Law No. ............./ PR. Establishing the Legislative Framework for Covered Bonds

ISLAMIC REPUBLIC OF MAURITANIA

Honour – Fraternity – Justice

PRESIDENCY OF THE REPUBLIC

Law No. ............./ PR. Establishing the Legislative Framework for Covered Bonds

The National Assembly has adopted;

The President of the Republic promulgates the law whose text follows:

Chapter I: General Provisions

Preliminary Article: Definitions

For the purposes of this law, the following terms are defined as follows:

Credit institution: any legal entity that habitually carries out one or more of the following activities:

1. the receipt of funds from the public, regardless of duration and form;

2. the granting of credit in all its forms;

3. making available to customers all means of payment or managing them.

Credit institutions include, in accordance with the provisions of Law No. 2018-036 bis/PR of 16 August 2018 on the regulation of credit institutions: banks, financial institutions, and microfinance institutions.

Covered bond: debt securities issued by credit institutions and secured by a cover pool or basket of assets backed by collateral to which investors in covered bonds, as privileged creditors, may directly resort.

Register: a physical or electronic document containing a set of information on the issuance of covered bonds, established pursuant to Article 4 of this law.

Covered bond guarantee: loans or other assets pledged as security for the repayment of principal and the payment of interest and other sums due

relative to covered bonds issued under a program authorized by the Central Bank.

Cover pool: a collection of claim rights, composed in accordance with the provisions of this law and pledged to secure Covered Bonds.

Cover assets: assets that form part of a cover pool.

Pool controller: a natural or legal person responsible for monitoring the cover pool of Covered Bonds, appointed pursuant to Article 16 of this law. This person must be designated by the Board of Directors or the Supervisory Board of the issuing institution, following approval by the Central Bank, and must be registered with the Order of Chartered Accountants.

Pool manager: a natural or legal person responsible for managing the cover pool in the event of provisional administration or liquidation of the covered bond issuing institution, pursuant to Article 18 of this law.

Special account: an account in which cover assets are recorded to place them legally beyond the reach of creditors other than covered bond investors in the context of provisional administration or liquidation.

“Issuance programme”: the structural characteristics of a covered bond issuance issued under conditions compliant with the authorization granted to the covered bond issuing institution.

Article 1: This law and its implementing regulatory texts set the rules governing the issuance of covered bonds by credit institutions approved in accordance with Law No. 2018-36bis on the regulation of Credit Institutions.

Covered bonds offer investors a long-term investment with double protection:

• the issuing credit institutions guarantee their repayment,
• Covered Bonds are secured by a cover pool composed of first-ranking mortgage loans or public sector loans, as well as substitute claims such as Treasury bills, State-guaranteed bonds, covered bonds issued by other credit institutions, or demand deposits at the Central Bank.

Chapter II: Conditions for the Issuance of Covered Bonds

Article 2: The administration and supervision of Covered Bond issuances are entrusted to the Central Bank of Mauritania. Credit institutions may not issue covered bonds outside this legislative framework.

A Covered Bond issuance may only be carried out by a credit institution and requires specific, prior authorization from the Central Bank.

The prior authorization from the Central Bank covers, on the one hand, the issuing institution's organizational capacity to issue covered bonds and monitor them, and on the other hand, the compliance of a given issuance or issuance program with the provisions provided for under or pursuant to this law.

Article 3: To authorize a credit institution to issue Covered Bonds, the Central Bank must, among other things, verify the applicant's capacity to comply with the provisions of this law and its implementing texts, notably by having specific risk management procedures to allow the identification, assessment, control, and monitoring of all risks related to Covered Bonds.

In the context of processing an issuance application, the Central Bank may request the credit institution to provide all documents and information it deems necessary.

Pursuant to Articles 31 and 32 of this law, no covered bond issuance may be authorized without a certificate from the controller attesting to the existence of the prescribed collateral and its registration in the corresponding register.

