In December 2010 Cyprus enacted the Covered Securities Law, 130(I) of 2010, which establishes the legal framework for issuance of covered bonds in Cyprus complying with Directive 2009/65/EC (the UCITS Directive) and Directive 2006/48/EC (the Capital Requirements Directive).
The new law empowers all credit institutions incorporated in Cyprus, including cooperative credit institutions, to issue covered bonds, provided they register with and are authorised by the relevant supervisory body (see below).
It regulates, inter alia, the eligibility of assets for inclusion in the cover pool, the issuance model (the cover pool assets remain separately identifiable in the issuer’s balance sheet rather than being transferred to a special purpose vehicle) and the registration in Cyprus of foreign covered bonds in case of a cross-border merger involving the absorption of an issuing credit institution incorporated under EEA law by another credit institution incorporated in Cyprus. The Central Bank of Cyprus is the designated body for registration and supervision of eligible issuers and covered bonds where the issuer is a bank, and the Cooperative Societies Supervision and Development Authority is the supervisory body where the issuer is a cooperative credit institution. In the event of the issuer’s insolvency, holders of covered bonds have priority on the proceeds of the cover pool over all other creditors, both secured and unsecured.
A number of detailed implementation issues, including the assessment of the adequacy and quality of the cover pool, the Capital Requirements Directive compliance of the covered bonds, and disclosure requirements on the part of issuers, are dealt with in a separate Directive issued by the Central Bank of Cyprus.For further details please contact Stephanos Evangelides of our specialist financial services group or your usual contact at Andreas Neocleous & Co.