The EBA advises the EU Commission on the review of the EU covered bond framework

The European Banking Authority (EBA) today published its advice in response to the European Commission’s Call for Advice (CfA) on the review and performance of the EU covered bond framework. The EBA welcomes this initiative as a timely opportunity to evaluate the effectiveness of the current framework and to support the development of a deeper and more integrated EU covered bond market. The advice includes targeted recommendations aimed at enhancing harmonisation across national and EU-level frameworks, improving legal clarity and transparency, and expanding the scope of the EU covered bond ecosystem.

The CfA requested the EBA to assess the performance of the current EU covered bond framework, the relevance and the design of a potential third-country equivalence regime, the feasibility of introducing a dual recourse-like instrument to support SME financing, the role of green covered bonds and ESG risks in cover pools.

Following its assessment, the EBA considers the framework broadly fit for purpose and formulates the following recommendations aimed at further enhancing the framework:

• Enhancing harmonisation by further aligning national frameworks to reduce market fragmentation, while preserving the flexibility of the principle-based approach under the Covered Bond Directive (CBD).
• Protecting investors by strengthening safeguards and improving transparency across all national frameworks to better serve investors.
• Simplifying and streamlining the EU legal framework by aligning the CBD more closely with the Capital Requirements Regulation (CRR).
• Expanding the scope of the framework by introducing a third-country equivalence regime.

Legal basis, background and next steps

Under Article 31 of the CBD, the review of the covered bond framework envisages three steps: the European Commission assigned the task of preparing the report to the EBA in July 2023, following which the EBA prepared the analysis in collaboration with the National Competent Authorities (NCAs), including recommendations for further policy action where appropriate. The Commission will then submit the outcome of the report to the European Parliament and the European Council by 8 July 2025.