To assess a credit institution's organizational capacity to issue Covered Bonds and monitor them, the Central Bank must have, among other things, the following information:

1. a description of the institution's financial situation and notably its credit outlook, demonstrating that its solvency safeguards the interests of creditors other than Covered Bond holders;

2. a description of the institution's long-term strategy, with particular attention to liquidity and the place of covered bonds within this strategy;

3. a description of tasks and responsibilities within the institution related to the issuance of covered bonds;

4. a description of the institution's risk management policy regarding Covered Bonds, particularly risks of: interest rates, credit, counterparty, liquidity, and operational risk;

5. a description of internal audit involvement in the Covered Bond issuance process, including the frequency and applicable control procedures;

6. a description of the decision-making and reporting processes related to Covered Bond issuance;

7. a description of the IT systems necessary for Covered Bond issuance.

The issuance application file must also contain information regarding the proposed operation, notably:

1. the impact of the issuance on the applicant's liquidity position;

2. the quality of the cover assets, particularly regarding the nature of the debtors of these assets and the real or personal securities, guarantees, or privileges attached to these assets, the diversification of these assets, and their maturities;

3. the extent to which the maturities of the covered bonds correspond to those of the cover assets.

Upon receipt of the Covered Bond issuance application, the Central Bank acknowledges receipt of the file and within two weeks of receipt, informs the applicant whether the file is complete for examination or requires additional information.

The Central Bank's duly reasoned authorization or refusal decision is notified by the Governor of the Central Bank to the applicant within a maximum period of 6 weeks, from the date the required file is deemed complete.

The issuance applicant may withdraw its request after informing the Central Bank in writing before the date of notification of the decision.

Article 4: The issuing credit institution maintains a cover register for Covered Bonds.

This register contains, among other information:

a) the details of the cover pool and its modification history;

b) the waiver of securities;

c) the list of its authorized programs and related information,

d) if the credit institution is subject to a suspension sanction for non-compliance with this law: the subject of the suspension referred to in paragraph (i) of Article 5 of this law and the reason for the suspension;

e) any information required by regulation

f) any other information the credit institution deems necessary.

The register must be accessible to the public on the issuing institution's website and by any other means the institution deems appropriate.

Article 5: In the context of its mission to administer and supervise covered bond issuances, the Central Bank may:

(i) suspend the right of an already authorized issuer for a given program to issue new covered bonds under a new program; it notifies the issuer in writing of the reasons for its decision, at least 4 weeks before the suspension takes effect;

(ii) lift the suspension by notifying the registered issuer in writing.

(iii) at the request of an issuer, cancel its issuance program if no Covered Bonds are in circulation or have been issued under that program;

(iv) withdraw the authorization to issue covered bonds in the following cases:

• the issuer no longer meets the conditions under which it was authorized
• the functioning of its deliberative, supervisory, or management bodies can no longer be ensured normally;
• its solvency, liquidity, or profitability situation is severely degraded, or its internal control system has serious shortcomings.

The withdrawal of issuance authorization does not render unpaid Covered Bonds immediately due.

When withdrawal is decided pursuant to paragraph (iv) of Article 5, the Governor of the Central Bank, pursuant to Article 21 of this law, appoints a pool manager for the orderly repayment of Covered Bonds.

Article 6: The Central Bank defines the forms of documents related to covered bond issuance, notably the waiver of securities, placement information, the descriptive content of the cover pool, the pool controller's confirmation, as well as the procedures and periodicity of transmission to the Central Bank.

Article 7: During each issuance, the Central Bank may levy fees to fund the Deposit Guarantee and Resolution Fund. The amount of these fees is set by the Central Bank.

Chapter III: General Issuance Procedures for Covered Bonds

Article 8: First-ranking mortgage loans in the cover pool, securing Covered Bonds, must represent, from the issuance date, in terms of principal owed, at most 80% of the collateral value for a residential property and 60% for a commercial property. These ratios may, by decision of the Governor of the Central Bank, be increased when these loans are covered by a State guarantee or by other legal entities authorized by the State to provide this guarantee or by a guarantee from a credit institution.

