Document ID: chunk:federal_register_of_legislation:F2022L01566:body:0:p4
Version: federal_register_of_legislation:F2022L01566
Segment Type: other
Provision Reference: 
Character Range: 8382–11263

vehicle.

    23.         An issuing ADI must ensure that agreements between the ADI, the covered bond special purpose vehicle and covered bond holders:

       (a)        require that all assets not securing covered bond liabilities return to the ADI within one month of a default relating to the covered bond;

       (b)        only permit assets of the covered bond special purpose vehicle to become part of the cover pool or otherwise subject to claims by third parties following an express written instruction to do so by the ADI; and

       (c)        only permit assets of the covered bond special purpose vehicle to be sold, liquidated or otherwise disposed of:

           (i)               after first providing the issuing ADI with a reasonable opportunity to acquire the assets on similar terms; and

           (ii)               if the assets are not acquired by the issuing ADI, then for not less than the asset's market price (if there is one) or otherwise for the best price reasonably obtainable having regard to the circumstances existing when they are sold.

    24.         Where the issuing ADI has assets in the covered bond special purpose vehicle that:

       (a)        the covered bond special purpose vehicle holds only on trust for the ADI; or

       (b)        the ADI retains a right to freely withdraw from the covered bond special purpose vehicle at any time, including after a default by the ADI or the covered bond special purpose vehicle on the covered bonds;

    the existence of such arrangements must be clearly set out in any issue documentation and in any legal documentation involving the ADI, covered bond holders and the covered bond special purpose vehicle. It must be made clear to holders of covered bonds that such assets are unavailable as collateral securing their bond holdings.

    25.         Where an issuing ADI acquires assets from a covered bond special purpose vehicle, including by way of substituting assets to maintain levels of collateral held by the covered bond special purpose vehicle, the ADI must, to the extent that this has not already occurred, ensure:

       (a)        the returning assets are subject to impairment testing (and provisioning as necessary); or

       (b)        the returning assets are marked to market;

    depending on how the acquired assets are to be accounted for by the ADI.

Assets in the cover pool

    26.         An issuing ADI must deduct from Common Equity Tier 1 Capital the aggregate amount of assets in cover pools that do not qualify for treatment as assets of the ADI in accordance with section 31D of the Banking Act.

    27.         When applying Prudential Standards, assets in cover pools that qualify for treatment as assets of the issuing ADI in accordance with section 31D of the Banking Act will be treated as if they were held directly by