Icelandic Covered Bonds - Iceland

1 Who is the issuer? Universal credit institution
2 Does the bondholder have recourse to the issuer (in case of special issuer: recourse to the sponsor bank)? Direct
3 Who owns the cover assets? The issuer directly
4 Is the issuer the originator of the cover assets? Yes, solely

1 What type of assets may be included in the cover pool?
  Primary assets Substitution assets
Public sector assets Mortgage assets Other 1* Other 2* Other 3*  
Exposures to public sector entities x
Exposures to credit institutions x
Residential mortgage loans x
Commercial mortgage loans x
Exposure to Private Participation in Infrastructure (PPI) or Private Finance Initiative (PFI) where public sector is conditional x
2 What is the geographical scope of assets?
3 Is there a maximum level for substitute assets in the statutory national framework? Yes, please specifiy

4 Are there any reporting requirements for covered bond issuers to investors? No reporting requirements by law

There is no explicit requirement by law, but requirement for quarterly reporting is stipulated in Arion bank's covered bond licence
5 What is the frequency of reporting to investors? Monthly

Requirement from regulator is quarterly reporting. Arion reports monthly to investors

1 What is the basis for property valuation Market value

Other: "Registers Iceland"
2 Is a regular update of the property value required? Yes, automated / indexed valuation sufficient

The value of properties are valued annually based on official valuation from registers Iceland
3 What are the LTV limits (single asset based)? Please specify in %/n.a. Residential

Residential 80%; Commercial 60%; Agricultural 70%
4 Are loans in excess of LTV limits eligible for inclusion in the cover pool? Hard limit upon inclusion but soft limit accepted following inclusion

IV.1 Derivative contracts in the cover pool

1 Are derivative contracts eligible for the inclusion in the cover pool? Yes, exclusively for hedging purposes (by law)
2 Are there requirements for derivative contracts (e.g. eligibility criteria for hedging counterparties)? Yes, specified in law
3 Will derivative contracts remain in case of insolvency of the issuer? Yes
4 If derivatives are permitted in the cover pool, what is their ranking? Pari passu to covered bond holders

IV.2 Exposure to market risk

1 What is the primary method for the mitigation of market risk?
2 Are there mitigating provisions for interest rate risk? Yes, by legislation/regulation
3 Are there mitigating provisions for foreign exchange risk? Yes, by legislation/regulation
4 Are there mitigating provisions for maturity mismatch risk? No
5 What type of coverage test is applied? Nominal cover
Present value cover
6 Are there stress scenarios applied? Yes, by law

IV.3 Liquidity risk

1 Is exposure to liquidity risk mitigated?
2 What liquidity risk mitigation requirements are in place (principal)? 180 days liquidity provisions
3 What liquidity risk mitigation requirements are in place (interest)? 180 days liquidity provisions
4 What is the consequence of not fixing a breach of liquidity risk mitigants? No new covered bond issuance
5 If 180 days liquidity provisions are in place, what types of liquid assets are eligible Short term deposits to credit institutions (CQS 3)
6 If 180 days liquidity provisions are in place, the calculation of principal is based on: The expected maturity date

IV.4. Maturity extension

1 Is maturity extension allowed by national law? Yes but optional
2 Is it possible to issue… Hard bullet
Soft bullet
Conditional pass-through
3 Which trigger plays a role for maturity extension according to law - independent or alone or in combination?
4 Does any competent authority need to give its okay (or non-opposition)? No

IV.5 Overcollateralisation

1 Is mandatory overcollateralisation required in the law ?

Covered Bond Type - 5% - nominal

No mandatory, but contractual obligation and/or by rating agencies

V.1 Cover pool monitor (CPM)

1 Is there a cover pool monitor in addition to national competent authorities in the statutory law? Yes, by law
2 Is the CPM separate from the issuing credit institution? Yes, required by national statutory law
3 Is the appointment, dismissal, eligibility criteria and the role of the CPM regulated by the national statutory law? Yes

V.2 Banking supervision

1 Which are the national competent authorities designated to carry out covered bonds public supervision in the law?

Financial Supervisory Authority of the Central Bank of Iceland - Website

2 Is a special permission required for a covered bond programme according to national law? Yes, licence for institution + competent autority
3 Is there a covered bond issuance limit in law or regulation? If yes, please specify No

No specific limits in covered bond legislation or regulation but the covered bond licence has a side letter which stipualates a maximum amount that an issuer can issue of of covered bonds. This can be updated upon request.
4 Does the national statutory law provide for the appointment of a dedicated cover pool administrator in case of insolvency/resolution (transfer included acc. to BRRD [Bank Recovery and Resolution Directive])? Yes
5 Which is the typical frequency in the national statutory law of reporting from the covered bond issuers to the designated competent authorities? Semi-annually

The cover pool monitor sends a report semi annually to the regulator

1 Does the national statutory law meet the requirements laid down in the EU Covered Bond Directive? Yes
2 Does the statutory law meet the requirements of Article 129 of CRR [Capital Requirement Regulation]? In this case, please specify the collateral types meeting the Art. 129 CRR. Yes
3 Does the statutory law allow covered bonds out of the scope of Art 129 of CRR? In this case, please specify the collateral Yes

Land for agriculture
4 Are listed covered bonds eligible in repo transactions with the national central bank? Yes

Any further comments/information?