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Covered Bonds Directive transposed into Maltese law

On 17 March 2023, the MFSA issued a circular on the transposition of Directive (EU) 2019/2162 of the European Parliament and of the Council of 27 November 2019 on the issue of covered bonds and covered bond public supervision (the “Covered Bonds Directive”).

Covered bonds are debt obligations issued by credit institutions, which have specific structural features that aim to protect investors at all times. The inherent purpose of covered bonds is to provide a stable funding source for credit institutions.

Reserving the issue of covered bonds to credit institutions ensures that the issuer has the necessary knowledge to manage the credit risk relating to loans which may form part of the cover pool. It further ensures that the issuer is subject to capital requirements that safeguard the interests of investors under the dual recourse mechanism - a core feature of this financial instrument. This is the requirement that investors in covered bonds have a claim not only against the issuer but also against assets in the cover pool, as preferred creditors.

Local transposition

Locally, the Covered Bonds Directive has been transposed by virtue of:

  • Financial Markets (Amendment) Act (Act No.IX of 2023);
  • Financial Markets Act (Covered Bonds) Regulations (L.N. 59 of 2023), which shall apply to covered bonds issued by credit institutions licensed in terms of the Banking Act;
  • Amendments to the Recovery and Resolution Regulations (S.L. 330.09) - (L.N. 6 of 2021 and L.N. 74 of 2022); and
  • Amendments to the Investment Services Rules for Retail Collective Investment Schemes (in relation to investments by UCITS in covered bonds).

Designated competent authority and rules

It shall be the function of the MFSA to act as the designated competent authority in Malta for the purposes of implementing the provisions of the Covered Bonds Directive and to carry out covered bond public supervision.

In terms of the Financial Markets (Amendment) Act), the MFSA may, from time to time, issue and publish covered bonds rules as may be required to carry into effect any of the provisions of such Act or any regulations made thereunder, and to transpose, implement and give effect to the provisions and requirements of the Covered Bonds Directive. Indeed, it is understood that the MFSA shall be publishing a Covered Bonds Rulebook for such purpose in due course.

Should you have any queries on the Covered Bonds Directive or its local implementation, please get in touch with Malcolm Falzon ( or Maxine Gauci (