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October 2022

UK RCBC assessment of the Liquidity Coverage Ratio eligibility of UK covered bonds

Following the departure of the UK from the EU (and it not being a member of the EEA) there has been some debate over the classification of UK covered bonds under Commission Delegated Regulation (EU) 2015/61 (as amended) (the LCR Regulation).

The understanding of the UK RCBC is that covered bonds issued by UK issuers can be eligible as Level 2A assets for the purposes of the LCR Regulation provided they meet the criteria set out in Article 11(1)(d) of the LCR Regulation.

Article 11(1)(d) allows for covered bonds issued by credit institutions in third countries to be eligible as Level 2A assets under the LCR Regulation, provided the criteria set out in 11(1)(d) are satisfied. Amongst other things, these requirements include (i) that the supervisory and regulatory arrangements applied in the third country must be at least equivalent to those applied in the Union (the Supervisory Requirement)and (ii) that the issuer must meet the transparency requirements set out in Article 14 of Directive (EU) 2019/2162 (the EU Covered Bond Directive) (such requirement, the Transparency Requirement).

In relation to the Supervisory Requirement, the UK regulations relating to covered bonds (which were introduced in 2008 and have been subsequently amended, but which have not changed since the UK left the EU in January 2021) are substantively aligned with the EU Covered Bond Directive, including the provisions of the EU Covered Bond Directive that relate to supervision set out in Articles 18 to 26. As such our understanding is that covered bonds issued by UK issuers should satisfy the Supervisory Requirement.

In relation to the Transparency Requirement, while the EU Covered Bond Directive does not apply in the UK, we expect that UK issuers are already providing investor reporting (disclosed on the relevant issuer’s website)  that contains the minimum information required under Article 14. We further note that 8 of the UK RCBC members (as members of the “Covered Bond Label”) produce a quarterly report in the form of the new Covered Bond Label Harmonised Transparency Template (HTT), which has been designed to meet the requirements of Article 14 of the Covered Bond Directive. Therefore for those issuers completing the HTT, the Transparency Requirement should be satisfied. Others would need to be considered on a case by case basis but, as stated above, we expect the Transparency Requirement would also be satisfied for those issuers. 

Investors in any Covered Bonds (including those issued by a UK issuer) are responsible for analysing their own regulatory position and prudential regulatory treatment applicable to the Covered Bonds and should consult their own advisers and regulators as necessary in this regard.

Sustainable Finance

The UK RCBC supports the goal of making finance sustainable as part of the wider environmental campaign to combat climate change.

To this end the UK RCBC is a member of two important programmes that look to promote sustainable finance, particularly in relation to mortgages and their funding.

In the UK the UK RCBC is an Advisory Group Member supporting the Coalition for the Energy Efficiency of Buildings, a project established in 2019 by the Green Finance Institute. More details can be found here:

The UK RCBC has also been a member of the Energy Efficient Mortgage Initiative since it was established in 2018 by the EMF/ECBC. More details can be found here: