Industry & analyst Q&As

Yes. FSA expect EU recognised covered bonds will form an important part of the UK capital markets. FSA's views are set out in more detail in the letter of intent and the February 2006 consultation paper on implementation of the Capital Requirements Directive.

Institutional capital markets are expected to benefit from the development of a highly liquid, long dated (20 year plus maturities) and cost effective debt instrument. This should also help facilitate a level playing field for UK issuers in a pan European market place.

For issuers the expected benefits include the ability to extend the maturity profile of the liability side of the balance sheet, so to improve asset and liability management and interest rate risk management. Some in the industry have indicated that the premium currently borne by structured covered bond issues is also expected to reduce. Such benefits should, within certain levels of issuance, improve the general credit worthiness of the issuer.

For investors the expected benefits include an additional means of managing long-term liquidity risk and interest rate risk. For UK regulated firms the availability of a preferential regulatory capital treatment that benefits all UCITS recognised covered bond issuers.

For consumers the Miles report¹ indicates that one expected benefit is the development of a longer-term fixed-rate mortgage market.

Access to a UK EU recognised covered bond market and preferential risk weights once the full regulatory framework is in place both for UK and pan European issues.