A draft bill to transpose the covered bond directive into Danish law was published on Friday in the latest step towards implementation, while ECBC members yesterday (Wednesday) highlighted factors that are either spurring progress or causing headaches ahead of next July’s deadline.

In an online event to mark the publication of the 15th edition of the ECBC European Covered Bond Fact Book, Frank Will, HSBC head of covered bond research and chair of the European Covered Bond Council (ECBC) implementation taskforce, said that “after 14 years of controversial discussions, the covered bond harmonisation in Europe is finally on the home stretch”.

Member states have until July 2021 to transpose the directive into national laws, which will then be applicable with CRR amendments from July 2022.

“This is, at least, the plan,” said Will. “As always, the devil is in the detail.”

ECBC secretary general Luca Bertalot noted that although only a dozen or so countries had by late September replied to a European Commission survey on implementation moves, a December update is awaited and progress is likely to be greater than is evident from public sources.

“You don’t necessarily see the movement, but there are people working behind the scenes,” Bertalot told The CBR. “The work has started, even if there is always the risk of being late.”

Speaking during yesterday’s event, he said the Commission is sticking to the current timetable.

“Also, I think the Norwegian and German moves are creating a bit of pressure onto the others to try to move ahead,” he added. “so hopefully we will have a better picture by December on where we are in the different states.”

Norway (although an EEA rather than EU member) and Germany were the first countries to publish draft bills to implement the covered bond legislative package, and were on Friday joined by Denmark – the largest jurisdiction by outstandings and one of the first countries alert to the significance of the directive in the early days of its negotiations.

Morten Bækmand Nielsen, head of investor relations at Nykredit, welcomed the draft bill.

“We are still analysing the bill and there may be some details that need to be clarified,” he told The CBR, “but it appears to be very true to the directive, and reflects that Danish covered bond regulation is already in line with the directive to a very high degree.”

Elena Bortolotti, global head of covered bonds at Barclays and chair of the ECBC rating agency approaches working group, said that the limited number of countries having published draft bills and also having released consultation papers – listing Spain, Ireland, Portugal and Cyprus – gave the impression that “we’re possibly a bit behind”.

She acknowledged that some jurisdictions will only have to do “little tweaks” since they are already more or less compliant, but noted that others – such as Spain and Italy – have more work to do.

Bortolotti said authorities’ focus on the Covid-19 pandemic is one factor that has held up progress, but also that transposing certain elements of the directive was proving a “headache” for national regulators, notably Articles 16 and 17 dealing with extendible maturities and calculation of liquidity buffers, respectively.

“The articles that we believe are the more challenging are those where the choice how to implement or interpret has been left to the national regulators,” she said. “In the implementation taskforce led by Frank, we’ve come to the conclusion that a one-size-fits-all solution would be very difficult with respect to these two articles since across the member states we have different covered bond issuance formats, i.e. we have some jurisdictions that use ring-fencing on balance sheet, we have others that use the SPV guarantor, and some that use the specialised banking principle.

“With regards to extendible maturities,” added Bortolotti, “I think it’s going to be quite interesting to see how the national regulators decide to implement it: will they be imposing a specific extension format – like we have in Germany or Poland, for example – or will the national regulators effectively rely on each issuer to decide if at programme level they’ll be issuing hard, soft or CPT.”

She noted that the related matter of objective criteria for extensions being triggered is also a “tricky item”.

“If I were the regulator,” she added, “I would suggest maybe finding one objective criterion with regards to what should cause the extension, but that shouldn’t preclude issuers at programme level having more triggers.”

Jacek Kubas, associate director, local currency and capital markets, at the European Bank for Reconstruction & Development (EBRD), said the directive is meanwhile spurring progress on covered bond legislation in central and eastern Europe.

“We are very happy to announce that because of the covered bond directive and the implementation, we just were able to restart work in Croatia,” he said. “The working group run by the Ministry of Finance met just a couple of weeks ago, where we were able to restart what we left a couple of years ago and the ministry put on the shelf. Now the ministry has realised that indeed there is a need to have a regime in place, and that helps with the work.”

Latvian legislation is meanwhile expected to be finalised early next year.

“I don’t think we would be able to accelerate this so much if not the work on the directive,” said Kubas.

However, he warned that although regulators and banks in the EBRD’s countries of operation are keen on covered bonds, momentum could ease if the implementation date of the directive were pushed back, with Covid-19 and green matters then taking priority.

And noting that the third country equivalence process will effectively only occur after EU member states have completed implementation, Colin Chen, managing director and head of structured debt solutions at DBS Bank and chair of the ECBC’s global issues working group, said the wish is for progress to be made “sooner, rather than later”.