Text consolidated by Valsts valodas centrs (State
Language Centre) with amending laws of:
22 June 2023 [shall come
into force on 19 July 2023].
If a whole or part of a section has been amended, the
date of the amending law appears in square brackets at
the end of the section. If a whole section, paragraph or
clause has been deleted, the date of the deletion appears
in square brackets beside the deleted section, paragraph
or clause.
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The Saeima1 has adopted and
the President has proclaimed the following law:
Covered Bonds
Law
Chapter I
General Provisions
Section 1. Terms Used in the Law
(1) The following terms are used in the Law:
1) substitution assets - cover assets other than
primary assets;
2) use of assets - receipt of payments, sale of a
pledge, recovery, and other administration activities;
3) disposal agreement - a transaction by which an
alienor transfers cover assets to a covered bond company for the
purpose of including them in a cover pool;
4) alienor - an issuer or another credit institution
which alienates a cover asset from a covered bond company for the
purpose of including it in a cover pool;
5) derivative financial instrument contract
(hereinafter - the derivative contract) - a transaction as a
result of which an issuer or a covered bond company obtains or
purchases a derivative included in a cover pool;
6) branch of a foreign credit institution - a branch of
a credit institution of such country which is not a Member
State;
7) Member State - a country of the European Union or
European Economic Area;
8) covered bond of different asset classes - a covered
bond the primary assets of which in the amount of at least 85 per
cent of the required value of the cover assets consist of a set
of assets which conforms to the requirements of several asset
classes laid down in this Law;
9) issuer - a legal entity which is entitled to
implement a covered bond programme in accordance with the legal
acts of a Member State;
10) investor - any person who owns a covered bond;
11) special administrator - a person who is appointed
in place of the issuer to implement a covered bond programme,
including, if necessary, to administer cover assets, in cases, in
accordance with the procedures, and to the extent laid down in
law;
12) net liquidity outflow - all payment outflows
falling due on one day, including principal amounts, interest
payments, and payments according to the derivative contracts
within the scope of the covered bond programme from which all
payment inflows falling due on the same day for claims related to
the cover assets have been deducted;
13) collateral - a pledge, a financial collateral, a
guarantee, or another reinforcement of liabilities (also a
guarantee) which has been provided or established in connection
with the cover assets;
14) extendable maturity structure - a mechanism which
provides for the possibility to extend the scheduled maturity of
covered bonds for a pre-determined period or also if a specific
trigger event provided for in this Law or the provisions of the
covered bond programme occurs;
15) debtor - a borrower or another person against whom
the issuer or alienor has the right to claim included in the
cover assets;
16) administrator - a person who, in accordance with
this Law or under a contract, administers cover assets or a cover
pool;
17) compulsory enforcement - application of the
security of the claim and temporary protection in a court or
application of other permanent or temporary means of enforcement
governed by public law (except for criminal procedural means by
which property is recognised as criminally acquired) or private
law that are provided for in laws, including the direction of
recovery, imposition of obligations or prohibitions specified in
a court ruling or an executive order or another executive
document of an official in case of any claims and on any legal
grounds;
18) primary assets - assets which form the dominant
part of a cover pool, determine the nature of the cover pool, and
conform to the requirements of this Law;
19) liability restructuring process - a set of legal
measures to restore the solvency of a legal entity which is
supervised by a court, a competent authority, or a person
appointed for such purpose in accordance with legal acts;
20) covered bond - a debt security issued by a credit
institution according to the covered bond programme the
liabilities arising from which are reinforced by a cover pool
separated from the assets of the issuer and in relation to which
investors or creditors of covered bonds have the right to claim
to be settled on a priority basis in comparison with the right to
claim of other creditors;
21) creditor of covered bonds - a person who, according
to a derivative contract entered into for the management of
market risks related to the cover assets, sells a financial
instrument to the issuer or a covered bond company;
22) cross-border covered bond programme (hereinafter -
the cross-border programme) - such covered bond programme
according to which a part of the cover assets in a cover pool is
located in a Member State other than the Member State in which
the implementation of a covered bond programme is authorised
(registered);
23) covered bond claims - claims of investors for the
payment of the principal amount of covered bonds, interest, and
other payments provided for in the provisions of the covered bond
programme, and claims of the creditors of covered bonds arising
from the concluded derivative contracts;
24) covered bond programme - an aggregate of provisions
which includes the structural features of covered bonds and other
provisions necessary for the implementation of the covered bond
programme, including in relation to the policies and procedures
of the issuer developed by the issuer;
25) transfer of a covered bond programme - transfer of
