Asset Covered Securities - ACS

1 Who is the issuer?
  • Specialized credit institution
  Comments: The specialised credit institution is known in the Asset Covered Securities (ACS) framework as a Designated Credit Institution (DCI). DCIs are further designated as a Designated Mortgage Credit Institution, Designated Commercial Mortgage Credit Institution, or a Designated Public Credit Institution to issue each particular types of ACS. DCIs can be authorised to issue more than one type of ACS, though maintaining separate cover pools for each.
2 Does the bondholder have recourse to the credit institution?
  • Yes, direct
3 Who owns the cover assets?
  • The issuer directly
4 Is the issuer the originator of the assets?
  • Yes
  Comments: In general the issuer would be the originator of the assets. However, within a group situation assets may be transferred from a parent to its subsidiary Designated Credit Institution. An issuer may also purchase assets on the secondary market.
1 Are the bonds governed by a special covered bond Legislation?
  • Yes
2 What is the legal framework for bankruptcy of the issuer of covered bonds?
  • Specific legal framework superseding the general insolvency law
1 What types of assets may be included in cover pools?
  • Exposures to public sector entities
  • Mortgage loans (Mortgage loans for the purpose of this question are taken to include guaranteed real-estate loans.)
  • Group originated Senior MBS
  • Senior MBS issued by third parties
  • Exposures to credit institutions
2 What is the geographical scope for public sector assets?
  • Domestic
  • Multilateral development banks
  • EEA
  • CH
  • USA, Canada, Japan
  • NZ AUS
3 What is the geographical scope for mortgage assets?
  • Domestic
  • EEA
  • CH
  • USA, Canada, Japan
  • NZ AUS
4 Are regular covered bond specific disclosure requirements to the public mandatory?
  • Yes
  Comments: DCIs are required to disclose certain information in their annual accounts. A Designated Mortgage Credit Institution or Designated Commercial Mortgage Credit Institution must disclose:
- Mortgage accounts and principals outstanding on the mortgage cover pool;
- Geographical location and details of the pool;
- Pool accounts in default at year end;
- The number of non-performing mortgage credit assets replaced during the financial year;
- The total amount of interest in arrears in respect of mortgage credit assets that has not been written of at the end of the financial year;
- The total amount of payments of principal and interest repaid in respect of mortgage credit assets A Designated Public Credit Institution must disclose the names of countries for the location of those assets, the number of assets, and percentage of overall pool.

