CBC Directive on the Issue and Supervision of Covered Bonds of 2021 (RAA 456/2021)

Official Gazette of the Republic of Cyprus, Part III(I), Legal Act 456/2021 No. 5626, 11.11.2021 No. 456 THE CENTRAL BANK OF CYPRUS DIRECTIVE ON THE ISSUE AND SUPERVISION OF COVERED BONDS OF 2021 Directive pursuant to Articles 9(10), 9(13), 11(1), 11(2), 12(3), 12(4), 13(3), 13(4), 13(6)(b) and (c), 13(8), 14(1)(e), 14(2), 15(2), 16, 17(2), 18(1), 24(4), 25(2), 29(1), 32, 33(2), 34(5), 34(6), 35(7), 35(9), 35(10), 35(11), 35(13), 36(4), 36(8), 37(1), 38, 42(2), 45(2), 46(1)(b), 52(3), 53(2), 54(1)(b), 62(3), 65(2), 65(3), 76(1), 76(2), 76(4), 78(4), 86 and 87 of the Law on the Issue and Public Supervision of Covered Bonds and Related Matters of 2021 (Law 166(I)/2021).

PART I: INTRODUCTORY PROVISIONS

1. Short title and scope.
2. Purpose of the Directive.
3. Interpretation.

PART II: REGISTRATION OF APPROVED INSTITUTIONS 4. Register of Approved Institutions. 5. Application for registration as an Approved Institution. 6. Application fee for registration in the Register of Approved Institutions.

PART III: ISSUE OF COVERED BONDS 7. Maintenance of the covered bonds register. 8. Submission of application for registration in the covered bonds register. 9. Application fee for registration in the covered bonds register. 10. Annual supervisory fees.

PART IV: REQUIREMENTS FOR THE ISSUE OF COVERED BONDS 11. Limits regarding the encumbrance of assets. 12. Criteria, terms and conditions regarding the cover pool. 13. Inclusion of cover pool assets in the calculation of the basic cover. 14. Restriction on the inclusion of substitute assets in the basic cover. 15. Use of cash inflows from cover pool assets. 16. Joint funding. 17. Treatment of netting arrangements. 18. Criteria for the adequacy of the cover pool. 19. Cover Pool Adequacy 20. Restriction on maturity mismatch. 21. Ensuring liquidity for the servicing and repayment of covered bonds. 22. Extendible maturity structures and extension triggers. 23. Additional criteria for cover pool adequacy for Approved Institutions with covered bond obligations that are struck off the Register of Approved Institutions. 24. Cover pool adequacy upon the segregation of cover pool assets from the Approved Institution's assets subject to resolution proceedings. 25. Ensuring compliance with cover pool adequacy criteria. 26. Review of cover pool adequacy for an Approved Institution under resolution proceedings. 27. Derivative contracts and terms and conditions for inclusion in the cover pool. 28. Counterparty qualifications for derivative contracts. 29. Intra-group covered bond pooling structures. 30. General requirements for the cover pool register. 31. Format of the cover pool register. 32. Content of the cover pool register and recording of transactions. 33. Linkage between the main part and supplementary part of the cover pool register. 34. Recording details. 35. Transparency and Disclosure of Information. 36. Additional information for mortgage and commercial loans. 37. Additional information for claims against the public sector. 38. Additional information for shipping loans. 39. Submission of information to the Central Bank. 3482

PART V: COVER POOL AND COVERED BOND MONITOR. 40. Required qualifications for the Cover Pool and Covered Bond Monitor. 41. Appointment procedure for the Cover Pool and Covered Bond Monitor. 42. Additional duties of the Cover Pool and Covered Bond Monitor. 43. Submission of information and reports to the Central Bank. 44. Termination of appointment of the Cover Pool and Covered Bond Monitor.

PART VI: ADMINISTRATIVE MEASURES AND ADMINISTRATIVE SANCTIONS 45. Monitoring of the imposition and application of administrative sanctions and administrative measures.

PART VII: FINAL AND TRANSITIONAL PROVISIONS 46. Repeal of the Directive on the Issue of Covered Securities of 2010. 47. Entry into force.

