The long awaited final piece of Brazil’s covered bond legislation is now in place, following the approval of secondary regulation defining the characteristics of the new Brazilian product yesterday (Tuesday), paving the way for the country’s first issuance.

This article was updated to refine the text, following an official translation of the announcement.

Legislation for Brazilian covered bonds, named letras imobiliárias garantidas (LIGs), came into force in January 2015, and more detailed secondary legislation has since been awaited to define how the product will work.

This task was delegated to the Monetary National Council (Conselho Monetário Nacional, or CMN), which includes the minister of finance and Brazil’s central bank. Draft secondary regulation was published for a consultation in January.

The National Monetary Council announced yesterday that it had approved a resolution regarding the secondary regulation, defining the general characteristics of LIGs, as had been required since the approval of the primary legislation.

The announcement said the public consultation on the secondary regulation, which closed in April, received a broad response from the private sector, prompting some changes to be made from the draft proposals.

According to Cristina Costa, senior covered bond analyst at SG, two amendments were made relating to allowing for over-the-counter derivatives and registration of assets in the cover pool. Both amendments had been recommended by the Brazilian Association of Real Estate Loans & Savings Companies (ABECIP), she said.

The CMN said the regulation is part of the government’s efforts to provide a stable source of funding for housing loans, in the context of economic growth and an upturn in investor and consumer confidence currently underway in Brazil.

The LIG regulation has been published on the central bank’s website.

Photo: Banco Central do Brasil; Source: Senado Federal/Flickr