The EU covered bond legislative package was adopted in a European Parliament plenary today (Thursday), confirming political agreement on the final text of the Directive and Regulation, although it is not set to enter into force until the autumn for procedural reasons.

Following trilogue negotiations, the compromise text of the legislative package was approved by Parliament’s Economic & Monetary Affairs Committee (ECON) on 1 April and approved in two parts in a plenary session today. The Directive was approved by 426 votes in favour, 103 against and 39 abstentions, and the Regulation by 425 in favour, 109 against and 39 abstentions, according to parliamentary records.

“We achieve two aims with the new European framework for Covered Bonds,” said Bernd Lucke, ECON rapporteur. “The high product quality is formalised by mandatory product characteristics. This way, we facilitate future product developments and contribute to financial stability.

“Furthermore, we promote the quality of the product and make it more attractive for investors at home and abroad. At the same time, the legislation enlarges the market because member countries which do not yet possess a specific covered bonds legislation can now establish such a legislation on a reliable and consistent basis.”

The result was welcomed by Luca Bertalot, secretary general of the European Mortgage Federation-European Covered Bond Council (EMF-ECBC).

“We are extremely pleased with today’s outcome, which is the result of a long and intense period of discussion and negotiation between policymakers, during which the EMF-ECBC played a pivotal role in facilitating constructive dialogue between the industry and the EU Institutions,” he said. “The agreement sealed today delivers a common European-wide regulatory framework for covered bonds which not only enhances harmonisation of best practice but also contributes to the further development of covered bonds in the EU and beyond, acting as a lighthouse for the global funding of the real economy and further reducing market fragmentation.

“The industry is very proud of this accomplishment, which is the result of a combined effort of all market stakeholders to secure a global qualitative benchmark which responds to the needs of the market. The EMF-ECBC will now follow closely national implementation of the legislative package and, as always, stands ready to assist the development of the asset class in new jurisdictions, such as in the Baltic region, and other global markets.”

However, for procedural reasons, today’s vote is only provisional, even if final approval is considered a formality, according to industry sources. This week’s plenary is the last before the end of the current parliament and elections, and although the legislative package was concluded in time to be put to a vote, official translations into all EU languages were not finalised. This means the final text will have to be officially approved in the first plenary meeting of the new parliament, likely in July 2019, followed by a technical vote in the European Council, pushing back publication in the Official Gazette and the package’s entry into force until around October 2019.