ANNEX 1 APPLICATION FOR REGISTRATION IN THE REGISTER OF APPROVED INSTITUTIONS ANNEX 2 APPLICATION FOR REGISTRATION IN THE COVERED BONDS REGISTER ANNEX 3 COVER POOL ADEQUACY CRITERIA ANNEX 4A MAIN PART OF THE COVER POOL REGISTER REGARDING COVERED BONDS SECURED BY CLAIMS AGAINST THE PUBLIC SECTOR ANNEX 4B MAIN PART OF THE COVER POOL REGISTER REGARDING COVERED BONDS SECURED BY MORTGAGE LOANS AND COMMERCIAL LOANS ANNEX 4C MAIN PART OF THE COVER POOL REGISTER REGARDING COVERED BONDS SECURED BY SHIPPING LOANS ANNEX 4D SUPPLEMENTARY PART OF THE COVER POOL REGISTER REGARDING COVERED BONDS SECURED BY SUBSTITUTE ASSETS ANNEX 4E SUPPLEMENTARY PART OF THE COVER POOL REGISTER REGARDING COVERED BONDS SECURED BY DERIVATIVE CONTRACTS ANNEX 4F SUPPLEMENTARY PART OF THE COVER POOL REGISTER REGARDING COVERED BONDS SECURED BY COLLATERAL FOR DERIVATIVE CONTRACTS ANNEX 5A INFORMATION TO THE CENTRAL BANK OF CYPRUS ANNEX 5B FINANCIAL ASSETS TABLE ON A CONSOLIDATED BASIS FOR ALL COVERED BOND ISSUANCES BY THE APPROVED INSTITUTION ANNEX 5C1 SUMMARY TABLE OF FINANCIAL ASSETS OF THE ISSUANCE/PROGRAMME OF COVERED BONDS WITH ISIN SECURED BY MORTGAGE LOANS / COMMERCIAL LOANS {DELETE THAT WHICH DOES NOT APPLY} ANNEX 5C2 SUMMARY TABLE OF FINANCIAL ASSETS OF THE ISSUANCE/PROGRAMME OF COVERED BONDS WITH ISIN SECURED BY CLAIMS AGAINST THE PUBLIC SECTOR ANNEX 5C3 SUMMARY TABLE OF FINANCIAL ASSETS OF THE ISSUANCE/PROGRAMME OF COVERED BONDS WITH ISIN SECURED BY SHIPPING LOANS ANNEX 5D MATURITY TABLE OF COVERED BONDS WITH ISIN AND THE CORRESPONDING COVER POOL ASSETS 3483

ANNEX 5E1 TABLE OF MORTGAGE LOANS / COMMERCIAL LOANS OF COVERED BONDS WITH ISIN ACCORDING TO THEIR VALUE AND THE GEOGRAPHICAL DISTRIBUTION OF THE UNDERLYING SECURED REAL ESTATE {DELETE THAT WHICH DOES NOT APPLY} ANNEX 5E2 TABLE OF CLAIMS AGAINST THE PUBLIC SECTOR OF THE COVER POOL OF COVERED BONDS WITH ISIN, ACCORDING TO THE TYPE OF DEBTOR / GUARANTOR AND THE COUNTRY OF ORIGIN OF THE DEBTOR / GUARANTOR ANNEX 5E3 TABLE OF SHIPPING LOANS OF THE COVER POOL OF COVERED BONDS WITH ISIN, ACCORDING TO THEIR VALUE AND THE GEOGRAPHICAL DISTRIBUTION OF THE UNDERLYING SECURED VESSELS ANNEX 5F1 TABLE OF MORTGAGE LOANS / COMMERCIAL LOANS OF THE COVER POOL OF COVERED BONDS WITH ISIN THAT ARE IN ARREARS, ACCORDING TO THE GEOGRAPHICAL DISTRIBUTION OF THE UNDERLYING SECURED REAL ESTATE {DELETE THAT WHICH DOES NOT APPLY} ANNEX 5F2 TABLE OF CLAIMS AGAINST THE PUBLIC SECTOR OF THE COVER OF COVERED BONDS WITH ISIN THAT ARE IN ARREARS, ACCORDING TO THE TYPE OF DEBTOR / GUARANTOR AND THE COUNTRY OF ORIGIN OF THE DEBTOR / GUARANTOR ANNEX 5F3 TABLE OF SHIPPING LOANS OF THE COVER POOL OF COVERED BONDS WITH ISIN THAT ARE IN ARREARS, ACCORDING TO THE GEOGRAPHICAL DISTRIBUTION OF THE UNDERLYING SECURED VESSELS

