Key principlesKey principles

Key principles

12. The Board and senior management of an issuing ADI must establish and implement policies and procedures relating to:

(a) decisions to issue covered bonds and the structuring of covered bond issuance;

(b) the ADI’s dealings with covered bond special purpose vehicles (including cover pools); and

(c) the management of exposures involved in the issuance of covered bonds.

13. The policies and procedures established by an ADI relating to its issuance of covered bonds must include:

(a) appropriate risk management systems to identify, measure, monitor and manage the risks associated with the ADI’s issuance of covered bonds;

(b) how the ADI will monitor the effects of its issuance of covered bonds on its risk profile, including exposures to the covered bond special purpose vehicle;

(c) consideration, under stress scenarios, of the impact on the ADI of contractual obligations to maintain collateral levels required for covered bonds;

(d) assessment of the effect, including under stress scenarios, of covered bond issuance on the ability of the ADI to raise other sources of funding and the cost of such funding; and

(e) how the ADI will ensure that it is meeting the requirements of this Prudential Standard and of Division 3A of Part II of the Banking Act.

14. The documentation associated with a covered bond issuance must clearly set out:

(a) the events of default that would enable covered bond holders to access collateral held in the cover pool;

(b) that claims by covered bond holders on the covered bond special purpose vehicle are limited to assets in the cover pool;

(c) how assets forming part of the cover pool are identified;

(d) the interests of the issuing ADI in assets held by the covered bond special purpose vehicle and the rights of the ADI to recover such assets;

(e) the undertakings, if any, given by the issuing ADI in relation to assets transferred to the cover pool and the extent of any mechanisms for ensuring compliance;

(f) provisions governing the topping up and removal of collateral held in the cover pool by the covered bond special purpose vehicle and any return of collateral to the issuing ADI; and

(g) the provisions, if any, to ensure the continuance of the covered bond special purpose vehicle beyond any default by the issuing ADI.