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UK Covered Bonds Regime

Volume 448: debated on Thursday 29 June 2006

The Treasury has been working closely with the Financial Services Authority and industry on the development of a UK covered bonds regime. UK covered bonds are based on well-accepted market standards and benefit from a high level of legal certainty. The object of Treasury and FSA work is to ensure compliance with the Undertakings for Collective Investment in Transferable Securities ('UCITS') Directive. To this end, the Treasury intends to consult on secondary legislation at the earliest possible opportunity, with implementation by the end of 2007, earlier if possible. Such compliance creates a level playing field for UK covered bonds in the EU and delivers the best possible risk weight for UK covered bonds under the Capital Requirements Directive. Covered bonds have the benefit of:

being a highly liquid, medium to long dated and cost effective debt instrument;

providing a highly effective means of managing long-term liquidity risk for investors and issuers and an additional tool to manage interest rate risk;

in macro-economy terms, greater choice and efficiency in investment markets; and

giving consumers the benefit of the greater efficiency of the funding of the mortgage market.