Official Gazette of the EU: L 084, 26.03.1997, p. 22. For the purpose of fuller alignment with the European Union act titled "Directive (EU) 2019/2162 of the European Parliament and of the Council of 27 November 2019 on covered bonds and public supervision of covered bonds, and amending Directives 2009/65/EC and 2014/59/EU", 166(I) of 2021. N166(I)/2021 O.G. Part I(I) No. 4857 5.11.2021 p.1506. The Central Bank of Cyprus, exercising the powers conferred upon it by Articles 9(10), 9(13), 11(1), 11(2), 12(3), 12(4), 13(3), 13(4), 13(6)(b) and (c), 13(8), 14(1)(e), 14(2), 15(2), 16, 17(2), 18(1), 24(4), 25(2), 29(1), 32, 33(2), 34(5), 34(6), 35(7), 35(9), 35(10), 35(11), 35(13), 36(4), 36(8), 37(1), 38, 42(2), 45(2), 46(1)(b), 52(3), 53(2), 54(1)(b), 62(3), 65(2), 65(3), 76(1), 76(2), 76(4), 78(4), 86 and 87 of the Law on the Issue and Public Supervision of Covered Bonds and Related Matters (hereinafter "the Law"), issues this Directive.

PART I: INTRODUCTORY PROVISIONS Short title and scope.

1. (1) This Directive shall be known as the Central Bank of Cyprus Directive on the Issue and Supervision of Covered Bonds of 2021. (2) This Directive applies to - (a) Approved Institutions that are registered as Approved Institutions and issue covered bonds in accordance with the provisions of the Law; (b) the Cover Pool and Covered Bond Monitor; and (c) the special manager. (3) The provisions of this Directive shall be interpreted and applied in conjunction with the provisions of the Law.

Purpose of the Directive. 2. The purpose of this Directive is to establish rules regarding the issuance, structural features and supervision of covered bonds by Approved Institutions.

Interpretation. 3. (1) Without prejudice to the terms and definitions in Article 2(1) of the Law and, for the purposes of this Directive: Official Gazette of the EU: L 275, 12.10.2016, p. 19; L 105, 25.4.2018, p. 6. "Implementing Regulation (EU) 2016/1800" means the European Union act titled "Implementing Regulation (EU) 2016/1800 of the Commission of 11 October 2016 laying down implementing technical standards with regard to the mapping of credit ratings of external credit assessment institutions to an objective scale of credit quality steps in accordance with Directive 2009/138/EC of the European Parliament and of the Council", as amended by Commission Implementing Regulation (EU) 2018/633 of 24 April 2018; "encumbered" in relation to real estate or a vessel means the real estate or vessel on which a mortgage has been established and in relation to a loan means the loan that is secured by a mortgage; 166(I) of 2021. "Law" means the Law on the Issue and Public Supervision of Covered Bonds and Related Matters of 2021 (N166(I)/2021); "foreign currency" means a currency other than the euro; "weighted maturity" in relation to a cover pool asset or covered bond means the weighted repayment period of the principal amount of the cover pool asset or covered bond, as applicable, according to the method specified in paragraph 20, taking into account any relevant derivative contract; Gazette Appendix III(I): 18.3.2016, No. 4933 (Legal Act 74/2016) 16.9.2016, No. 4964 (Legal Act 259/2016) 3.2.2017, No. 4994 (Legal Act 41/2017) 9.8.2019, No. 5177 (Legal Act 274/2019) "LTV" has the meaning given to the term in paragraph 18 of the Central Bank Directive on New Credit Facility Granting Procedures and Review of Existing Credit Facilities in relation to real estate. 19.3.2020 66(I) of 1997 74(I) of 1999 94(I) of 2000 119(I) of 2003 4(I) of 2004 151(I) of 2004 231(I) of 2004 235(I) of 2004 20(I) of 2005 80(I) of 2008 100(I) of 2009 123(I) of 2009 27(I) of 2011 104(I) of 2011 107(I) of 2012 14(I) of 2013 87(I) of 2013 102(I) of 2013 141(I) of 2013 5(I) of 2015 26(I) of 2015 35(I) of 2015 71(I) of 2015 93(I) of 2015 109(I) of 2015 152(I) of 2015 168(I) of 2015 (2) Terms not interpreted in this Directive shall have the meaning attributed to them in the Law and the Credit Institutions Business Law as amended, corrected or replaced from time to time, unless a different interpretation arises from the text. 3485 21(I) of 2016 5(I) of 2017 38(I) of 2017 169(I) of 2017 28(I) of 2018 89(I) of 2018 153 (I) of 2018 80 (I) of 2019 149(I) of 2019 21(I) of 2020 73(I) of 2020 28(I) of 2021 94(I) of 2021 95(I) of 2021 Official Gazette Appendix First (I): 22.8.1997 19.9.2003 10.6.2019. (3) In this Directive, any reference to a legislative act of the European Union, such as a Directive, Regulation or Decision, means the act in question as amended, corrected or replaced from time to time, unless a different meaning arises from the text of this Directive. (4) In this Directive, any reference to a law or regulatory administrative act of the Republic means the said law or regulatory administrative act as amended, corrected or replaced from time to time, unless a different meaning arises from the text of this Directive.

