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47 2001

ASSET COVERED SECURITIES ACT, 2001

PART 4

Regulation of Designated Credit Institutions

Chapter 1

Issue of asset covered securities by designated mortgage credit institutions

Interpretation (Chapter 1).

27. —(1) For the purposes of this Chapter, the following activities are permitted business activities but only if carried out in accordance with this Act—

(a) providing mortgage credit and dealing in and holding mortgage credit assets,

(b) dealing in and holding substitution assets,

(c) dealing in and holding assets of a kind that, in accordance with a requirement of the Authority made under the supervisory enactments, designated mortgage credit institutions are required to hold for regulatory purposes,

(d) dealing in and holding credit transaction assets,

(e) dealing in and holding tier 2 assets,

(f) engaging in activities connected with financing or refinancing assets of a kind mentioned in paragraphs (a) to (e),

(g) entering into contracts in accordance with section 30 for the purpose of hedging risks associated with any other activity of a kind mentioned in paragraphs (a) to (f), and

(h) engaging in activities that are incidental or ancillary to carrying on any other activity mentioned in paragraphs (a) to (g).

(2) The activities referred to in subsection (1)(f) include (but are not limited to)—

(a) taking deposits or other repayable funds from the public, and

(b) issuing asset covered securities.

(3) For the purposes of this Chapter—

“credit transaction”, in relation to a designated mortgage credit institution, means—

(a) placing a deposit with an eligible financial institution designated or of a class designated under subsection (4), or

(b) dealing with or holding a financial asset, or

(c) any other kind of transaction designated by an order made under subsection (5)(a);

“credit transaction asset” means an asset derived from having engaged in a credit transaction (not being a hedge contract entered into in accordance with section 30 ), but does not include a mortgage credit asset, substitution asset or tier 2 asset.

(4) The regulations must provide for one or more financial institutions, or financial institutions of one or more specified classes, to be designated as eligible financial institutions for the purposes of paragraph (a) of the definition of “credit transaction” in subsection (3).

(5) The Minister may, by order notified in Iris Oifigiúil

(a) designate a transaction of a specified kind to be a credit transaction for the purposes of the definition of “credit transaction” in subsection (3), or

(b) declare a transaction of a specified kind to be no longer a credit transaction for those purposes.

Designated mortgage credit institution to carry on permitted business activities only.

28. —A designated mortgage credit institution may not carry on a business activity other than a permitted business activity. However, this section does not prevent such an institution that is also a designated public credit institution from carrying on business activities that can be lawfully carried on by a designated public credit institution.

Power of designated mortgage credit institution to issue mortgage covered securities.

29. —(1) A designated mortgage credit institution may issue mortgage covered securities, but only in accordance with this Act.

(2) A designated mortgage credit institution that issues a mortgage covered security shall ensure that the relevant security document states—

(a) that the security is a mortgage covered security, and

(b) that the financial obligations of the institution under the security are secured on the cover assets that comprise a cover assets pool maintained by the institution in accordance with this Act.

Designated mortgage credit institution may enter into certain kinds of contracts.

30. —(1) A designated mortgage credit institution may enter into one or more contracts the purpose or effect of which is to reduce or minimise the risk of financial loss or exposure liable to arise from—

(a) fluctuations in interest rates or currency exchange rates,

(b) credit risks, or

(c) other risk factors that may adversely affect its permitted business activities.

(2) The Authority may, by regulatory notice published in Iris Oifigiúil, specify for the purpose of this section requirements as to—

(a) the kind of contracts that a designated mortgage credit institution may enter into under subsection (1), and

(b) the terms and conditions under which those contracts, or any class of those contracts, may be entered into.

(3) If a contract of a kind referred to in subsection (1) relates to asset covered securities issued by, and mortgage credit assets or substitution assets that are included in a cover assets pool maintained by, a designated mortgage credit institution, the institution shall ensure that the contract complies with the requirements of subsections (4) and (5).

(4) A contract of the kind referred to in subsection (3) may relate only to—

(a) mortgage covered securities issued by the institution, and

(b) mortgage credit assets or substitution assets that are included in a cover assets pool maintained by it.