The cover pool may also include Treasury bills, deposits at the Central Bank, State-guaranteed bonds, or covered bonds from other credit institutions as “replacement assets”, provided they do not exceed 20% of the total collateral value.

The nominal value of the cover pool must be at least 110% of the value of the covered bonds.

The amount of covered bond issuances must not exceed 15% of the total assets of the issuing bank.

The cover pool remains on the issuer's balance sheet and remains subject to prudential regulation, including capital requirements.

The Central Bank defines the minimum capital level based on the issuance of Covered Bonds.

Article 9: The credit institution is required to prepare a cash flow plan proving it has sufficient liquidity to meet its obligations in executing its activities as a Covered Bond issuer and notably its repayment and payment obligations for sums due on issued Covered Bonds, for a period set by decision of the Governor of the Central Bank and which cannot be less than 3 months.

This cash flow plan is submitted to the pool controller and a copy is transmitted to the Central Bank. The form of the cash flow plan and its preparation and transmission procedures to the Central Bank are set by decision of the Governor of the Central Bank.

Article 10: Covered Bonds may not be subject to early repayment, except in the following cases:

• when the Covered Bond issuance contract stipulates the possibility of early repayment;
• after authorization from the Governor of the Central Bank, if the claims registered in the issuer's register are insufficient or risk becoming insufficient to repay, in principal and interest, Covered Bond holders.

Chapter IV: Cover Pool

Article 11: The Central Bank sets the characteristics of collateral that may be pledged to secure Covered Bonds. The Central Bank determines the criteria and procedures for assessing cover pool assets and may recommend the use of expert appraisal and its procedures.

The value of the assets is established by the Covered Bond issuer.

The following first-ranking mortgage claims may be accepted as security for Covered Bonds, subject to Central Bank validation of the quality of the provided collateral:

• loans secured by a first-ranking mortgage on real estate, granted by the credit institution for the acquisition, construction, renovation, or extension of individual housing.
• loans secured by a first-ranking mortgage on real estate, granted by the credit institution for the acquisition, renovation, or extension of commercial real estate.

Loans secured by building plots, new buildings under construction other than those stated above cannot be used as security for Covered Bonds.

Article 12: The collateral securing covered bonds must be located in Mauritania.

The cover pool may include, in addition to bank mortgage loan claims, the following “substitute claims”:

• Treasury bills;
• State-guaranteed bonds;
• demand deposits at the Central Bank;
• Covered Bonds issued by other credit institutions.

Chapter V: Regime of Securities

Article 13: Claims pledged to secure Covered Bonds must be registered individually in a register maintained by the issuing credit institution for each category of Covered Bonds.

Article 14: The issuing institution must adopt a dynamic replacement strategy for claims repaid early or non-performing assets, replacing them with productive assets of equivalent value and quality to maintain the necessary pledge.

If a mortgage loan pledged to secure Covered Bonds is repaid early or downgraded to the category of impaired claims as defined by current banking regulation, the issuing institution must immediately register a replacement claim in the collateral register for the repaid or impaired claim.

It is prohibited for any issuing institution to dispose of a claim registered in the cover register, other than substitute claims, even if other claims registered in the cover register are sufficient to secure the Covered Bonds, unless written agreement is obtained from the pool controller.

Claims registered in the register may only be removed from the register with the written agreement of the pool controller.

The cover register must contain precise data, notably regarding the amount and rank of the collateral.

Article 15: Professional secrecy cannot be invoked against the pool controller or pool manager.

A credit institution considering issuing Covered Bonds is exempted, for the exercise of its rights and obligations governed by this law, from the professional secrecy obligation referred to in Article 129 of Law No. 2018-36bis on the regulation of Credit Institutions.

Article 16: Issuers must appoint an independent controller responsible for ensuring the cover pool's compliance with the provisions of this law and the regulatory texts issued for its implementation.