PART II: REGISTRATION OF APPROVED INSTITUTIONS Register of Approved Institutions 4. (1) The Central Bank shall record the following information in the Register of Approved Institutions: (a) the name of the Approved Institution and the address of its registered office; (b) the date of registration or strike-off from the register; (c) the registration number in the register; and (d) an annual certification by the management of the Approved Institution that the requirements for registration as an Approved Institution are met. (2) The register shall be maintained in electronic format and shall be accessible via the Central Bank's website.

Application for registration as an Approved Institution. 5. (1) An Approved Institution may apply for registration in the register as an Approved Institution by submitting to the Central Bank a duly completed form attached as Annex 1. Annex 1. (2) The application for registration shall be submitted by email to: supinvservci@centralbank.cy or via a dedicated data exchange platform or as indicated by the Central Bank. (3) An Approved Institution applying for registration in the Register of Approved Institutions must meet the following conditions: (a) it maintains Common Equity Tier 1 capital of at least fifty million euros (€ 50,000,000) and complies with the capital adequacy ratios required by the Central Bank. (b) its activities include the granting of mortgage loans and/or commercial loans and/or shipping loans and/or the taking of exposures against the public sector; 3486 (c) the undertaking of covered bond business is included in the Approved Institution's approved operational strategy by the Board of Directors and the support of this activity is ensured with documented policies and procedures; (d) it has the necessary organizational structure that ensures the clear definition of the competencies and limits of responsibility of each involved department and control function of the Approved Institution to support and effectively carry out the issuance, operation and/or distribution of covered bonds; (e) it has the necessary IT infrastructure to support covered bond business; (f) it has the necessary resources, systems, policies and procedures for the identification, management, monitoring and control of risks that may arise from the conduct of covered bond business (e.g. interest rate risk, counterparty risk, operational risk, foreign exchange risk, credit risk, liquidity risk, market risk); (g) it has policies, procedures and systems to support other related activities, such as the servicing of covered bonds and the valuation of collateral assets, and (h) it pays the application fees for registration as provided in paragraph 6.

Application fee for registration in the Register of Approved Institutions. 6. An Approved Institution submitting an application for registration in the Register of Approved Institutions shall pay a one-time application fee for registration to the Central Bank of at least twenty-five thousand euros (€25,000).

PART III: ISSUE OF COVERED BONDS Maintenance of the covered bonds register. 7. (1) The Central Bank shall record the following information for each issuance of covered bonds included in the covered bonds register: (a) the name of the Approved Institution with covered bond obligations; (b) the name of the issuance and/or the related covered bond programme; (c) in the case of a covered bond programme, the numbering of the issuance; (d) the date of registration in the covered bonds register; (e) the currency and amount of the issuance; (f) in the case of an issuance in a foreign currency, the corresponding amount of the issuance in euros; (g) if applicable, the contractual overcollateralization; (h) the International Securities Identification Number (ISIN) for the identification of the covered bonds; (i) the date of issuance; (j) the maturity date of the covered bonds; (k) the possibility of extending the repayment of the principal of the covered bonds; (l) the interest rate; (m) the money or capital market on which the issuance is listed; 3487 (n) the rating of the issuance by recognized credit rating agencies; (o) the derivative contracts included in the cover pool and the covered risks; and (p) the identity of the counterparties to the derivative contracts. (2) The covered bonds register shall be maintained in electronic format and shall be accessible via the Central Bank's website.

Submission of application for registration in the covered bonds register. 8. (1) The application for registration in the covered bonds register shall be submitted to the Central Bank using the form attached as Annex 2. Annex 2. (2) The application shall be submitted by email to: FinancialConductSection@CentralBank.cy or via a dedicated data exchange platform or as indicated by the Central Bank.

