UK Covered Bonds - United Kingdom

1 Who is the issuer? Universal credit institution with a special licence

Issuer must be a licensed deposit taker and registered with the FCA as a covered bond issuer
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? SPE which guarantees the bonds
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*  
Residential mortgage loans x

Wider range of assets or mixed assets are permitted, but to date all programmes are single use eg Housing Associalition loans
2 What is the geographical scope of assets?
  Primary assets Substitution assets
Public sector assets Mortgage assets Other 1* Other 2* Other 3*  
Domestic x

A wider range is permitted but to date all are domestic
3 Is there a maximum level for substitute assets in the statutory national framework? No, substitute assets not allowed in general

Liquid assets are restricted and do not count towards the minimum level of collateral
4 Are there any reporting requirements for covered bond issuers to investors? Yes, by law and in line with art. 14 of EU Covered Bond Directive

Regulatory reporting is believed to be in line with Article14 but until third country equivalence review is complete this cannot be formally confirmed
5 What is the frequency of reporting to investors? Monthly

1 What is the basis for property valuation Market value
2 Is a regular update of the property value required? Yes, automated / indexed valuation sufficient

Quarterly by a national recognised index
3 What are the LTV limits (single asset based)? Please specify in %/n.a. Residential

Residential 80%
4 Are loans in excess of LTV limits eligible for inclusion in the cover pool? Yes (soft limit)

The value of loans is subject to an individual haircut to restrict it to 80% in coverage testing

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

Must be formally documented with FCA guidance on credit risk
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? Yes, by legislation/regulation
5 What type of coverage test is applied?
6 Are there stress scenarios applied? Yes, by law

IV.3 Liquidity risk

1 Is exposure to liquidity risk mitigated? Yes, both by law and contractual
2 What liquidity risk mitigation requirements are in place (principal)? Maturity extension provisions
Contractual pre-maturity test
Stress testing requirements

Hard bullets have pre-maturity tests. Soft bullets predominate
3 What liquidity risk mitigation requirements are in place (interest)? Reserve fund requirements
Stress testing requirements
4 What is the consequence of not fixing a breach of liquidity risk mitigants? No new covered bond issuance
Event of default

Beach of ACT can be fixed in a timely manner and is not an automatic default
5 If 180 days liquidity provisions are in place, what types of liquid assets are eligible
6 If 180 days liquidity provisions are in place, the calculation of principal is based on:

IV.4. Maturity extension

1 Is maturity extension allowed by national law? Yes, but optional and subject to conditions
2 Is it possible to issue… Hard bullet
Soft bullet

Soft bullets predominate
3 Which trigger plays a role for maturity extension according to law - independent or alone or in combination? Issuer bankruptcy/resolution
Issuer failure to pay
4 Does any competent authority need to give its okay (or non-opposition)? No

Contractual requirement to extend if triggered

IV.5 Overcollateralisation

1 Is mandatory overcollateralisation required in the law ?

Residential Mortgages - 108% - Nominal

Additional collateral required due to contractual requirements/ rating agency requirements/FCA stress testing

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 and in line with Article 13 of EU Covered Bond Directive

Asset pool monitor must be independent firm capable of being the suditor
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 Conduct Authority - Website

As UK is outside the EEA Premium label will require the Third Country Equivalence regime to be in place
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 Yes

FCA approval required for every issue
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? Monthly

1 Does the national statutory law meet the requirements laid down in the EU Covered Bond Directive? No

UK is outside the initial scope as non EEA
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 No
4 Are listed covered bonds eligible in repo transactions with the national central bank? Yes

Any further comments/information?