Global comments for this chapter

Where a DCI is authorised to issue more than one type of ACS, the different asset classes (Public Sector, Mortgage, and Commercial Mortgage) must be maintained in separate cover pools.
1 LTV is calculated using which valuation?[4]
  • Market value
2 Are there any special LTV limits used solely for calculating collateralisation rates for the cover pool (if yes, specify)?
  Comments: No.
3 Do bondholders get the benefit of that portion of the loan which exceeds the LTV cap?
  • Yes
4a Is there an LTV cap which makes the entire loan ineligible to be put in the cover pool (if yes, specify)?
  • No
4b Is there an LTV cap which would require a loan to be removed from the cover pool?
  • No
5 Is there any additional LTV limit on a portfolio basis?
  • Yes (if yes specify)
Exposure to market risk
1 Is exposure to market risk (e.g. interest rate, currency risks) required to be mitigated by law or contract?
  • Yes
  Comments: By law.
2 What is the primary method for the mitigation of market risk?
  • Use of derivative hedge instruments
3 If the answer to the above question on market risk mitigation is “Use of derivative hedge instruments”, please specify whether those instruments are entered into:
  • By the time of issue of covered bonds or entry of asset in the cover pool
4 What type of coverage test is applied?
  • Nominal cover
  • Present value cover
5 What is the frequency of coverage calculations?
  • Weekly
  • Monthly
  Comments: Coverage calculations are carried out weekly by public sector DCIs, and monthly for mortgage DCIs. Coverage calculations are also made when assets are entered or removed from the cover pool and when bonds are issued.
6 What types of stress scenarios are applied?
  • Model based (i.e. VaR)
  Comments: Plus or minus 1% shift in the yield curve, and plus or minus 1% shift in the slope of the yield curve (twisted curve).
7 What is the frequency of stress test calculations?
  • Daily
Exposure to liquidity risk
8 Is exposure to liquidity risk required to be mitigated by law or contract?
  • Yes
  Comments: By Law.
9 What is the primary method for the mitigation of liquidity risk on interest payments?
  • “Natural” matching (matching without the use of off-balance sheet instruments) and stress testing (Natural matching is taken to include replacing CBs with new issues, as well as substitute assets.)
  Comments: For public sector ACS the duration of the assets cannot exceed the duration of the securities by more than 3 years on a weighted average basis. Mortgage ACS issuers have access to the Mortgage Backed Promissory Note programme, under which they can use mortgage assets not allocated to the ACS programme to access liquidity through the ECB. Furthermore, mortgage ACS tend to have 12 month extendable maturity.
10 What is the primary method for the mitigation of liquidity risk on principal payments?
11 Is there any grace period in case of a breach of liquidity risk mitigants?
  • No
12 What is the consequence of not fixing a breach of liquidity risk mitigants?
  • Programme freeze (neither sale of assets nor new issuance allowed)
  Comments: A number of actions are possible from the Financial Regulator, including programme freeze or removal of licence.
Monitoring of exposures to market and liquidity risk
13 Who monitors the maintenance of coverage tests?
  • Supervisory authority
  • Rating agency
  • Trustee/cover pool monitor
14 Are there any regular public reporting requirements for market and liquidity risk?
  • Yes
  Comments: The DCI’s market risk and liquidity risk exposures are reported in the annual financial accounts.
15 Is mandatory minimum overcollateralisation required?
  • By legislation/regulation
  • By contractual obligation
16 What is the level of minimum mandatory overcollateralisation?
  • 103%
  Comments: 103%, but 110% for Commercial Mortgage ACS. The regulatory minimum OC is calculated on a PV basis. In addition, ACS issuers have committed contractually to 105% OC on a nominal basis.
17 If mandatory overcollateralisation is required, are the amounts above the minimum OC level protected?
  • Yes
18 Is there any grace period in case of a breach of the coverage test?
  • No
19 What is the consequence of not fixing a breach of the coverage test?
  • Programme freeze (neither sale of assets nor new issuance allowed)
  Comments: A number of actions are possible from the Financial Regulator, including programme freeze or removal of licence.
1 Is a special license required for the issuing of covered bonds?
  • Yes with additional requirements compared to general banking supervision regulations
  Comments: A DCI is required to hold both a licence under the ACS Acts and a general banking licence. A DCI’s activities are restricted to specific permitted business activities specified in the ACS Acts.
2 Are there special reporting duties of the covered bond issuer to the supervision authority concerning covered bonds and the cover pool, which go beyond the regular banking supervision?
  • Periodic reporting required
  Comments: A DCI must make periodic reports to both the CBI and its CAM (which in turn reports to the CBI in relation to the DCI).
3 What is the role of the banking supervision regarding covered bonds?
  • To check whether eligibility criteria are fulfilled and documented
  • Checking quality of cover assets (real estate valuations, etc)
  • Monitoring of exposure to market risk and liquidity risk
  • Evaluation of operational risk
  • To check minimum mandatory overcollateralisation requirements
  Comments: The CBI is responsible for supervision and regulation of DCIs in accordance with the terms of the ACS Acts.