Chapter VI: Protection of Covered Bond Holders in Case of Issuer Default

Article 17: Covered Bond holders are protected by double recourse: against the cover pool and, in case of default, against the issuer. Thus, if the privileged recourse to the cover pool is insufficient, Covered Bond holders may claim the remainder from the issuer, on an equal footing with ordinary creditors.

Article 18: The claims constituting the cover pool are pledged in priority to secure the repayment of principal and the payment of interest on Covered Bonds. Until the Covered Bond holders are fully satisfied, no other creditor of the issuer, regardless of the nature and rank of the privilege they benefit from, and notwithstanding any contrary legal provision, may claim any right, of any nature whatsoever, on the cover pool claims. The issuing institution must take all measures to identify cover assets and place them legally beyond the reach of creditors other than covered bond investors.

Furthermore, and notwithstanding any contrary legal provisions, when the issuer is subject to provisional administration or judicial liquidation proceedings, the proceeds from the cover pool assets remain pledged in priority to the repayment of principal and the payment of interest on covered bonds.

In the event of provisional administration or judicial liquidation proceedings, the Governor of the Central Bank appoints a pool manager to repay Covered Bond holders.

Article 19: The provisional administrator or liquidator of the issuing credit institution is required to deposit, into a special account, from the date of opening of the provisional administration or judicial liquidation proceedings of the issuer, any collected sums and received payments related to assets registered in the cover register, to account for them, and to make them available to the pool manager upon the latter's first request.

Debts arising from Covered Bonds are paid at their contractual maturity. The opening of provisional administration or judicial liquidation proceedings for the issuer does not have the effect of rendering said debts immediately due. Any positive balance resulting from the payment of assets registered in the cover register remaining after the satisfaction of Covered Bond holders benefits all creditors of the issuer.

Article 20: No text or rule of law regarding bankruptcy or insolvency may have the effect of preventing the following operations related to covered bonds issued under this law:

(i) the payment of any sum,

(ii) the netting of obligations;

(iii) any operation regarding a Covered Bond guarantee, notably:

(a) the sale, foreclosure request

(b) the netting or allocation of the proceeds or value of the Covered Bond guarantee.

(c) the termination of contracts.

Chapter VII: Opening of Provisional Administration or Judicial Liquidation Proceedings

Article 21: The decision appointing the pool manager by the Governor of the Central Bank, following the opening of provisional administration or judicial liquidation proceedings, must set the duration of the mandate as well as the conditions for its remuneration.

This decision is notified to the members of the board of directors or supervisory board of the concerned credit institution as well as to the administration.

Article 22: From the date of its appointment, and by derogation from the provisions of Law No. 2018-36bis on the regulation of Credit Institutions, the right to manage the claims registered in the cover pool register and the right to dispose of them are transferred to the pool manager. The pool manager may perform all acts necessary for the repayment of Covered Bond holders.

In particular, the pool manager collects claims according to their maturity and liquidates loans that have reached maturity. The pool manager may obtain liquidity to timely repay Covered Bond holders.

The pool manager has the right to use all means of the credit institution, notably personnel and equipment, in carrying out its tasks. The pool manager may collect and use data held by the credit institution necessary for carrying out its mission.

The pool manager and, as applicable, the provisional administrator or liquidator of the credit institution mutually inform each other of any information necessary for the credit institution's liquidation procedure or the cover pool's management.

Article 23: The pool manager assumes the credit institution's obligations regarding the management of cover assets, under the supervision of the Central Bank.

The pool controller continues to exercise its mission in accordance with this law.

The pool manager is required, throughout the duration of its mandate, to comply with the legal and regulatory provisions governing Covered Bonds.

Upon taking office, the pool manager must, within the timeframe set by the Central Bank, prepare for its attention an opening balance sheet of the cover pool as well as, at the end of each year, annual account reports and status declarations.

Annual accounts must be audited by an auditor appointed by the Central Bank. The resulting costs shall be integrated into