On 9 December 2021, the Luxembourg law of 8 December 2021 on the issuance of covered bonds (i) transposing into Luxembourg law Directive (EU) 2019/2162 of 27 November 2019 on the issue of covered bonds and covered bond public supervision, and (ii) implementing Regulation (EU) 2019/2160 of 27 November 2019 as regards exposures in the form of covered bonds, was published in the Luxembourg official gazette (the “Covered Bonds Law”).
In our previous newsletter published on 10 May 2021 on the draft law that resulted in the Covered Bonds Law, we set out some of the highlights of the draft law which have now been adopted in the Covered Bonds Law.
First, the Covered Bonds Law abolishes current restrictions on issuing entities. Under the current Luxembourg framework, only credit institutions authorised by the CSSF as covered bond banks (banques d’émission de lettres de gage) and only dedicated to such activity could issue covered bonds. Under the Covered Bonds Law, all Luxembourg banks will be able to issue covered bonds, without a need to obtain previous authorisation as specialised covered bond banks, subject however to certain financial limitations. In this way, Luxembourg universal banks will be able to expand their field of activity by issuing covered bonds.
Second, the Covered Bonds Law adds two types of covered bonds to the existing list of covered bonds under Luxembourg law:
- European covered bonds (obligations garanties européennes), issued in respect of loans secured by physical assets (typically real estate) subject to public registration or in respect of loans granted to, or secured by, public sector entities; and
- (high-quality) European covered bonds (obligations garanties européennes (de qualité supérieure)), issued in respect of loans secured by high quality eligible assets (including certain public sector, immovable and movable property assets) meeting the criteria set out under Article 129 of Regulation (EU) 575/2013 of 26 June 2013 on prudential requirements for credit institutions and investment firms.
The Covered Bonds Law will enter into force on 8 July 2022.