European Commission – Legislative proposal on covered bonds presented

The European Commission is taking a major step towards the development of a Capital Markets Union (CMU) by proposing common rules for covered bonds.

The proposals – which take the form of a Directive and a Regulation - aim to foster the development of covered bonds across the Union. By making a cost-effective and long-term funding source available, these rules will help financial institutions - in particular banks – to finance the economy and will provide investors with a wider and safer range of investment opportunities.

The proposed Directive provides a common definition of covered bonds, which will represent a consistent reference for prudential regulation purposes; defines the structural features of the instrument; defines the tasks and responsibilities for the supervision of covered bonds and sets out the rules allowing the use of the “European Covered Bonds” label.

The Regulation amends the Capital Requirements Regulation (CRR – Regulation (EU) no. 575/2013) with the aim of strengthening the conditions for granting preferential capital treatment by adding further requirements.

The proposal will now be discussed by the European Parliament and the Council. Once adopted, an implementation period of one year is envisaged before the new regime starts to apply.