On 6 April 2011, the UK Financial Services Authority (“FSA”) and HM Treasury (“HMT”) published a consultation paper setting out a joint review of the UK Regulated Covered Bonds Regulations (the “UK Regulations”) with the stated aim of ensuring the UK Regulations continue to support the UK covered bond market and to help UK issuers compete on a level playing field with issuers from other jurisdictions. The consultation paper also proposes some minor changes to the UK Regulations.

Covered bonds have been issued by UK issuers since 2003 when HBOS Treasury Services launched the inaugural issuance of UK covered bonds. Unlike many other European jurisdictions, the UK did not, however, have the benefit of a statutory framework underpinning covered bond issuances until the UK Regulations were enacted in 2008.

The UK covered bond market has continued to grow following the introduction of the UK Regulations. The consultation paper notes that there are currently ten registered issuers of covered bonds under the UK Regulations and in excess of £100 billion principal amount of outstanding registered covered bonds. This trend is likely to continue in the future. Covered bond issuances have held up well compared with many other financial instruments during the financial crisis, including residential and commercial mortgage securitisations. There is also increasing concern on the part of investors in relation to unsecured senior bank debt in view of the fact that an increasing amount of such debt is likely to be required to be subject to bail-in provisions under international initiatives led by the Financial Stability Board and the Basel Committee on Banking Supervision and supported by recent consultation papers by the EU Commission.