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Status: Please note you should read all Brexit changes to the FCA Handbook and BTS alongside the main FCA transitional directions. Where these directions apply the 'standstill', firms have the choice between complying with the pre-IP completion day rules, or the post-IP completion day rules. To see a full list of Handbook modules affected, please see Annex B to the main FCA transitional directions.

Article 1 Criteria to determine which arrangements under covered bonds mitigate counterparty credit risk

Arrangements under covered bonds shall be considered to adequately mitigate counterparty credit risk, where OTC derivative contracts concluded by covered bond entities in connection with covered bonds comply with all of the following criteria:

  1. (a)

    those contracts are registered or recorded in the cover pool of the covered bond in accordance with UK legislation on covered bonds;

  2. (b)

    those contracts are not terminated in case of resolution or insolvency of the covered bond issuer or the cover pool;

  3. (c)

    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;

  4. (d)

    the covered bond is subject to a regulatory collateralisation requirement of at least 102 %.