(5) A contract of the kind referred to in subsection (3) must—

(a) state that the contract is a cover assets hedge contract entered into in accordance with this Act and that the financial obligations of the institution under the contract are secured on the cover assets comprised in a cover assets pool maintained by the institution in accordance with this Act, and

(b) comply with the requirements (if any) specified in any relevant regulatory notice published under subsection (2).

(6) As soon as practicable after entering into a contract of a kind referred to in subsection (3), a designated mortgage credit institution shall ensure that particulars of the contract are entered into its register of mortgage covered securities business.

(7) A designated mortgage credit institution must comply with any requirements imposed under subsection (2).

(8) A designated mortgage credit institution shall remove from its register of mortgage covered securities business the entry relating to a contract of the kind referred to in subsection (3), but only if—

(a) the contract has been discharged, or

(b) the person with whom the contract was entered into has agreed.

(9) Subsection (5) ceases to apply to a contract of the kind referred to in subsection (3) when the entry relating to the contract is removed from a register of mortgage covered securities business in accordance with subsection (8).

Restrictions on business activities of designated mortgage credit institution.

31. —(1) A designated mortgage credit institution shall ensure that the ratio of the total principal amounts of all mortgage credit assets that it holds to the total prudent market value of the related property assets does not exceed the prescribed percentage. For the purposes of this subsection, the prescribed percentage is 80 per cent or, if the regulations prescribe some other percentage, that other percentage.

(2) If a designated mortgage credit institution holds mortgage credit assets or substitution assets that are located in one or more category B countries, the institution shall ensure that the total prudent market value of those assets, expressed as a percentage of the total prudent market value of all of the mortgage credit assets and substitution assets held by the institution at the relevant time, does not at any time exceed the prescribed percentage. For the purposes of this subsection, the prescribed percentage is 10 per cent or, if an order under subsection (4) specifies some other percentage, that other percentage.

(3) A designated mortgage credit institution shall ensure that the total value of the credit transaction assets and tier 2 assets that it holds, expressed as a percentage of the total value of all of the institution's assets, does not at any time exceed the prescribed percentage. For the purposes of this subsection—

(a) “value” means the value determined in accordance with section 41 (5), and

(b) the prescribed percentage is 10 per cent or, if an order under subsection (4) specifies some other percentage, that other percentage.

(4) The Minister may, by order notified in Iris Oifigiúil, vary the percentage referred to in subsection (2) or (3).

(5) For the purpose of ensuring the proper and orderly regulation of designated mortgage credit institutions, the Authority may, by notice in writing given to the institution or institutions concerned, impose on any specified designated mortgage credit institution, or on any class of designated mortgage credit institutions, requirements or restrictions as to the kinds of credit transaction assets or tier 2 assets that the institution or institutions may hold. Any designated mortgage credit institution to which such a notice is given is required to comply with the notice.

Designated mortgage credit institution to establish and maintain cover assets pool.

32. —(1) A designated mortgage credit institution may issue mortgage covered securities only if it is maintaining a related cover assets pool that complies with this Chapter.

(2) After a designated mortgage credit institution is registered, the institution may, for the purpose of establishing a cover assets pool and enabling it to make an initial issue of mortgage covered securities, include in its register of mortgage covered securities business mortgage credit assets or substitution assets in accordance with this Chapter.

(3) If a designated mortgage credit institution wishes at any time to issue further mortgage covered securities, it may include in the relevant cover assets pool mortgage credit assets or substitution assets as security for those securities in accordance with this Chapter.

(4) Subject to subsection (7), a mortgage credit asset or a substitution asset referred to in subsection (2) or (3) forms part of the relevant cover assets pool only if its inclusion has been approved by the relevant cover-assets monitor.

(5) A designated mortgage credit institution may not include a mortgage credit asset or substitution asset in a cover assets pool in the circumstances referred to in subsection (2) or (3) if—

(a) the mortgage credit asset or substitution asset is currently included in a different cover assets pool maintained by the institution,

(b) the mortgage credit asset or substitution asset is non-performing,

(c) the institution is insolvent,

(d) the Authority has given the institution a relevant direction, the effect of which is to prohibit the asset from being recorded in the institution's register of mortgage covered securities business,

(e) the Authority has given the institution a notice under section 19 (3) informing the institution that the Authority intends to seek the consent of the Minister to the revocation of the registration of the institution as a designated credit institution, or

(f) the Authority has given a direction under section 20 or 21, the effect of which is to prohibit the asset from being recorded in the institution's register of mortgage covered securities business.

