Review to shake up bond market

The Treasury and Financial Services Authority published a joint review yesterday of regulations governing the covered bond market, proposing changes to create a level playing field with European issuers.

In the report, the authorities outline six proposals which they believe will create a standard of consistent investor reporting and highlight the quality of underlying assets.

“The review highlights the quality of the regime, and will increase the appeal of covered bonds to investors,” the FSA said in an accompanying statement.

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“It also provides an update on the UK’s engagement with its international partners on other areas of policy which relate to covered bonds.”

A period of consultation with market participants is under way and will end on July 1.

A covered bond is a debt instrument backed by a pool of assets, typically residential mortgages, which remain on the issuer’s balance sheet.

According to one covered bond banker, the contents of the review were flagged in advance of its publication and are aimed at creating a more robust market frame-work.

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Covered bonds have played a crucial role since the financial crisis in helping banks obtain wholesale funding, but UK banks have been charged more to borrow than many of their peers.

“The bottom line seems to be that if the UK imitates continental European structures, we will be able to reduce the premium that British issuers need to pay relative to continental issuers of a similar quality,” the banker said.