Application fee for registration in the covered bonds register. 9. For each application for registration in the covered bonds register, the Approved Institution shall pay a one-time fee of twenty-five thousand euros (€25,000) to the Central Bank.

Annual supervisory fees. 10. (1) Subject to sub-paragraph (2), the Approved Institution shall pay to the Central Bank annual supervisory fees for the issuances registered in the covered bonds register of 0.01% of the amount of the covered bond issuance, with a maximum amount of thirty-five thousand euros (€35,000) and a minimum amount of twenty thousand euros (€20,000). (2) In the year of liquidation of the covered bond programme, the Approved Institution shall pay to the Central Bank supervisory fees of 0.01% of the amount of the issuance within the programme of covered bonds, with a minimum amount of thirty-five thousand euros (€35,000). (3) The Approved Institution shall pay the annual fees to the Central Bank within one (1) month from the end of each calendar year without waiting for a relevant notification from the Central Bank.

PART IV: REQUIREMENTS FOR THE ISSUE OF COVERED BONDS Limits regarding the encumbrance of assets. 11. (1) An Approved Institution shall not issue covered bonds if such an issuance would result in: (a) the total value of the primary assets that must, at a minimum, be included in the cover pool of each category of covered bonds exceeding 90% of the total value of the Approved Institution's eligible assets for that category; or (b) the total value of all cover pool assets that must be included in the cover pool and are counted towards the adequacy of the cover pool exceeding 25% of the total value of the Approved Institution's total assets.

Criteria, terms and conditions regarding the cover pool. 12. (1) The Approved Institution must have a documented policy that ensures the avoidance of excessive concentration rates in the cover pool, at least in relation to (a) total claims against individual debtors and guarantors, (b) the geographical distribution of claims, (c) the type of claim and (d) the maturity of the claims. (2) Only claims arising from the granting of loans, the terms of which do not prohibit their inclusion in cover pools, from bonds or from related claims that are documented and legally binding may constitute primary assets in cover pools for covered bonds. 3488 (3) (a) The total amount of loans secured on real estate located in Member States where the Approved Institution does not have a physical presence (subsidiary or branch) shall not exceed 10% of the total amount of the cover pool. (b) Subject to the restriction in point (a) of this sub-paragraph, Approved Institutions are encouraged to separate covered bond issuances based on domestic and non-domestic cover pools. (4) An Approved Institution may include a mortgage or commercial loan in the cover pool in cases where the property securing the loan is a building under construction, provided that the total value of loans in the cover pool secured on buildings under construction does not exceed 10% of the value of the cover pool. (5) Mortgage and commercial loans are subject to the following limits regarding their inclusion in cover pools as part of the primary assets: (a) Mortgage loans: In cases where loans to more than one primary debtor are secured on the same real estate and included in the cover pool, the total value of the mortgage loans shall not exceed 70% of the value of the underlying real estate based on a valuation conducted by the Approved Institution, in accordance with sub-paragraph (6). (b) Commercial loans: In cases where loans to more than one primary debtor are secured on the same real estate and included in the cover pool, the total value of the commercial loans shall not exceed 50% of the value of the underlying real estate based on a valuation conducted by the Approved Institution in accordance with sub-paragraph (6). (6) The Approved Institution shall follow the methodology and valuation process for the value of tangible assets securing the cover pool assets as provided in the Central Bank Directive on New Credit Facility Granting Procedures and Review of Existing Credit Facilities. (7) Claims secured by guarantees may be included in cover pools provided that the guarantee of the claim meets the following conditions: (a) it is clearly documented in writing; (b) it is irrevocable and unconditional; (c) it cannot be terminated unilaterally by the guarantor; (d) it is triggered immediately upon default or non-payment by the debtor; and (e) it is legally effective and enforceable. 166(I) of 2021 (8) Subject to the provisions of the Law, the following terms and conditions apply regarding the inclusion of a shipping loan in the cover pool: (a) The loans are secured until full repayment by a mortgage on vessels or an equivalent encumbrance on vessels established under the law of the Republic or under the law of another Member State or third country. (b) The inclusion of the loan in the cover pool includes all legal claims and rights that the Approved Institution may have over the underlying vessels, for example in relation to the chartering or leasing of the vessels. (c) In cases where loans to more than one primary debtor are secured on the same vessel, the total value of these loans that may be included in the cover pool shall not exceed 50% of the value of the underlying vessel.