On 18 September 2024, the Government Legislation Programme (the “Programme”) for Autumn 2024 was published. It identifies 29 bills to be prioritised for publication and 32 bills to be prioritised for drafting. The Programme also includes legislation which is currently before the Irish Houses of the Oireachtas.
There is a significant inclusion in the Programme in relation to Irish covered bonds (Asset Covered Securities as they are referred to under the Irish covered bonds legislation). The Programme references heads of bill (i.e. a document which sets out the main objectives, headings and provisions of proposed draft legislation) being prepared in relation to the following : Asset Covered Securities (Amendment) Bill will amend the Asset Covered Securities Act 2001 to allow for the carrying on of Asset Covered Securities Business by Credit Institutions that are not restricted to the carrying on of Asset Covered Securities Business only; and to provide for related matters [Direct Extract]. We have described below what this is likely to be referring to in practical terms.
SBM Model and UBM Model
In recent years, various stakeholders have made representations to the Irish Department of Finance (the “Department”) requesting legislative changes to facilitate the issuance of covered bonds from the balance sheet of specialist covered bond subsidiary entities under a specialist banking model (the “SBM model”) or from existing non-specialist parent entities which could operate under a universal banking model (the “UBM model”).
Under Irish law, only the SBM model is currently permitted for issuing covered bonds : Asset Covered Securities Act, 2001 (as amended). Under the SBM model, the business activities of covered bond issuers (who must be authorised credit institutions) are restricted to those directly relevant to their covered bond activities, such as issuing covered bonds, originating mortgage loans and related hedging activity. Arguably, the set-up and ongoing administrative costs of following the SBM model creates somewhat of a barrier to entry for certain would-be market participants. Some stakeholders have also argued that the SBM model creates material operational, reporting and governance inefficiencies for current market participants.
A number of EU jurisdictions permit the use of the UBM model for covered bonds. Under the UBM model, covered bond issuance and associated regulatory compliance does not need to be in a separate ring-fenced authorised credit institution. Covered bond issuers can be authorised credit institutions with unrestricted business activities.
Potential Legislative Change
The reference to the Asset Covered Securities (Amendment) Bill and the above description of the proposed heads of bill contained in the Programme might prove to be an early indication that Irish law will in the future permit both the UBM model and the SBM model to be used by Irish issuers of covered bonds.
However, we will need to review the heads of bill in due course to establish what the intentions of the Department are in that regard. Moreover, all draft legislation is fully subject to scrutiny and potential amendment by the Irish Houses of the Oireachtas prior to its adoption.
The development referenced herein is likely to be of particular interest and importance to current and potential covered bond issuers, including Irish credit institutions (i.e. banks and institutions that accept deposits from the public). We are continuing to keep a close eye on developments in this area and will publish further updates as matters progress. For further information on Irish covered bonds and the above developments, please contact Turlough Galvin, Vincent McConnon, Alma Campion or your usual Matheson contact.
This article is provided for general information purposes only and does not purport to cover every aspect of the themes and subject matter discussed, nor is it intended to provide, and does not constitute or comprise, legal or any other advice on any particular matter.