loan A real estate-secured loan may not exceed the fair value of the property serving as collateral at the time of registration in the bond loan register." Thus, for example, due to subsequent development of the collateral's value, the issuer would no longer have an obligation to remove a real estate-secured loan from the covered bond's collateral pool. Requesting LTV information is clearly justified on the basis of KLPL 38 §, third paragraph (see also response to comment matter no. 21). LTV information is basic information for the assessment of collateral of credit claims. For these reasons, it cannot be considered that reporting on this part could be completely abandoned. However, in its response, FA has pointed out that the proposed LTV calculation is not well defined for collateral pools under the new law. Due to this, the LTV calculation will have to be redefined. In connection with the redefinition, we can also take into account the administrative burden raised in comment matter no. 21 by defining the LTV to be reported such that we can simultaneously abandon the reporting mentioned in comment matter no. 29. The definition would be made such that instead of a single LTV indicator, we would request the reporting of an LTV distribution. The reporting of LTV distribution is an established part of normal mortgage credit bank reporting to investors, which all supervised entities perform with the same frequency as official reporting. Thus, the change can be estimated to reduce the overall administrative burden and simultaneously correct the definition error found in the reporting. The reduction of administrative burden is also supported by the fact that in the future, it might be possible to abandon separate reporting figures produced solely for official reporting, if the reporting intended for investors can cover the essential parts for official reporting in a uniform format. However, in accordance with the response given in comment matter no. 21, such a change is not made at this stage, although it is desirable and justified in itself. The matter remains for the next MOK update.

Memorandum 15 (30)
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Comment matter no. 28, commentator Finnish Financial Industry Federation (Finanssiala ry), sections (39)–(45), subject of comment: Chapter 4 Reporting to Finanssivalvonta
Chapter 4.2.1 Additional Collateral - KLP 15 §
It is not clear whether this applies only to pools under the old law. The title and requirements refer to the old law. Is empty or 0 reported for the new law?
A clearer separation of old and new is needed and/or separation of MOKs.
Additional collateral is reported on form KP3 in accordance with the new law. This limitation becomes apparent in MOK section (10). The separation to be made in accordance with the proposals in comment matter no. 12 will further clarify the matter.

Memorandum 16 (30)
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Comment matter no. 29, commentator Finnish Financial Industry Federation (Finanssiala ry), section (47), subject of comment: Chapter 4 Reporting to Finanssivalvonta Statistically derived estimate of the market value of residential collateral. The row indicates the sum of the estimated market values of residential collateral securing covered bond loans, obtained using an approved statistical method. Comment Is the information relevant for supervision, i.e., how will FiVa use the information? More information would be desired from this, already for the sake of reducing administrative burden. The information is relevant for supervision. According to Section 2 of the Act 15 §: "The issuer must monitor the fair value of the collateral of real estate-secured loans at least quarterly in the manner referred to in paragraph 1, based on a reliable statistical method describing the development of the market values of real estate or otherwise in a reliable manner." Pursuant to Section 38 of the Act, Finanssivalvonta may collect the following information through regular reporting:
2) information concerning the collateral pool to assess that the collateral pool meets the requirements stipulated in this Act;
3) information concerning the assessment of the collateral of credit claims included in the collateral pool;
On the basis of these items, it is justified to collect the information. Furthermore, it can be stated that reporting has been part of previous reporting, so the administrative burden of collecting the information has largely already been implemented by the supervised entities. It is true that a change in the value of the collateral no longer necessarily leads to removal from the collateral pool, and thus the concrete significance of monitoring is less than before. According to the Act, the issuer...