A vote on the final ECON report has been pushed back a fortnight as disagreements among MEPs continue, with a shadow Rapporteur highlighting to The CBR a lack of consensus in areas such as the treatment of extendible maturity covered bonds and derivative counterparty eligibility.

The European Parliament Committee on Economic & Monetary Affairs (ECON) had been due on 5 November to vote on a final report on the covered bond package, including the Directive and Regulation, which will then constitute the Parliament’s position when it enters into negotiations with the European Commission and Council in the subsequent trilogue process that is expected to see the legislation finalised around February.

However, following a meeting of shadow Rapporteurs on Wednesday, the vote has been pushed back until 19/20 November – around the same time the Council’s position should be finalised. The initial draft ECON report was prepared by Rapporteur and German MEP Bernd Lucke, of the European Conservatives & Reformists (ECR) – the shadow Rapporteurs represent the different political groupings in Parliament.

Disagreements centre around positions taken by Lucke that could disrupt existing markets – something that all parties have indicated a desire to avoid, and which the principles-based approach advocated by the industry and adopted by the Commission has sought to avoid. Proposals in his draft report aimed at ensuring the high quality of covered bonds – another key aim of the initiative – have variously been seen as harmful to Danish, Italian and Luxembourg covered bonds.

One parliamentary source called for a greater focus from parties to address the outstanding issues to avoid potential damage to national markets.

Alfred Sant, Maltese MEP and shadow Rapporteur for the Progressive Alliance of Socialists & Democrats (S&D), meanwhile told The Covered Bond Report there is broad agreement around much of the Directive, with compromise having been reached on, for example, some aspects of asset eligibility, where Lucke is understood to have dropped some proposed amendments. Restrictions on joint funding that the draft report included have also been removed among compromises.

“A few topics need to be further discussed in my group,” he added, “such as the composition of the cover pool, which in my view is too restrictive – or the provision on equivalence, which might interfere with the overall approach of the European Parliament on the matter.”

Proving more controversial are proposals in the draft report to raise risk weights for extendible maturity covered bonds, notably conditional pass-throughs (CPTs), in changes to CRR.

“The proposals for compromise on the Regulation are still ongoing and we are still far from an agreement,” said Sant (pictured). “My overall approach on this will be that we have to be prudent when we amend it because Article 129 is part of a wider framework and we could have indirect repercussion in other areas.

“Specifically, I have some reservations about the preferential treatment of extendable maturities of the Rapporteur’s draft report, notably soft bullet and conditional pass-throughs, because this could give a wrong signal to investors.”

Another area of contention is eligibility criteria for derivative counterparties, with the initial Commission proposals restricting these to credit quality step (CQS) 2. The Commission has already indicated that it could relax this, and Sant and others have tabled amendments seeking a broader expansion to accommodate CQS3, although Lucke is understood to be advocating stricter criteria. [Paragraph amended to correct original Commission proposal and add Lucke stance.]

Restraining the eligibility derivatives counterparties to only those rated Credit Quality Step 1 would have undesired consequences, beyond the disruption of the current market practices, notably, high concentration risks and higher costs,” said Sant.

There is meanwhile understood to be broad support for a proposal from Sant to include European Secured Notes (ESNs) in a recital to the text calling for the Commission to develop separate legislation.

An industry source welcomed the compromise, but said that a more concrete measure, such as including this as a transitory position, would be preferable.