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

    FDIC Proposes Amendments to Real Estate Lending Standards

    FDIC is seeking comments on a rule to amend the interagency guidelines for real estate lending policies—also known as the Real Estate Lending Standards.

    June 15, 2021 WebPage Regulatory News
    News

    ISDA Consults on Implementation of Fallbacks for Certain Swap Rates

    ISDA is consulting on the implementation of fallbacks for the sterling LIBOR ICE Swap Rate and for the USD LIBOR ICE Swap Rate.

    June 11, 2021 WebPage Regulatory News
    News

    BIS and BoE Launch Innovation Hub in London

    BIS and BoE launched the BIS Innovation Hub Center in London, which is the fourth new Innovation Hub Centre to be opened in the past two years.

    June 11, 2021 WebPage Regulatory News
    News

    ESRB Recommends Reciprocation of Certain Macroprudential Measures

    ESRB published recommendations on the reciprocation of macro-prudential measures in Belgium, France, Luxembourg, Norway, and Sweden.

    June 11, 2021 WebPage Regulatory News
    News

    US Agencies Set Out Unified Agenda for Planned Regulatory Actions

    SEC announced that the Office of Information and Regulatory Affairs released the Spring 2021 Unified Agenda of Regulatory and Deregulatory Actions.

    June 11, 2021 WebPage Regulatory News
    News

    EC Publishes Regulation on Key Aspects of Implementation of SA-CCR

    EC published the Delegated Regulation 2021/931, which supplements the Capital Requirements Regulation (CRR or Regulation 575/2013) with regard to the regulatory technical standards specifying the method for identifying derivative transactions with one or more than one material risk driver.

    June 10, 2021 WebPage Regulatory News
    News

    BCBS Consults on Prudential Treatment of Cryptoasset Exposures

    BCBS is consulting on preliminary proposals for the prudential treatment of cryptoasset exposures of banks.

    June 10, 2021 WebPage Regulatory News
    News

    EBA Revises List of Validation Rules for Reporting

    EBA issued a revised list of validation rules under the implementing technical standards on supervisory reporting.

    June 10, 2021 WebPage Regulatory News
    News

    Banking Authorities and Private Sector Collaborate on Wholesale CBDC

    BIS Innovation Hub, BDF, and SNB announced that, together with a private-sector consortium led by Accenture, they will conduct an experiment using wholesale central bank digital currency (wCBDC) for cross-border settlement.

    June 10, 2021 WebPage Regulatory News
    News

    ESAs Publish Amended Implementing Standards on Mapping of ECAIs

    ESAs published two amended implementing technical standards on the mapping of credit assessments of External Credit Assessment Institutions (ECAIs).

    June 10, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 7093