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Questions Finnish Covered Bonds
I. STRUCTURE OF THE ISSUER
1. Who is the issuer?
  • Universal credit institution with a special license
  • Specialized credit institution
2. Does the bondholder have recourse to the credit institution?
  • Yes, direct
3. Who owns the cover assets?
  • Credit institution, but pledged to the issuer (with transfer to the issuer upon trigger event)
(1) Comments: "Credit institution, but pledged to the issuer" in the case of "intermediary credits".
4. Is the issuer the originator of the assets?
  • Yes
  • No
(2) Comments: "No" in the case of "intermediary credits" or in case the assets are bought by the issuer from other credit institutions.
II. FRAMEWORK
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
(3) Comments: The Covered Bond Act contains certain provisions that specifically apply in the case of a covered bond issuer's bankruptcy, but the general framework of the bankruptcy procedures is set out in the Bankruptcy Act.
III. COVER ASSETS
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.)
  • Exposures to credit institutions
2. What is the geographical scope for public sector assets?
  • EEA
3. What is the geographical scope for mortgage assets?
  • EEA
4. Are regular covered bond specific disclosure requirements to the public mandatory?
  • No
IV. VALUATION OF THE MORTGAGE COVER POOL & LTV CRITERIA
1. LTV is calculated using which valuation?[4]
  • Market value
(4) Comments: Market value at the moment of granting mortgage loan. The issuer shall quarterly follow the development of the market values of the collateral for mortgage loans as provided in the Financial Supervisory Authority's (« FIN_FSA ») regulations, for example using the statistical method. Application of a statistical method requires that threshold values are set for price changes; if the threshold value for a price drop is crossed, the supervised entity shall in its own systems without delay update the fair value of individual collateral. If the value of shares or real estates placed as collateral of commercial property credits and housing loans exceeds EUR 3 million, a valuation statement by an independent and external real estate evaluator approved by the Central Chamber of Commerce shall be acquired.
2. Are there any special LTV limits used solely for calculating collateralisation rates for the cover pool (if yes, specify)?
  • Residential      
    70%
  • Commercial      
    60%
3. Do bondholders get the benefit of that portion of the loan which exceeds the LTV cap?
  • Yes
(5) Comments: Pari passu with other unsecured creditors.
4a. Is there an LTV cap which makes the entire loan ineligible to be put in the cover pool (if yes, specify)?
  • Residential      
  • Commercial      
(6) Comments: LTV of the original loan can be up to 100% (for residential loans a 90% recommendation by the FIN-FSA) but only 70% (residential) /60% (commercial) LTV of that loan is Cover Pool eligible.
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?
  • No
(7) Comments: No Portfolio specific LTV limits.
V. ASSET-LIABILITY GUIDELINES
. 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
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
(8) Comments: The total amount of collateral of covered bonds shall continuously exceed the remaining combined capital of the covered bonds. The net present value of the total amount of collateral of covered bonds shall continuously exceed by at least 2 per cent the total net present value of the payment liabilities resulting from the covered bonds.
5. What is the frequency of coverage calculations?
  • Daily
6. What types of stress scenarios are applied?
  • Static
  • Dynamic
7. What is the frequency of stress test calculations?
  • Monthly
(9) Comments: The issuer shall further ensure that the total amount of interest accrued from the assets calculated in the total amount of collateral, during any successive period of 12 calendar months, is sufficient to cover the total amount of interest payable to holders of covered bonds and payments to counter-parties in derivative contracts during the same period.
. Exposure to liquidity risk
8. Is exposure to liquidity risk required to be mitigated by law or contract?
  • Yes
9. What is the primary method for the mitigation of liquidity risk on interest payments?
  • Liquidity facilities
10. What is the primary method for the mitigation of liquidity risk on principal payments?
  • Natural matching (matching without the use of off-balance sheet instruments) and stress testing
  • Liquidity facilities
  • Contractual arrangements, e.g. maturity extension or prematurity test
11. Is there any grace period in case of a breach of liquidity risk mitigants?
  • No
(10) Comments: If not otherwise advised by FIN-FSA.
12. What is the consequence of not fixing a breach of liquidity risk mitigants?
  • Other regulatory or rule-based action
(11) Comments: Cancelling the licence (FIN-FSA).
. Monitoring of exposures to market and liquidity risk
13. Who monitors the maintenance of coverage tests?
  • Supervisory authority
14. Are there any regular public reporting requirements for market and liquidity risk?
  • No
(12) Comments: Reports only to FIN-FSA.
. Overcollateralisation
15. Is mandatory minimum overcollateralisation required?
  • By legislation/regulation
  • By contractual obligation
(13) Comments: "By contractual obligation" varies among the different issuers.
16. What is the level of minimum mandatory overcollateralisation?

