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EU to open up covered bond, investment fund markets

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EU to open up covered bond, investment fund markets

The EU's executive arm has proposed measures designed to increase the use of covered bonds and facilitate the cross-border distribution of investment funds, as it looks to develop a capital markets union.

The European Commission said it would propose EU-wide regulation for covered bonds, which will provide credit institutions with a stable source of funding, particularly in places where markets are less developed, and allow investors a wider range of investment choices. Covered bonds, which are backed by a segregated group of loans, form one of the EU's largest debt markets with outstanding bonds totaling €2.1 trillion, and offer a "particularly safe" investment, the EC said.

A proposed directive will provide a common definition of covered bonds; define their structural features; outline the supervision of these securities; and set out the rules allowing the use of the "European covered bonds" label. The changes also seek to cut borrowing costs for the economy at large.

The EC also spelled out proposals to remove barriers to the cross-border distribution of investment funds, with the aim of giving investors more choice and better value. Proposed new regulations will align national marketing requirements and regulatory fees, thus improving transparency. Meanwhile a proposed directive will harmonize the conditions under which investment funds may exit a national market.

Regarding cross-border disputes concerning claims and securities, the EC said that, in general, the law of the country where creditors have their habitual residence would apply, regardless of which country's courts examine the case. This will help promote cross-border investment, access to cheaper credit and prevent systemic risks.

The EU unveiled several initiatives in 2015 to implement a capital markets union by 2019, and in June 2017 published a revised, harder-hitting version. EU officials say the U.K.'s decision to leave the bloc has made completing the union all the more important, because the EU will lose the liquidity provided by London, which represents the largest capital market within the current 28-member bloc.