New Zealand’s central bank has launched a consultation on covered bond application and registration requirements – also asking questions about the implications of an ECBC label initiative – so that the country’s regime will be ready when a law going through parliament comes into effect.

The consultation was launched on Thursday, with the central bank noting that under draft legislation (the Reserve Bank of New Zealand (Covered Bonds) Amendment Bill) it would be required to maintain a public register of covered bond programmes and that several matters would need to be specified in order to implement the law.

Notwithstanding that the law has yet to be approved, the Reserve Bank of New Zealand (RBNZ) said that it launched the consultation at this time “so that the regime can operate effectively from the date of commencement into law”, noting that the consultation document assumes there are no material changes to the bill.

This is due for a second reading in the House of Representatives, after the Finance and Expenditure Select Committee reported back on it in September. (See here for previous coverage.)

The central bank is seeking market participants’ views on matters such as asset class designation, the depth of the availability of eligible cover pool auditors, and the appropriateness of information to be included in a public covered bond register.

With respect to asset class designation, which under the bill would be optional, RBNZ is proposing two categories: residential mortgages and property.

The property category would differ from the residential mortgage one by allowing as cover pool assets commercial, development or agricultural property loans in addition to residential mortgages, with the latter the only type of property loan eligible as collateral for the first category. The residential mortgage category requires that at least 75% of the cover pool assets be residential property loans, and for the property category at least 75% of the assets must be loans secured by property in New Zealand.

New Zealand and foreign government debt (with a foreign currency rating of AA) would be eligible as collateral for both types of covered bond.

RBNZ is asking market participants whether they think there are net benefits in it designating asset classes for covered bond programmes, and what comments they may have on the categories, which it set out in a draft handbook on covered bond programme registration requirements.

Other matters on which the central bank is seeking views include on a proposed registration fee of NZ$2,500 (Eu1,564/US$2,037), which assumes four days of analyst and management time, the appropriateness of certain information for a covered bond register that the central bank intends to make public, and a range of application process and information requirements.

The latter for example include the appointment of a cover pool auditor, maintenance of a register of cover pool assets, and specification of asset coverage tests in programme documentation.

RBNZ is also soliciting views on the implications for New Zealand banks of a European Covered Bond Council (ECBC) covered bond labelling regime.

“Labels will be granted to issuers who self-certify that their covered bonds comply with the ECBC convention,” it said. “The Reserve Bank is interested to know whether the ECBC’s label convention has relevance to New Zealand banks.”

The deadline for submissions is Friday, 16 November.