the issued covered bonds and also the liabilities, rights, and
obligations of the covered bonds of the issuer arising from the
covered bond programme to another credit institution which joins
as a new issuer the covered bond programme instead of the
issuer;
26) covered bond programme country (hereinafter - the
programme country) - a Member State in which the implementation
of the relevant covered bond programme is authorised
(registered);
27) covered bond company - a capital company which has
been established in relation to a covered bond programme in order
to segregate the cover pool from the assets of the issuer and to
guarantee the obligations of the issuer arising from the covered
bond programme;
28) covered bond liabilities - payment liabilities
arising from a covered bond programme and including:
a) liabilities to pay the principal amount of outstanding
covered bonds;
b) liabilities to pay interest on all outstanding covered
bonds;
29) structural features of covered bonds -
characteristics that include all the requirements the purpose of
which is to protect the cover pool of covered bonds, including
requirements for the segregation of cover assets;
30) cover assets - assets that are alienated for
inclusion in the cover pool or are included in the cover pool and
also revenues and other property acquired during the
administration of the cover assets, or the funds held by a
covered bond company to settle the claims of investors and
creditors of covered bonds;
31) alienation of cover assets - alienation of cover
assets for the implementation of a covered bond programme, also
for the liquidation or transfer of a cover pool to another
issuer;
32) segregation of cover assets - activities performed
by the issuer to identify cover assets and to segregate them from
other assets of the issuer for the purpose of protecting
investors or creditors of covered bonds;
33) cover pool - a clearly identifiable set of assets
that is segregated from other assets of the issuer itself or held
by the issuer and is sufficient to cover liabilities towards
investors and creditors of covered bonds;
34) liquidation of the cover pool - complete or partial
sale of the cover assets included in the cover pool in order to
make early repayment of the covered bonds for the purpose of
settling covered bond claims;
35) immediate automatic discharge of liabilities
(hereinafter - the immediate discharge of liabilities) -
modification of the period for the discharge of liabilities
specified in a legal act or a contract in such a manner that,
upon occurrence of a specific circumstance, the liabilities are
to be discharged immediately prior to the initially specified
term;
36) trustee - a person who represents the rights and
legal interests of investors (hereinafter also - the interests of
investors) in matters related to the relevant covered bonds;
37) covered bond of one asset class - a covered bond
the primary assets of which in the amount of at least 85 per cent
of the required value of the cover assets consist of assets which
conform to the requirements of one specific asset class referred
to in this Law;
38) overcollateralisation - the entirety of the levels
of collateral specified in this Law, the provisions of the
covered bond programme, or voluntarily which exceeds the coverage
requirements included in this Law.
(2) The terms "insolvency proceedings", "liquidation",
"self-liquidation", "reorganisation measures" used in the Law
which are applied to a credit institution shall correspond to the
terms used in the Credit Institution Law, the term "resolution"
shall correspond to the term used in the Law on Recovery of
Activities and Resolution of Credit Institutions and Investment
Firms, but the term "capital company controlled by a public
person" - to the term used in the Law on Governance of Capital
Shares of a Public Person and Capital Companies.
(3) The term "credit institution" used in the Law shall
correspond to the term used in Article 4(1)(1) 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
(hereinafter - Regulation No 575/2013), the term "market value"
shall correspond to the term used in Article 4(1)(76) of
Regulation No 575/2013, the term "group" shall correspond to the
term used in Article 4(1)(138) of Regulation No 575/2013, and the
term "exposures" shall be used within the meaning of Article 5(1)
of Regulation No 575/2013.
Section 2. Purpose of the Law
The purpose of the Law is to promote the availability of
financial resources, the development and stability of the
financial system, and also to ensure the protection of investors
and creditors of covered bonds.
Section 3. Scope of Application of
the Law
(1) This Law prescribes:
1) the structural features of covered bonds in Latvia;
2) the establishment, operation, liquidation, supervision of
covered bond companies and the change of shareholders or
stockholders of covered bond companies;
3) the rules for the alienation of cover assets and the
protection of cover assets against claims of third parties;
4) the special characteristics of the insolvency proceedings
of the issuer, alienor, and covered bond company;
5) the rights and protection of investors and creditors of
covered bonds;
6) the requirements for the disclosure and publication of
information;
7) the supervision of the implementation of the covered bond
programmes of Latvijas Banka;
8) the implementation of a cross-border programme.
(2) A covered bond programme shall be implemented in Latvia
and the issue within the scope thereof shall be performed by a
credit institution which is registered in Latvia and has received
the licence (permit) for the performance of the operation of a
credit institution or a branch of a foreign credit institution
which is entitled to provide financial services in Latvia and has
received the permit for the implementation of a covered bond
programme in accordance with the procedures laid down in this
Law.
