The industry’s response to an anticipated Directive to harmonise EU covered bonds could spell success for the product or put it at risk, the EMF-ECBC’s Luca Bertalot told an ICMA CBIC/The CBR conference on Thursday, ahead of an expected Commission announcement this week.

The European Commission is expected to announce plans to harmonise EU covered bond markets through a Directive when it gives a mid-term update on its wider Capital Markets Union (CMU) project, due on Thursday. A proposal could then come out early next year. This comes after the European Banking Authority outlined a proposed three-step approach to harmonisation in December – a template that is expected to influence the Commission’s approach.

Speaking at an ICMA Covered Bond Investor Council (CBIC) and The Covered Bond Report conference in Frankfurt on Thursday, Luca Bertalot, secretary general of the European Mortgage Federation-European Covered Bond Council (ECBC) said speed would now be an important element in the legislative process.

“We need to have a principles-based approach ready as soon as possible, because this is in in the interest of the entire community,” he said. “The EBA has done a perfect job, I would say, to set the scene, to give a clear indication that, I think, will most probably be followed by the European Commission, and hopefully the European Parliament will go in the same direction.

“The Council, the EBA, the Parliament and the Commission appear to be aligned. This can facilitate a smooth process, arriving to a decent result – which is not always the case in legislation – in a relatively short timeframe.”

Bertalot added that the timing of the eventual unveiling of any draft Directive could be advantageous.

“We are in a special political moment,” he said. “Most countries are going into elections this year, so by the time this potential Directive can be analysed – let’s suppose December 2018 – it is possible that we have every single country’s government able to implement this kind of package in the most appropriate way.”

He said the participation of the industry would be crucial, adding that the ECBC would work to help communication between its member banks, the Commission, and national authorities.

“The market should be ready to react now,” he said. “We have to show we are acting as a community – that is extremely important.

“The next 18 months could make this product a success, or could put this product at risk, so it is very important that we call for active participation from everyone.”

Bertalot said a recent “own-initiative” report on covered bond harmonisation from the European Parliament’s Committee on Economic & Monetary Affairs (ECON) would help the Commission and represented “a good result”.

“Some countries will have to be very careful to ensure that this report will not hamper their market, which is normal, because the rapporteur cannot be aware of every single technical detail in every single country,” he added. “It’s a normal exercise of analysing the market and reacting … and I really don’t see any major concerns from our perspective in the ECON report.”

(This article was amended after publication to reflect that the CMU mid-term review will be published on Thursday, 8 June.)