On Tuesday 20 June, the committee on economic and monetary affairs (ECON) of the European Parliament adopted a draft report calling on the European Commission to present a directive on a pan-European framework for covered bonds, including a common definition and limited harmonisation.
Readers may recall that covered bonds – of which the servicing is secured by mortgage or public-sector loans – are instruments that are known for their low default rate and the reliability of the income they generate.
The MEPs took position by a clear majority (43 votes to 6) in favour of the future European legislation being limited to a directive laying down the principles of the European framework, but leaving it to the national supervisory authorities to define the technical standards.
“European legislation should cause no disruption for frameworks which are well embedded in national law and which have enabled the covered bonds markets to operate smoothly and successfully over several decades”, reads the draft report by Bernd Lucke (ECR, Germany).
The MEPs consider that this future European directive should define and clearly distinguish between two types of assets: - covered bonds (benefiting from the preferential treatment provided for in the 'CRR' prudential regulation), and; - European Secured Notes (for other securities incompatible with this definition, such as non-government-backed infrastructure investments or lending to small and medium-sized enterprises).
In line with the compromise solution put forward by Dariusz Rosati (EPP, Poland) during an exchange of views in committee on the subject (see EUROPE 11798), the draft report also provides for certain covered bonds to become “Premium Covered Bonds”, whilst others will remain “Ordinary Covered Bonds”.
Finally, the MEPs also call for minimum supervisory standards to be brought in, proposing that harmonised standards and models be drawn up to facilitate the comparison and analysis of the differences between covered bonds within the EU.
The final vote on this report in plenary is scheduled for 4 July. The MEPs expect the Commission to take their proposals on board when it legislates on the subject in the first quarter of 2018, as provided for by the mid-term revision of the Capital Market Union (see EUROPE 11804). (Original version in French by Marion Fontana)