(6) For the purposes of subsection (5)(d), “relevant direction” means a direction issued under—

(a) section 11 or 21 of the Central Bank Act, 1971 ,

(b) section 26 of the Trustee Savings Banks Act, 1989 , or

(c) section 40(2) of the Building Societies Act, 1989 .

(7) A designated mortgage credit institution may not, without the consent of the Authority, include a mortgage credit asset or substitution asset in a cover assets pool maintained by the institution in the circumstances contemplated by subsection (2) or (3) if—

(a) the institution is potentially insolvent, or

(b) there is currently no cover-assets monitor appointed in respect of the institution.

(8) A designated mortgage credit institution shall ensure—

(a) that a cover assets pool maintained by the institution has a duration of not less than that of the mortgage covered securities that relate to the pool,

(b) that the prudent market value of the pool is greater than the total of the principal amounts of those securities,

(c) that the total amount of interest payable in a given period of 12 months in respect of the pool is during that 12 month period not less than the total amount of interest payable in respect of that period on those securities, and

(d) that the currency in which each mortgage credit asset and each substitution asset included in the pool is denominated is the same as the currency in which those securities are denominated,

after taking into account, in the case of paragraphs (b), (c) and (d), the effect of any cover assets hedge contract that the institution has entered into in relation to the pool and those securities.

(9) For the purposes of subsection (8)(a), “duration” means, in relation to a cover assets pool or mortgage covered securities—

(a) if interest payable in respect of a mortgage credit asset or substitution asset included in the pool, or in respect of the securities, is variable, a discounted weighted average term to maturity of the relevant principal amount of the pool or securities, or

(b) if interest payable in respect of a mortgage credit asset or substitution asset included in the pool, or in respect of the securities, is fixed, a discounted weighted average term to maturity of the relevant principal and interest payable but unpaid in respect of the pool or securities,

determined in accordance with a formula or criteria specified in a regulatory notice made for the purposes of this subsection, using appropriate zero coupon interest rates and taking into account the effect of any relevant cover assets hedge contract entered into by the institution in relation to the pool and those securities.

(10) The Authority may, by regulatory notice published in Iris Oifigiúil, specify a formula or criteria for the purposes of the definition of “duration” in subsection (9).

(11) For the purpose of subsection (8)(b), if the principal amount of a mortgage credit asset included in a cover assets pool represents more than the mortgage loan to value percentage of the prudent market value of the related property assets, the amount by which the principal amount of the asset exceeds the loan to value percentage is to be disregarded.

(12) For the purposes of this section, the prudent market value of a property asset which relates to a mortgage credit asset is required to be calculated only at the time when the related mortgage credit asset is included in the cover assets pool.

(13) For the purposes of subsection (11), the mortgage loan to value ratio is—

(a) 75 per cent in the case of a mortgage credit asset that comprises residential property, and

(b) 60 per cent in the case of a mortgage credit asset that comprises commercial property,

or, if an order made under subsection (14) specifies some other percentage, that other percentage.

(14) The Minister may, by order notified in Iris Oifigiúil, vary the percentages referred to in subsection (13).

What can be included in a cover assets pool maintained by a designated mortgage credit institution.

33. —(1) Any mortgage credit asset or substitution asset located within an EEA country may be included in a cover assets pool maintained by a designated mortgage credit institution.

(2) A designated mortgage credit institution may not include in a cover assets pool maintained by the institution a mortgage credit asset or substitution asset that is located within one or more category A countries if, after the inclusion of the asset in the pool, the total prudent market value of all mortgage credit assets and substitution assets comprised in the pool located in all such countries would exceed the prescribed percentage of the total prudent market value of all mortgage credit assets and substitution assets that are then included in the pool. For the purposes of this subsection, the prescribed percentage is 15 per cent or, if the regulations prescribe some other percentage, that percentage.

(3) A designated mortgage credit institution may include in a cover assets pool maintained by the institution mortgage credit assets or substitution assets that are located within a category B country only if—

(a) the country is a country designated by an order made under subsection (4), and

(b) the institution complies with any restrictions specified in the order.