(3) Regulation (EU) No 909/2014 of the European Parliament and
of the Council of 23 July 2014 on improving securities settlement
in the European Union and on central securities depositories and
amending Directives 98/26/EC and 2014/65/EU and Regulation (EU)
No 236/2012 shall be applied to the issue of covered bonds.
(4) If the issuer has received the permit for the
implementation of the covered bond programme in accordance with
Section 37, Paragraph one of this Law and if it is provided for
in Regulation (EU) 2017/1129 of the European Parliament and of
the Council of 14 June 2017 on the prospectus to be published
when securities are offered to the public or admitted to trading
on a regulated market, and repealing Directive 2003/71/EC, the
issuer shall prepare the issue prospectus.
(5) In relation to the field of covered bonds, the Civil Law,
the Commercial Law, the Insolvency Law, the Civil Procedure Law,
the Credit Institution Law, and the Law on Recovery of Activities
and Resolution of Credit Institutions and Investment Firms shall
be applied insofar as it is not laid down otherwise in this
Law.
[22 June 2023]
Section 4. Restrictions on the Use
of Certain Terms
(1) The term "covered bond" or the term "the European covered
bond", the derived forms and translations thereof into the
language of any Member State may only be used in respect of the
covered bonds issued in a Member State in accordance with the
procedures laid down in legal acts.
(2) The term "covered bond company" may only be used by such
legal entity in its activities which has been established as a
covered bond company in accordance with this Law and also by a
covered bond company registered in another Member State and
involved in the cross-border programme in Latvia.
(3) It is prohibited to use the following phrases in any
documents, including documents for the issue of financial
instruments, advertising or informative materials in any manner
misleading other persons:
1) a European covered bond (Premium) - in respect of financial
instruments which do not conform to the requirements of Article
129 of Regulation No 575/2013;
2) a residential mortgage covered bond - in respect of
financial instruments which are not referred to in Paragraph four
of this Section.
(4) Covered bonds may be deemed as residential mortgage
covered bonds if at least 80 per cent of the required value of
the cover assets consist of the assets specified in Section 48,
Clause 2 of this Law and only if the cover pool includes
mortgages established in respect of residential immovable
property located in a Member State within the meaning of Article
4(75) of Regulation No 575/2013.
(5) Covered bonds may be deemed as European covered bonds
(Premium) if they conform to the requirements of Article 129 of
Regulation No 575/2013.
Section 5. Protection of
Information
(1) A covered bond company, an administrator, a cover pool
monitor, and a special administrator shall comply with the
requirements for the protection of information laid down for a
credit institution - an issuer or alienor - in the Credit
Institution Law in respect of the protection of secrecy of
persons, accounts, deposits, and transactions (hereinafter - the
non-disclosable information).
(2) An issuer, an alienor, a covered bond company, an
administrator, a cover pool monitor, and a special administrator
are entitled to provide the information at their disposal,
including the non-disclosable information, on the cover assets
and collateral:
1) to persons who are involved in the implementation of a
covered bond programme or the administration of cover assets,
alienation of cover assets, or liquidation of the cover pool so
that these persons would be able to perform the functions
referred to in this Law or the regulations of the covered bond
programme, provided that these persons ensure protection of the
information received;
2) to Latvijas Banka for the supervision of the implementation
of the covered bond programme;
3) to courts, sworn bailiffs, and other institutions and
persons, insofar as it is necessary to ensure the protection of
the cover pool against claims of third parties and compulsory
enforcement, as specified in this Law;
4) in any other cases where the issuer or alienor has had such
a right prior to the inclusion of the relevant cover asset in the
cover pool.
[22 June 2023]
Chapter
II
Establishment, Operation, and Termination of Operation of a
Covered Bond Company
Section 6. Establishment of a
Covered Bond Company
(1) A covered bond company shall be established as a capital
company by an issuer. If the issuer is a branch of a foreign
credit institution in Latvia, the decision to establish a covered
bond company shall be taken by the foreign credit institution as
a legal person.
(2) Documents of incorporation of a covered bond company shall
not specify a term for which the company has been established or
the fact that the operation thereof shall be terminated upon
achieving the objectives specified in the articles of
association.
Section 7. Firm Name of a Covered
Bond Company
The firm name of a covered bond company shall include the
indication "covered bond company".
Section 8. Shareholder or
Stockholder of a Covered Bond Company
(1) A shareholder or stockholder of a covered bond company
shall be the issuer itself.
