Covered bonds

Topic Guides

The covered bonds market is evolving as more jurisdictions introduce legislation to establish a regulated market for this type of dual-recourse debt security.

This Topic Guide provides information on the covered bonds market and relevant legislation in various regions and jurisdictions.

Inside this Topic Guide

Topic overview

Covered bonds are a kind of hybrid, or dual-recourse security. They allow de-linking of the rating of the securities from the rating of the issuer because they are backed or "covered" by recourse to a pool of assets set aside to guarantee the obligations under the bonds, but unlike a normal securitisation the issuer is a real operating entity against which there is unlimited recourse.

This topic guide provides information on relevant legislation and the covered bonds market in each of the jurisdictions listed as well as some general non-jurisdiction specific material in the key resources section. The covered bonds market is evolving as more jurisdictions introduce legislation to establish a regulated covered bonds market. These regulated regimes establish certain benefits for issuers of compliant covered bonds.

Latest developments

EU: Directive (EU) 2019/2162 on the issue of covered bonds and covered bond public supervision and amending the EU UCITS IV Directive and the EU Bank Recovery and Resolution Directive (BRRD) and Regulation (EU) 2019/2160 amending the Capital Requirements Regulation (CRR) as regards exposures in the form of covered bonds entered into force on 7 January 2020 and has applied from 8 July 2022.

The Directive replaces Article 52(4) of the UCITS IV Directive and has introduces a harmonised and principle-based regulatory framework for covered bonds to be issued by European banks (subject to certain level of discretion that members states may choose to exercise when implementing the new directive through national laws).

The Regulation, which has been directly applicable in the EU since July 2022, has amended Article 129 of the Capital Requirements Regulation (Regulation (EU) No. 575) and has further strengthened the criteria for covered bonds that benefit from preferential capital treatment under the EU CRR regime. As Capital Requirements Regulation permits the exercise of certain national discretion, the implementation by member states is subject to some level of national variation.

UK: As part of the UK's post-Brexit regulatory reform programme, designed to deliver a 'Smarter Regulatory Framework' for the UK, the UK Government intends to repeal retained EU law, including the Regulated Covered Bonds Regulations 2008 (SI 2008/346) and the Regulated Covered Bonds (Amendment) Regulations 2008 (SI 2008/1714), and replace with regulatory rules.