(4) The Minister may, by order notified in Iris Oifigiúil, specify a category B country for the purposes of subsection (3). The Minister shall include in such an order restrictions as to the prudent market value of the mortgage credit assets and substitution assets referred to in subsection (3) that a designated mortgage credit institution can include in the cover assets pool as a percentage of the total prudent market value of mortgage credit assets and substitution assets included in the pool.

(5) A designated mortgage credit institution may not include in a cover assets pool a mortgage credit asset that is secured on commercial property if, after inclusion of the asset in the pool, the total prudent market value of all mortgage credit assets so secured would exceed the prescribed percentage of the total prudent market value of all mortgage credit assets and substitution assets then comprised in the pool. For the purposes of this subsection, the prescribed percentage is 10 per cent or, if the regulations prescribe some other percentage, that other percentage.

(6) A designated mortgage credit institution may not include in a cover assets pool a mortgage credit asset if a building related to that mortgage credit asset is being or is to be constructed until the building is ready for occupation as a commercial or residential property.

What action is to be taken by a designated mortgage credit institution that is in breach of cover assets pool provisions.

34. —(1) A designated mortgage credit institution shall, as soon as practicable after becoming aware that it has contravened section 32 (1), (4) (5) or (7) or section 33 (2), (3), (5) or (6), take all possible steps to prevent the contravention from continuing or being repeated. Until those steps have been taken, the institution may not issue any further mortgage covered securities.

(2) A designated mortgage credit institution is required, as soon as practicable after becoming aware that it has failed to comply with section 32 (8), to take all possible steps to comply with the subsection. Until those steps have been taken, the institution may not issue any further mortgage covered securities.

(3) Where appropriate, the steps to be taken under this section include acquiring other mortgage credit assets or substitution assets for inclusion in the cover assets pool.

Substitution of certain cover assets and restrictions on inclusion of substitution assets in cover assets pool of designated mortgage credit institution.

35. —(1) For the purposes of this section, “underlying asset”, in relation to a cover assets pool maintained by a designated mortgage credit institution, means a mortgage credit asset or a substitution asset that is then included in the pool.

(2) Subject to subsection (7), a mortgage credit asset or a substitution asset that replaces an underlying asset forms part of the relevant cover assets pool only if the replacement has been approved by the relevant cover-assets monitor.

(3) If an underlying asset included in a cover assets pool maintained by a designated mortgage credit institution contravenes or fails to comply with a provision of this Chapter, the regulations or a requirement of the Authority or the relevant cover-assets monitor made under such a provision, the institution shall, in accordance with this section, replace the underlying asset with a mortgage credit asset or substitution asset that the institution has acquired for the purpose or is currently holding.

(4) A designated mortgage credit institution may in any other case replace an underlying asset with a mortgage credit asset or a substitution asset that the institution has acquired for the purpose or is currently holding, but only if the replacement is not prohibited by a provision of this Chapter, the regulations or a requirement of the Authority or of the relevant cover-assets monitor under such a provision.

(5) A designated mortgage credit institution may not replace an underlying asset with a mortgage credit asset or a substitution asset if—

(a) the mortgage credit asset or substitution asset is currently contained in a different cover assets pool maintained by the institution,

(b) the mortgage credit asset or substitution asset is non-performing,

(c) the institution is insolvent,

(d) the Authority has given to the institution a relevant direction, the effect of which is to prohibit the replacement from being made,

(e) a notice has been given by the Authority under section 19 (3) informing the institution that it intends to seek the consent of the Minister to the revocation of the registration of the institution as a designated mortgage credit institution, or

(f) the Authority has given a direction under section 20 or 21 that prevents the replacement from being made.

(6) For the purposes of subsection (5)(d), “relevant direction” means a direction issued under—

(a) section 11 or 21 of the Central Bank Act, 1971 ,

(b) section 26 of the Trustee Savings Banks Act, 1989 , or

(c) section 40(2) of the Building Societies Act, 1989 .

(7) A designated mortgage credit institution may not, without the consent of the Authority, replace an underlying asset with a mortgage credit asset or a substitution asset if—

(a) the institution is potentially insolvent, or

(b) there is currently no cover-assets monitor appointed in respect of the institution.

