Decision on Requirements for Inclusion of Derivative Financial Instruments in the Cover Pool of Mortgage or Municipal Bonds

Evidence Data Collection: Other General and Individual Acts Decision on Requirements for Inclusion of Derivative Financial Instruments in the Cover Pool of Mortgage or Municipal Bonds Official Gazette of the Republic of Slovenia, No. 11/22 ID: SKLE12691 SOP: 2022-01-0165 Adopted: 24. 1. 2022 Published: 27. 1. 2022 Effective from: 7. 7. 2022 Type of Act: Decision Lead Agency: Bank of Slovenia Adopting Body: Bank of Slovenia Forms The electronic edition of the Official Gazette is the official edition from 1 January 2006. Before this date, official editions were published in paper form. Text

Pursuant to the second paragraph of Article 24 of the Mortgage and Municipal Bond Act (Official Gazette of the RS, No. 123/21) and the first paragraph of Article 31 of the Bank of Slovenia Act (Official Gazette of the RS, No. 72/06 – consolidated text, 59/11 and 55/17), the Council of the Bank of Slovenia, having obtained the opinion of the Securities Market Agency dated 8 December 2021, issues

DECISION

on requirements for the inclusion of derivative financial instruments in the cover pool of mortgage or municipal bonds

1. GENERAL PROVISIONS

Article 1

(content of the decision)

This decision specifies in detail:

1. the criteria for the suitability of counterparties with whom hedging transactions using derivative financial instrument contracts may be concluded for the inclusion of these contracts in the cover pool of mortgage or municipal bonds (hereinafter: cover pool);

2. the documentation that must be provided in connection with derivative financial instrument contracts;

3. other rules for the use of derivative financial instrument contracts.

Article 2

(definition of terms)

The terms used in this decision have the same meaning as in the provisions of the Mortgage and Municipal Bond Act (Official Gazette of the RS, No. 123/21; hereinafter: ZHKO-2).

2. REQUIREMENTS APPLICABLE TO DERIVATIVE FINANCIAL INSTRUMENT CONTRACTS

Article 3

(criteria for the suitability of counterparties with whom hedging transactions may be concluded)

(1) The issuer may include derivative financial instrument contracts in the cover pool only if they are concluded with persons from the first and second paragraphs of Article 2 of the Financial Collateral Act (Official Gazette of the RS, No. 67/11 – consolidated text, 82/13 and 90/15 – decision of the Constitutional Court), except for persons from point 8 of the second paragraph of the same article.

(2) In the case of concluding derivative financial instrument contracts with credit institutions, the limitations regarding credit quality stages, as derived from point c of the first paragraph of Article 129 of Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012 (OJ L No. 176 of 27. 6. 2013, p. 1), last amended by Commission Implementing Regulation (EU) 2021/1043 of 24 June 2021 on the extension of transitional provisions of Regulation (EU) No 575/2013 of the European Parliament and of the Council regarding capital requirements for exposures to central counterparties (OJ L No. 225 of 25 June 2021, p. 52) (hereinafter: Regulation 575/2013/EU), shall be taken into account, considering the limitations regarding the volume of all exposures to credit institutions from the first a paragraph of Article 129 of Regulation 575/2013/EU, unless the derivative financial instrument contracts contribute to the minimum level of excess collateral in accordance with the ninth paragraph of Article 28 of ZHKO-2, for which limitations regarding the volume of exposures to credit institutions do not apply.

Article 4

(documentation to be provided in connection with derivative financial instrument contracts)

(1) Documentation in connection with derivative financial instrument contracts that the issuer must provide includes at least the following documentation:

• the contract or details regarding the concluded transaction with derivative financial instruments and changes to the transaction with the corresponding master agreement regarding the transaction with derivative financial instruments;

• appropriate documentation regarding compliance with obligations from the field of derivative financial instruments, particularly regarding risk reduction techniques, clearing, and reporting of concluded transactions to repositories;

• appropriate documentation regarding compliance with obligations from the field of trading in financial instruments, particularly regarding transparency, trading venues, and settlement;

• appropriate documentation regarding ensuring compliance of operations with regulations in the field of prudential supervision;

• appropriate documentation regarding ensuring compliance of operations with other regulations related to the conclusion of transactions with derivative financial instruments.

(2) Documentation in connection with derivative financial instrument contracts that the issuer must provide also includes prior consent, obtained in written form from the cover pool trustee and the counterparty in the derivative financial instrument contract, on the basis of which the inclusion of derivative financial instrument contracts in the cover pool and the exclusion of claims or obligations from the derivative financial instrument contract that have not yet been fully settled from the cover pool may be carried out.

Article 5

(other rules for the use of derivative financial instrument contracts)

(1) Derivative financial instrument contracts may be included in the cover pool only if they are concluded on the basis of standardized contracts.

(2) The issuer may include in the cover pool only those derivative financial instrument contracts that contribute to reducing the risk from the assets of the cover pool or to reducing the risk due to interest and/or currency mismatch between the cover pool and liabilities based on issued mortgage or municipal bonds.

3. FINAL PROVISIONS

Article 6

(start of validity)

This decision enters into force on 8 July 2022.

Ljubljana, 25 January 2022

Boštjan Vasle

Chairman of the Council of the Bank of Slovenia