Newsflash – Luxembourg Financial Sector – Draft bill on banks issuing covered bonds

On 12 January 2018, a draft bill relating to banks issuing covered bonds (lettre de gage) has been filed (Draft bill n°7232) (the “Draft Bill”).

The purpose of this draft bill is to amend certain provisions relating to banks issuing covered bonds and which are governed by the Luxembourg financial sector act of 4 April 1993 (the “Financial Sector Act”).

The proposed amendments essentially covers two different aspects :

-  On the one hand, the Draft Bill provides for the creation of a legal framework for a new category of covered bonds on renewable energy, and

- On the other hand the Draft Bill provides for certain adjustments to the existing regime so as to be aligned with the latest guidelines of the European Banking Authority.

Green finance (i.e. financing of renewable energy’s assets and/or infrastructures) has become one of the main pillars of the Luxembourg financial sector. The development of the – constantly growing – green exchange market of the Luxembourg stock exchange, the development of climate labels in the financial sector and the creation of a “Climate Finance Task Force” whose role is to promote and develop initiatives in green finance[1], contribute to the general trend of having an attractive financial sector for green projects.

The creation of covered bonds on renewable energy is in line with that general trend and contributes to the diversification of the financial sector and promotion of a fast growing market.

According to the Draft Bill, a new category of activity may be conducted by banks issuing covered bonds. Article 12-1 of the Financial Sector Act (definition of the main object of a bank issuing covered bonds) will be amended in order to capture credit institutions having as their main object the granting of loans secured by rights in rem on movable or immovable properties generating renewable energy and issuing debt instruments secured by those rights (i.e. the covered bonds).

It is also worth highlighting that these loans may be granted in any form, including via the acquisition of bonds issued by securitisation vehicle (or compartments of securitisation vehicles) where a minimum of 90% of the assets is made up of debt secured by rights in rem on movable or immovable assets generating renewable energy.

We furthermore expect the Luxembourg Financial Sector Act to be adjusted in order to contain definitions and criteria allowing the assessment of whether a property/asset generates renewable energy.

Other additional amendments are expected as regards to the control to be effected by the statutory auditor and throughout Article 12 of the Financial Sector Act in order to comply with the latest guidelines of the European Banking Authority on harmonisations of covered bonds[2].

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For further details, please contact :

Basile Fémelat
Basile Fémelat
Partner
femelat@mnks.com
T: +352 26 48 42 1
Arnaud Joseph
Arnaud Joseph
Senior Associate
joseph@mnks.com
T: +352 26 48 42 1

 


[1] Draft bill 7232
[2] On 20 December 2016, the EBA published a final version of a report entitled “EBA Report on Covered Bonds – Recommendations on Harmonisation of Covered Bond Frameworks in the EU