Featured Product

    EC Regulation on CCR Mitigation for Covered Bonds and Securitizations

    March 27, 2020

    EC published the Delegated Regulation 2020/447 with regard to regulatory technical standards on the specification of criteria for establishing the arrangements to adequately mitigate counterparty credit risk, or CCR, associated with covered bonds and securitizations. Regulation 2020/447 supplements European Market Infrastructure Regulation or EMIR (648/2012) with regard to these regulatory standards and amends Delegated Regulations 2015/2205 and 2016/1178. Regulations 2015/2205 and 2016/1178 also supplement EMIR with regard to regulatory technical standards on clearing obligation. Regulation 2020/447 shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union.

    Article 1 of Regulation 2020/447 specifies that arrangements under covered bonds shall be considered to adequately mitigate counterparty credit risk, where over-the-counter (OTC) derivative contracts concluded by covered bond entities in connection with covered bonds comply with all of the following criteria:

    • Those contracts are registered or recorded in the cover pool of the covered bond in accordance with national legislation on covered bonds
    • Those contracts are not terminated in case of resolution or insolvency of the covered bond issuer or the cover pool
    • The counterparty to the OTC derivative contract concluded with covered bond issuers or with cover pools for covered bonds ranks at least pari passu with the covered bond holders, except where the counterparty to the OTC derivative contract concluded with covered bond issuers or with cover pools for covered bonds is the defaulting or the affected party, or waives the pari passu rank
    • The covered bond is subject to a regulatory collateralization requirement of at least 102%

    In addition, Article 2 of Regulation 2020/447 specifies that arrangements under securitizations shall be considered to adequately mitigate counterparty credit risk where OTC derivative contracts concluded by securitization special purpose entities in connection with securitizations satisfy all of the following criteria:

    • The counterparty to the OTC derivative concluded with the securitization special purpose entity in connection with the securitization ranks at least pari passu with the holders of the most senior securitization tranche except where the counterparty to the OTC derivative concluded with the securitization special purpose entity in connection to the securitization is the defaulting or the affected party
    • The securitization special purpose entity in connection with the securitization with which the OTC derivatives contract is associated is subject, on an ongoing basis, to a level of credit enhancement of the most senior securitization note of at least 2% of the outstanding notes

    Regulations 2015/2205 and 2016/1178 already contain a number of conditions under which OTC derivative contracts concluded by a covered bond entity in connection with a covered bond can be excluded from the clearing obligation. There is a degree of substitutability between OTC derivative contracts concluded by covered bond entities in connection with covered bonds and OTC derivative contracts concluded by securitization special purpose entities in connection with securitizations. To avoid potential distortion or arbitrage, their treatment toward the clearing obligation should be consistent. Therefore, Delegated Regulation 2015/2205 and 2016/1178 are being amended accordingly. Article 1(2) of Delegated Regulations 2015/2205 and 2016/1178 have been deleted. Regulation 2020/447 is based on the draft regulatory technical standards submitted to EC by EBA, EIOPA, and ESMA.

     

    Related Links

    Effective Date: April 16, 2020

    Keywords: Europe, EU, Banking, Securities, Counterparty Credit Risk, OTC Derivatives, Covered Bonds, Regulatory Technical Standards, EMIR, Securitization, Clearing Obligation, Regulation 2020/447, EC

    Related Articles
    News

    BoE Consults on Approach to Setting MREL, Publishes Bail-In Guidance

    The Bank of England (BoE) published a consultation paper on approach to setting minimum requirement for own funds and eligible liabilities (MREL), an operational guide on executing bail-in, and a statement from the Deputy Governor Dave Ramsden.

    July 22, 2021 WebPage Regulatory News
    News

    EBA Seeks Views on Proportionality Assessment Methodology

    The European Banking Authority (EBA) is seeking preliminary input on standardization of the proportionality assessment methodology for credit institutions and investment firms.

    July 22, 2021 WebPage Regulatory News
    News

    US Agencies Propose Changes to Call Reports and Instructions

    Certain regulatory authorities in the US are extending period for completion of the review of certain residential mortgage provisions and for publication of notice disclosing the determination of this review until December 20, 2021.

    July 22, 2021 WebPage Regulatory News
    News

    PRA Finalizes Rulebook Definition of Higher Paid Material Risk-Taker

    The Prudential Regulation Authority (PRA) published the policy statement PS18/21, which introduces an amendment in the definition of "higher paid material risk taker" in the Remuneration Part of the PRA Rulebook.

    July 21, 2021 WebPage Regulatory News
    News

    EBA Examines Asset Encumbrance in Banking Sector

    The European Banking Authority (EBA) published its annual report on asset encumbrance in banking sector.

    July 21, 2021 WebPage Regulatory News
    News

    EBA Publishes Methodological Guide to Mystery Shopping

    The European Banking Authority (EBA) published a methodological guide to mystery shopping.

    July 21, 2021 WebPage Regulatory News
    News

    APRA Issues Update on Capital Reform Policy Settings for Banks

    The Australian Prudential Regulation Authority (APRA) released a letter to authorized deposit-taking institutions to provide an update on key policy settings for the capital framework reforms, which will come into effect from January 01, 2023.

    July 21, 2021 WebPage Regulatory News
    News

    CPMI-IOSCO Assess Continuity Planning of Market Infrastructures

    The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) published a report that assesses the business continuity planning activities of financial market infrastructures or FMIs.

    July 21, 2021 WebPage Regulatory News
    News

    BoE Announces Changes to Validation Rules for Form BTL

    The Bank of England (BoE) published questions and answers (Q&A) on OSCA to BEEDS migration for statistical reporting as well a presentation from the project overview session held with statistical reporters.

    July 20, 2021 WebPage Regulatory News
    News

    BCBS Proposes Changes to Process for Reviewing G-SIB Methodology

    The Basel Committee on Banking Supervision (BCBS) is consulting on a technical amendment to the Basel Framework to reflect a new process reviewing the global systemically important bank (G-SIB) assessment methodology.

    July 20, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 7281