(8) A designated mortgage credit institution may not at any time include a substitution asset in a cover assets pool maintained by the institution if, after including the asset in the pool, the total prudent market value of all substitution assets then included in the pool at the relevant time would exceed the prescribed percentage of the total prudent market value of all cover assets included in the pool. For the purposes of this subsection, the prescribed percentage is 20 per cent or, if an order under subsection (9) specifies some other percentage, that other percentage.

(9) The Minister may, by order notified in Iris Oifigiúil, vary the percentage referred to in subsection (8).

(10) The Authority may, by notice in writing given to a designated mortgage credit institution, suspend the application of subsection (8) to the institution for a specified period if it is satisfied that to do so would facilitate the discharge of secured claims against the institution. The notice may specify conditions subject to which the suspension is to have effect.

(11) The Authority may revoke a notice given under subsection (10) on the ground that the designated mortgage credit institution concerned has not complied with a condition specified in the notice.

(12) For the purpose of subsection (10), “secured claim” means a claim in respect of which the rights of a preferred creditor (other than a super-preferred creditor) are secured under Part 7.

Use of realised proceeds of cover asset by designated mortgage credit institution.

36. —(1) A designated mortgage credit institution may, with the prior consent of the cover-assets monitor concerned, use the proceeds of a cover asset that has been realised—

(a) to create or acquire permitted mortgage credit assets or substitution assets for inclusion in the relevant cover assets pool, or

(b) to discharge secured claims.

(2) Subsection (1) applies even if—

(a) the institution is subject to an insolvency process, or

(b) the institution has been given a notice of the kind referred to in section 35 (5)(e).

(3) Money received by a designated mortgage credit institution as the proceeds of realising a cover asset forms part of the relevant cover assets pool, and is to be treated as part of the related mortgage credit asset or related substitution asset, until it—

(a) is used in accordance with subsection (1),

(b) is released from that pool as an underlying asset and is replaced with other mortgage credit assets or substitution assets that are included in the cover assets pool in accordance with section 35 or this section, or

(c) is released from that pool under subsection (4).

(4) A designated mortgage credit institution may, with the prior consent of the cover-assets monitor concerned, release underlying assets (including money received by the institution as the proceeds of a cover asset) from the cover assets pool if the assets are not required by this Chapter to be included in the cover assets pool to secure secured claims.

(5) In this section—

“permitted”, in relation to mortgage credit assets or substitution assets, means mortgage credit assets or substitution assets that are permitted to be included in a cover assets pool in accordance with this Chapter;

“secured claim” means a claim that is secured under Part 7 in respect of a preferred creditor.

Inclusion of asset in, and removal of asset from, cover assets pool.

37. —For the purposes of sections 35 and 36, an asset is, except as provided by section 36 (3), included in, or removed from, a cover assets pool when the appropriate particulars are recorded in the register of mortgage covered securities business.

Designated mortgage credit institution to keep register of mortgage covered securities business.

38. —(1) A designated mortgage credit institution shall establish and keep a register in respect of—

(a) the mortgage covered securities that it has issued,

(b) the cover assets hedge contracts that it has entered into, and

(c) the mortgage credit assets and substitution assets that it holds as security for those securities and contracts.

(2) The register is to be called the register of mortgage covered securities business.

(3) The register may be kept in book form, in electronic form or in any other form so long as the register is capable of being reproduced visually.

(4) The institution shall include in the register the following particulars—

(a) particulars of the mortgage covered securities that it has issued,

(b) the cover assets hedge contracts that it has entered into,

(c) particulars of the mortgage credit assets and substitution assets that it holds as security for those securities and contracts,

(d) such other particulars as are prescribed by the regulations for the purposes of this section.

(5) Except where the regulations otherwise provide, the institution may make or amend an entry in the register only with the consent of the relevant cover-assets monitor or the Authority.

(6) The institution shall keep the register in such place as may be prescribed by the regulations for the purpose of this subsection.

(7) If a designated mortgage credit institution is also a designated public credit institution, the institution is required to keep its register of mortgage covered securities business separate from its register of public credit covered securities business.

Authority and cover-assets monitor to have access to register of mortgage covered securities business.

