The Czech Ministry of Finance informed (in Czech only) that the Czech Act on Bonds amendment was published in the Collection of Laws in December 2018 as No 307/2018 Coll. with the effect as of 4th January 2019. The Ministry also published (on the same web page) the full amended law translated into English.
The law amendment is to eliminate certain deficiencies of the covered mortgage bond framework and some other imperfections of the Czech bond legislation to generally modernise and harmonise national laws with those adopted by other EU Member States. The reduced attractiveness and lower competitiveness of the Czech bond were assigned to some missing provisions or legal tools that are common in the developed countries. The missing tools to be included are for instance: the concepts of a security agent, a covered block monitor and forced administrator of covered blocks. The assets held by the security agent are ring-fenced from the security agent’s insolvency estate for the benefit of covered bondholders. The law clarifies the insolvency regime applicable to the cover pool and covered blocks. It explicitly stipulates that the cover pool does not form a part of the insolvency estate of the issuer and that the commencement and operation of insolvency proceedings do not affect covered blocks. The law amendment has also introduced the concept of contingent convertibles (CoCos) into Czech law.
The amendment objective is to ensure that covered bonds are financial instruments which meet European standards and market requirement and have good quality and tradability on the financial market. This should increase their attractiveness for investors and improve their liquidity and credit quality on the markets.
The law amendment is a national legislation and does not represent a transposition of any particular European directive; however, it takes into account to a high extent the currently discussed European draft directive on this matter. The ECB published its opinion on this Czech legislation where it generally welcomes this reform of the previous framework.
In relation to this law amendment the CNB issued its Decree 2/2019 Coll. of 21 December 2018 on records of covered blocks.