Another one is the covered bond market. 3/6  Both securitisations and covered bonds have traditionally been important financing sources for banks and it is my opinion that they will regain importance in banks’ funding strategies as the ECB’s targeted longer-term refinancing operations (TLTRO II) progressively mature, opening up new opportunities for the markets. In the field of securitisations, despite the stigma that has surrounded this product since the recent financial crisis, the European authorities have considered that appropriately regulated and well-structured securitisations can contribute to diversify funding sources, to promote better risk management and, ultimately, to mobilise more funds for the real economy. For these reasons, two Regulations were published on 28 December 2017 in the Official Journal of the European Union amending the regulatory framework applicable to securitisations, in an attempt to harness their benefits, restricting the risks arising from their inappropriate use. One Regulation establishes a general framework for all securitisations, and creates a specific framework for those that are to be known as STS (simple, transparent and standardised). The other Regulation transposes the new Basel III framework, making amendments to the prudential regulation of credit institutions and investment firms, both for general and for simple, transparent and standardised securitisations, which will benefit from a better treatment. These regulatory changes may incentivise changes in banks’ funding and risk management strategies, and may trigger a renewed interest in securitisations, providing an opportunity to reactivate this market. Covered bonds are another instrument where progress is being made.

But this transition period will be part of the second phase of the negotiations and there will be no certainty about it until at least this autumn. Up to now, the EU and the UK are following different strategies and even use a different wording to refer to this transition period, “implementation period” being the term used by the UK. More specifically, the UK has welcomed the agreement on the transition period and has sent out the message that nothing will change up to the end of the “implementation period”. Further, to transmit certainty to institutions operating in the UK, it has committed to bring forward legislation, if necessary, to create temporary permissions in the “unlikely” event that the withdrawal agreement is not ratified. The EU has a more prudent stance and recalls that nothing is agreed until everything is agreed. In fact, legal certainty will only come with the ratification of the Withdrawal Agreement by all sides involved in the negotiations. In this context of uncertainty, within the SSM framework, banks are considered to be responsible for taking the necessary steps to obtain all authorisations required for them to carry out their activities in a timely manner to make sure that they can continue to serve their customers after 30 March 2019. They are expected to present credible Brexit plans and to use the possible transition period to implement their plans, not to delay planning. It is acknowledged that adapting to a scenario where the UK becomes a third country is challenging.