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

    HKMA Consults on Supervisory Policy for OTC Derivatives Transactions

    HKMA is consulting on revisions to the Supervisory Policy Manual module CR-G-14 on margin and other risk mitigation standards for non-centrally cleared over-the-counter (OTC) derivatives transactions.

    May 25, 2020 WebPage Regulatory News
    News

    PRA on Regulatory Capital and IFRS 9 Requirements for Payment Holidays

    PRA provided further information on the application of regulatory capital and IFRS 9 requirements to payment holidays granted or extended to address the challenges arising from COVID-19 outbreak.

    May 22, 2020 WebPage Regulatory News
    News

    HKMA on Fintech Adoption and Innovation by Banks in Hong Kong

    HKMA announced the publication of a report on fintech adoption and innovation in the banking industry in Hong Kong.

    May 20, 2020 WebPage Regulatory News
    News

    BIS on Impact of Increasing Use of Cloud Technology on Cyber Risk

    BIS published a working paper that examines the drivers of cyber risk, especially in context of the cloud services.

    May 20, 2020 WebPage Regulatory News
    News

    ECB Consults on Guide for Managing Climate and Environmental Risks

    ECB launched consultation on a guide specifying how the Banking Supervision expects banks to consider climate-related and environmental risks in their governance and risk management frameworks and when formulating and implementing their business strategy.

    May 20, 2020 WebPage Regulatory News
    News

    ECB Issues Opinion on Revisions to CRR in Response to COVID Crisis

    ECB published an opinion (CON/2020/16) on amendments to the prudential framework in EU in response to the COVID-19 pandemic.

    May 20, 2020 WebPage Regulatory News
    News

    EBA Assesses Interlinkages Between Recovery and Resolution Planning

    EBA published a report that examines the interlinkages between recovery and resolution planning under the Bank Recovery and Resolution Directive (BRRD).

    May 20, 2020 WebPage Regulatory News
    News

    SRB Publishes Final MREL Policy Under the Banking Package

    SRB published the final Minimum Requirements for Own Funds and Eligible Liabilities (MREL) policy under the Banking Package.

    May 20, 2020 WebPage Regulatory News
    News

    US Agencies Amend Interim Final Rule on Transition Period for CECL

    US Agencies (FDIC, FED, and OCC) published a final rule that makes technical changes to the March 31, 2020 interim final rule that provides a five-year transition period for the impact of the current expected credit loss (CECL) methodology on regulatory capital.

    May 19, 2020 WebPage Regulatory News
    News

    ECB Releases Results of March Survey on Credit Terms and Conditions

    ECB published results of the March 2020 survey on credit terms and conditions in euro-denominated securities financing and over-the-counter (OTC) derivatives markets.

    May 19, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 5208