  • 2%
(14) Comments: 2% of the Net Present Value by the law and issuer/programme specific levels.
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?
  • Length of period:
(15) Comments: If the collateral of a covered bond does not fulfill the requirements provided for in the Covered Bond Act, the FIN-FSA shall set a time period within which the issuer shall acquire more collateral in accordance with the law.
19. What is the consequence of not fixing a breach of the coverage test?
  • Other regulatory or rule-based actions
(16) Comments: Cancelling the licence (FIN-FSA).
VI. COVER POOL MONITOR & BANKING SUPERVISION
1. Is a special license required for the issuing of covered bonds?
  • Yes with additional requirements compared to general banking supervision regulations
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
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
(17) Comments: Eligibility criteria, requirements for the quality of cover assets, limitations on exposure to market and liquidit risks and overcollateralisation requirements are all set out in the Covered Bond Act (608/2010) and the Credit Institutions Act (610/2014) contains provision about evaluation of operational risk; the FIN-FSA shall supervise compliance (strictly speaking not "check", "monitor" or "evalutate") with both acts and provisions issued under them.
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
5. Is there a cover pool monitor independent from the issuer?
  • No
(18) Comments: Issuer monitors the Cover Pool and reports it to FIN-FSA. FIN-FSA audits the cover pool.
6. If there is an independent cover pool monitor, what are its duties?
(19) Comments: n.a.
VII. SEGREGATION OF ASSETS & BANKRUPTCY REMOTENESS OF COVERED BONDS
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
(20) Comments: All cover assets in the cover register.
3. How are the covered bondholders protected against claims from other creditors in case of insolvency of the issuer?
  • Preferential claim by law
  • Specific cover pool administration
4. Is there recourse to the credit institution’s insolvency estate upon a cover pool default?
  • Yes, pari passu with unsecured creditors
5. Are there provisions that require derivatives to continue in case of insolvency of the credit institution?
  • Yes
(21) Comments: The bankruptcy administrator shall, on demand of the attorney (see VI.4) or by his permission, conclude derivatives contracts necessary for hedging against risks relating to covered bonds and the assets placed as their collateral.
6. If derivatives are permitted in the cover pool, what is their ranking?
  • Pari passu to covered bond holders
VIII. RISK WEIGHTING & COMPLIANCE WITH EUROPEAN LEGISLATION
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: http://ecbc.hypo.org/Content/default.asp?PageID=504#position https://www.coveredbondlabel.com
(22) Comments:
3. Are listed covered bonds eligible in repo transactions with the national central bank?
  • Yes
(23) Comments: Also with the ECB.
4. Are there any special investment regulations regarding covered bonds?
  • No
IX. ADDITIONAL INFORMATION
1. Link to National Association representing covered bond interests
  • Association
2. Link to national regulators and supervisors
3. Fact Book Country Chapter
  • Chapter
 
4. Hypostat Country Chapter
  • Chapter
 

Comments for your selection

  • 1: "Credit institution, but pledged to the issuer" in the case of "intermediary credits".
  • 2: "No" in the case of "intermediary credits" or in case the assets are bought by the issuer from other credit institutions.
  • 3: The Covered Bond Act contains certain provisions that specifically apply in the case of a covered bond issuer's bankruptcy, but the general framework of the bankruptcy procedures is set out in the Bankruptcy Act.
  • 4: Market value at the moment of granting mortgage loan. The issuer shall quarterly follow the development of the market values of the collateral for mortgage loans as provided in the Financial Supervisory Authority's (« FIN_FSA ») regulations, for example using the statistical method. Application of a statistical method requires that threshold values are set for price changes; if the threshold value for a price drop is crossed, the supervised entity shall in its own systems without delay update the fair value of individual collateral. If the value of shares or real estates placed as collateral of commercial property credits and housing loans exceeds EUR 3 million, a valuation statement by an independent and external real estate evaluator approved by the Central Chamber of Commerce shall be acquired.
  • 5: Pari passu with other unsecured creditors.
  • 6: LTV of the original loan can be up to 100% (for residential loans a 90% recommendation by the FIN-FSA) but only 70% (residential) /60% (commercial) LTV of that loan is Cover Pool eligible.
  • 7: No Portfolio specific LTV limits.
  • 8: The total amount of collateral of covered bonds shall continuously exceed the remaining combined capital of the covered bonds. The net present value of the total amount of collateral of covered bonds shall continuously exceed by at least 2 per cent the total net present value of the payment liabilities resulting from the covered bonds.
  • 9: The issuer shall further ensure that the total amount of interest accrued from the assets calculated in the total amount of collateral, during any successive period of 12 calendar months, is sufficient to cover the total amount of interest payable to holders of covered bonds and payments to counter-parties in derivative contracts during the same period.
  • 10: If not otherwise advised by FIN-FSA.
  • 11: Cancelling the licence (FIN-FSA).
  • 12: Reports only to FIN-FSA.
  • 13: "By contractual obligation" varies among the different issuers.
  • 14: 2% of the Net Present Value by the law and issuer/programme specific levels.
  • 15: If the collateral of a covered bond does not fulfill the requirements provided for in the Covered Bond Act, the FIN-FSA shall set a time period within which the issuer shall acquire more collateral in accordance with the law.
  • 16: Cancelling the licence (FIN-FSA).
  • 17: Eligibility criteria, requirements for the quality of cover assets, limitations on exposure to market and liquidit risks and overcollateralisation requirements are all set out in the Covered Bond Act (608/2010) and the Credit Institutions Act (610/2014) contains provision about evaluation of operational risk; the FIN-FSA shall supervise compliance (strictly speaking not "check", "monitor" or "evalutate") with both acts and provisions issued under them.
  • 18: Issuer monitors the Cover Pool and reports it to FIN-FSA. FIN-FSA audits the cover pool.
  • 19: n.a.
  • 20: All cover assets in the cover register.
  • 21: The bankruptcy administrator shall, on demand of the attorney (see VI.4) or by his permission, conclude derivatives contracts necessary for hedging against risks relating to covered bonds and the assets placed as their collateral.
  • 22:
  • 23: Also with the ECB.