The UK Financial Services Authority is working on updating its asset encumbrance policy, according to the minutes of a meeting of a new UK covered bond body. An FSA official told The Covered Bond Report that the UK Covered Bond Forum will meet at least twice a year.

A review of the UK Regulated Covered Bond framework, transparency standards, and ratings were also discussed at the first forum, which took place in June, according to recently released minutes.

The FSA was asked for an update on asset encumbrance policy – a topic that has come to the fore in the wake of the financial crisis and which has been debated in countries that are introducing covered bond legislation, such as Australia.

According to the minutes, Lara Joseph of the FSA’s capital markets team “explained that a survey has been sent out to firms by the FSA, and work is ongoing to update policy in this area”.

The impact of bail-ins under a resolution regime on the operation of guarantees provided by special purpose vehicles in UK structures was a point of discussion in relation to the review of the UK framework. The costs and benefits of greater data disclosure were debated in relation to transparency standards, while the advantages and disadvantages of having two rather than three ratings for covered bond programmes was also discussed. Since the meeting the views of some attendees have been revealed in publicly released responses to the UK framework consultation.

Suggestions for future topics of discussion included the implications of Solvency II, CRD IV and retail ring-fencing proposals being developed by the Commission for Banking, which is reviewing the UK banking industry.

The new body takes on a role previously played by the FSA’s Covered Bond Standing Group (CBSG), which broke up as issuance of covered bonds in the public markets dried up after the onset of the financial crisis.

John Wu, senior associate, capital markets team, at the FSA, told The Covered Bond Report that the UK Covered Bond Forum has a similar mission to that of the CBSG in that it is meant to be a group where market participants can air their views on market developments and regulations. He said that the CBSG was disbanded after fewer and fewer items were being placed on the agenda of the group’s meetings, which were frequently cancelled. The FSA had announced its intention to reinstate a body along the lines of the CBSG to increase communication with the rest of the market, he added.

The FSA intends for the forum to meet at least twice a year.

“It should be frequently enough so that there is a continuous dialogue, but with sufficient time in between for there to be substantial issues to discuss,” said Wu.

The forum differs from the standing group in that the membership is broader, extending to investors and trade associations, according to Wu. The standing group only comprised the tripartite authorities – FSA, HM Treasury and the Bank of England – and issuers.

Trade associations represented at the June meeting included the European Covered Bond Council (ECBC), the Covered Bond Investor Council (CBIC) and the Building Societies Association (BSA).

“The membership is intended to be such that the people attending meetings remains fairly constant, but for there to also be some rotation,” said Wu.

Representatives from four UK issuers (Barclays Bank, Nationwide Building Society, Royal Bank of Scotland and Yorkshire Building Society) attended the June meeting, but Wu said that the FSA may wish to invite representatives from other issuers to the next meetings, too, or in addition. Buy-side firms and associations represented at the meeting included Aegon, Blackrock, M&G and the Investment Management Association (IMA).

The minutes of the meeting can be found here:

http://www.fsa.gov.uk/pubs/international/minutes_ukcbf_230611.pdf