39. —(1) The Authority, and each cover-assets monitor appointed in respect of a designated mortgage credit institution, are at all times entitled—

(a) to have access to the institution's register of mortgage covered securities business, and

(b) to take copies of the register or any entry in it at the expense of the institution.

(2) If the Authority, or the cover-assets monitor appointed in respect of a designated mortgage credit institution, by notice in writing so requires, the institution shall provide the Authority or monitor with a copy of—

(a) any specified register kept by the institution in accordance with this Chapter, or

(b) any specified entry in such a register.

(3) A reference in this section to the Authority includes a reference to any person authorised by the Authority for the purposes of this section.

Financial statements in respect of designated mortgage credit institution.

40. —(1) If a designated mortgage credit institution has a parent entity, the entity shall include the following information in its annual consolidated financial statement or in a document accompanying the statement—

(a) the name of the institution and any other particulars required by the regulations with respect to the institution,

(b) the total amounts of principal outstanding in respect of the mortgage covered securities issued by the institution,

(c) the total amounts of principal outstanding in respect of the cover assets pools that relate to those securities,

(d) any other particulars prescribed by the regulations for the purposes of this subsection.

(2) A designated mortgage credit institution shall include the following information in its annual financial statement, or in a document accompanying the statement, in respect of mortgage credit assets that are recorded in the institution's register of mortgage covered securities business:

(a) the number of mortgage credit assets, as at the date to which the statement is made up, with the amounts of principal outstanding in respect of the related credits being specified in tranches of—

(i) €100,000 (£78,756.40) or less,

(ii) more than €100,000 (£78,756.40) but not more than €200,000 (£157,512.80),

(iii) more than €200,000 (£157,512.80) but not more than €500,000 (£393,782), and

(iv) more than €500,000 (£393,782);

(b) the geographical areas in which the related property assets are located, and the number and percentage of those assets held in each of those areas;

(c) whether or not any persons who owe money under mortgage credit assets have defaulted in making payments in respect of those assets when due and payable, and if they have—

(i) the number of those assets as at that date, and

(ii) the total amount of principal outstanding in respect of those assets at that date;

(d) whether or not any persons who owed money under mortgage credit assets had, during the immediately preceding financial year of the institution (if any), defaulted in making payments in respect of those assets in excess of €1,000 (£787.56) at any time during that year, and if any such persons had defaulted, the number of those assets that were held in the cover assets pool at the date to which the financial statement for that year was made up;

(e) the number of cases in which the institution has replaced mortgage credit assets with other assets because those mortgage credit assets were non-performing;

(f) the total amount of interest in arrears in respect of mortgage credit assets that has not been written off at that date;

(g) the total amount of payments of principal repaid and the total amount of interest paid in respect of mortgage credit assets;

(h) in relation to any related mortgage credits that are secured on commercial property, the number and the total amounts of principal of those credits that are outstanding at that date; and

(i) any other information prescribed by the regulations for the purposes of this subsection.

Valuation of assets held by designated mortgage credit institutions.

41. —(1) The Authority may, by regulatory notice published in Iris Oifigiúil, specify requirements in relation to the valuation basis and methodology, time of valuation and any other matter that it considers relevant for determining the prudent market value of mortgage credit assets or related property assets for the purposes of any provision of this Chapter.

(2) The prudent market value of mortgage credit assets or related property assets is to be determined in accordance with a regulatory notice published in accordance with subsection (1).

(3) The Authority may, by regulatory notice published in Iris Oifigiúil, specify requirements in relation to the valuation basis and methodology, time of valuation and any other matter that it considers relevant for determining the prudent market value of substitution assets held by a designated mortgage credit institution for the purposes of this Chapter.

(4) The prudent market value of substitution assets that are in the form of securities is to be determined in accordance with a regulatory notice published in accordance with subsection (3).

(5) The Authority may, by regulatory notice published in Iris Oifigiúil, specify requirements in relation to the valuation basis and methodology, time of valuation and any other matter that it considers relevant for determining the value of tier 2 assets, credit transaction assets or the total assets, held by a designated mortgage credit institution for the purposes of this Act.

(6) The value of assets referred to in subsection (5) is to be determined in accordance with a regulatory notice made under that subsection.