Specific functions of the CBI under the ACS framework include:

• assessment and determination of applications for registration of DCIs and revocation of licences where appropriate;

• approval of appointment of CAMs;

• designation of eligible cover assets and related creditworthiness requirements and limits applicable to cover pools and DCIs;

• investigation of alleged breaches of ACS law, directing remedial action and imposition of sanctions (including substantial fines) where appropriate; and

• review of quarterly reports prepared for it by each CAM – such reports detailing compliance with over-collateralisation requirements, compliance of cover assets with eligibility criteria, valuation of cover assets, exposure to market, liquidity and operational risks.

In addition, the CBI is entitled to access all records of each DCI relating to its ACS business.
4 Is there a special role of banking supervision in crisis regarding covered bonds?
  • Safeguarding ongoing management of the cover pool directly or via a special administrator
  • Involvement in transfer of cover assets and covered bonds to another credit institution
  Comments: Safeguarding ongoing management of an insolvent DCI’s ACS business directly or via a special administrator appointed by the CBI.
Involvement in transfer of cover assets and ACS of an insolvent DCI to another DCI.
5 Is there a cover pool monitor independent from the issuer?
  • Yes
  Comments: Each DCI must, following approval by the CBI, appoint a suitably experienced and qualified cover asset monitor.
6 If there is an independent cover pool monitor, what are its duties?
  • Performing audits of the cover pool
  • Reporting duties to the supervision authority
  • Verification of coverage tests
  Comments: A CAM is responsible for monitoring its DCI’s compliance with specific provisions of the ACS Acts, and reporting to the CBI on same, including notification of any breaches identified by it. This incorporates the following activities:
- Ensuring that there are sufficient cover assets to support ACS in issue;
- Ensuring that the cover asset register (detailing mortgage loans/public credits, cash assets andhedging) is correctly maintained;
- Approving any change to the cover asset register;
- Checking that the level of cash in the ACS programme does not exceed the required percentage;
- Ensuring the regulatory and contractual levels of over-collateralisation are maintained;
- Ensuring that cover assets included in the ACS cover pool satisfy the applicable selection criteria;
• approving the removal of mortgage assets from the ACS cover pool;
- Ensuring that prior to issuing ACS that the ACS programme is compliant with the ACS legislation;
- Conducting a monthly review of ACS programme activities; and
- Making a quarterly report on compliance with specified provisions of the ACS Acts to the CBI.
1 Do covered bonds automatically accelerate when the credit institution goes insolvent?
  • No
2 What is the cover pool?
  • All assets on the cover register
  Comments: Each DCI is required to maintain a register (the cover asset registrar) of all assets held by it as security for its ACS. An asset does not form part of the cover pool until it has been recorded on the cover asset register.
3 How are the covered bondholders protected against claims from other creditors in case of insolvency of the issuer?
  • Preferential claim by law
  Comments: Holders of ACS have a preferential claim created by the ACS Acts.
4 Is there recourse to the credit institution’s insolvency estate upon a cover pool default?
  • Yes, pari passu with unsecured creditors
  Comments: Yes, once the cover pool has been exhausted, holders of ACS may have recourse to the DCI’s insolvent estate pari passu with unsecured creditors.
5 Are there provisions that require derivatives to continue in case of insolvency of the credit institution?
  • Yes
  Comments: Derivatives survive pursuant to their contractual terms.
6 If derivatives are permitted in the cover pool, what is their ranking?
  • Pari passu to covered bond holders
  Comments: Pari passu with holders of ACS.
1 Does the covered bond fulfil the criteria of UCITS 52(4)?
  • Yes
2 For further information regarding the compliance to the criteria of Article 129 of the Capital Requirements Regulation (CRR), please see the following links:
  • Yes
3 Are listed covered bonds eligible in repo transactions with the national central bank?
  • Yes
4 Are there any special investment regulations regarding covered bonds?
  • No
1 Link to National Association representing covered bond interests
  Comments: The secretariat for ACS Ireland is provided by the Irish Banking Federation.
2 Link to national regulators and supervisors
3 Fact Book Country Chapter
  • Chapter
4 Hypostat Country Chapter
  • Chapter