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How the FSA got it right on UK covered bond issuance

The regulator's guidelines for UK issuers could have far-reaching benefits for Europe's covered bond markets

Financial regulators are unloved, often with good reason. So it's only fair to praise them when they do a good job.

The new guidance on UK covered bonds from Paul Sharma's prudential standards department at the Financial Services Authority follows discussions with issuers and underwriters that those involved describe as exemplary. Issuers like the FSA's flexible stance on when covered bond issuance becomes material. And the FSA chose to communicate its views on a product that is known for its transparency in as clear a way as possible.

Outlining the contents of a letter to an industry body, in this case the British Bankers' Association, at an on-the-record press briefing, is not standard practice. But the FSA has learned its lesson. Last August, many market participants mistook its written suggestion to the BBA that covered bond issuance should be monitored once it reached 4% of total assets as a suggestion that the regulator was setting a limit.

This time, FSA has got its message to the market directly, denying analysts the opportunity to misinterpret its words. As one banker puts it: "Nobody can accuse the FSA of hiding, or of getting spun."

That's doubly important because the FSA's audience is not limited to UK covered bond issuers.

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