A consultation paper released by Canada’s Department of Finance on Wednesday has been greeted with enthusiasm by several Canadian market participants, who said that it was a positive outcome after several months of talks with the government about the development of a covered bond framework.

“It’s very positive and a welcome development for any Canadian covered bond issuer,” said a funding official at a Canadian bank. “This is something we have been working through with the Department of Finance for several months.

“The next step is legislation, which we believe should give Canadians a more level playing field in Europe.”

The funding official said he was pleased to see all the points that had been discussed over the past several months addressed in the consultation document, including the matter of existing structures.

“There was a vested interest in codifying existing structures in the proposed legislation,” he said. “Investors who hold existing paper, the last thing they want is to be uncertain about what’s happening with their outstanding structures.”

Aaron Palmer, a partner at Blake, Cassels & Graydon, also welcomed the consultation.

“Canada’s adoption of a legislative framework for covered bonds will be a welcome development for issuers and investors alike,” he said. “Strengthening and clarifying investor rights in covered assets upon an issuer’s insolvency should bring Canada’s position into line with other countries that have adopted legislative frameworks.”

Palmer said he found interesting the proposed scope of eligibility criteria for covered assets and issuers.

“Cover pools for legislative covered bonds would be limited to residential mortgages, unlike the recent US proposal that would open up the US covered bond market to other asset classes, like autos, credit cards, and student loans,” he said. “Finance suggests that the more modest the scope of permitted assets will simplify the process and permit a more rapid implementation of a legislative regime.”

Other market participants agreed that the covered bond legislation was fairly neutral and should not face problems in moving forward.

“It should not be a terribly controversial piece of legislation, aside from the standard discussion of trying to balance the interests of retail depositors,” said the funding official.