(2) A shareholder or stockholder of a covered bond company may
be changed concurrently with the transfer of the covered bond
programme to a new issuer.
(3) When submitting documents to the Enterprise Register of
the Republic of Latvia for the change of a shareholder or
stockholder of a covered bond company, a written confirmation of
Latvijas Banka that Latvijas Banka has no objections to such
activities shall be attached thereto.
[22 June 2023]
Section 9. Country of Registration
of a Covered Bond Company
(1) The issuer and a covered bond company shall be registered
in the same Member State.
(2) An alienor which is not the issuer may also be registered
in a Member State other than the issuer or the covered bond
company.
Section 10. Exceptions to the
Licensing Requirements
It shall not be required for a covered bond company performing
itself the functions of an administrator referred to in Section
11, Paragraph three, Clause 4 of this Law to have the special
permit (license) specified in laws and regulations for the
provision of a consumer credit service and for the extrajudicial
recovery of debt.
Section 11. Operation and
Restrictions on the Operation of a Covered Bond Company
(1) A covered bond company shall be concurrently involved only
in one covered bond programme, but the assets alienated by both
the issuer and another alienor may be used as the cover
assets.
(2) A covered bond company may perform activities and enter
into transactions which are necessary for ensuring the operation
of a covered bond company or adequate implementation of a covered
bond programme and are not in contradiction with the purpose of
the establishment of the relevant company.
(3) A covered bond company:
1) shall acquire, alienate, and use cover assets, and also
enter into transactions with the issuer and other persons
necessary for the implementation of this purpose;
2) shall enter into derivative contracts for the management of
the risks specified in this Law;
3) shall provide a guarantee for the liabilities of the issuer
arising from the covered bond programme;
4) may perform itself the functions of an administrator if the
contract for the administration of a cover pool or cover assets
referred to in Section 22 of this Law is not entered into or if
the issuer is not able to perform the contract for the
administration of a cover pool referred to in Section 43 of this
Law;
5) may use the revenues obtained by administrating the cover
assets to finance the activities of the covered bond company,
without exceeding the limits specified in the covered bond
programme.
(4) A covered bond company is entitled to use cover assets and
undertake liabilities in respect of the cover assets if these
transactions are related to the covered bond programme and are
concluded for the benefit and in the interests of the investors
or the creditors of covered bonds, including to ensure the
operation of the covered bond company.
(5) A covered bond company may not provide a collateral using
cover assets, except where it is necessary to secure liabilities
of the covered bond company towards investors and creditors of
covered bonds.
(6) A covered bond company may not use the cover assets for
the repayment of any loan (credit) and for the discharge of other
liabilities, except for the payments which are made:
1) for the discharge of liabilities towards investors and
creditors of covered bonds;
2) on the basis of the transactions referred to in Paragraph
four of this Section and arising from Section 47, Paragraph one,
Clauses 1 and 5 of this Law;
3) to cover:
a) costs related to the service fees and expenses specified in
the contract for the administration of a cover pool and cover
assets;
b) costs of the administration of cover assets;
c) remuneration of the cover pool monitor;
d) expenses of the special administrator;
f) supervision fee.
(7) A covered bond company shall receive the consent of the
issuer or the special administrator (if such has been appointed)
for entering into the transactions referred to in Paragraphs four
and five of this Section.
(8) Shares or stocks of a covered bond company may not be
pledged or subject to compulsory enforcement, nor may they be
alienated, except for the case referred to in Section 8,
Paragraph two of this Law.
(9) Transactions of a covered bond company entered into
without conforming to the restrictions specified for the
operation of the company in this Law shall not be valid.
Section 12. Transactions with
Involved Persons
The legal norms of the Commercial Law regarding transactions
of related persons shall not be applied to the transactions for
the implementation of the covered bond programme which are
concluded between an issuer, an alienor, a covered bond company,
an administrator, or another person involved in the
implementation of a covered bond programme.
Section 13. Financial Statements of
a Covered Bond Company
A covered bond company shall prepare financial statements
according to the international financial reporting standards in
accordance with Regulation (EC) No 1606/2002 of the European
Parliament and of the Council of 19 July 2002 on the application
of international accounting standards (hereinafter - Regulation
No 1606/2002).
Section 14. Reorganisation and
Termination of the Operation of a Covered Bond Company
(1) Reorganisation of a covered bond company, transfer of its
undertaking, or any other action with the covered bond company or
its undertaking which would reduce the possibility to execute the
guarantee provided thereby or due to which it would not be
possible to execute such guarantee shall not be permitted if such
action would harm the interests of the investors or creditors of
covered bonds.
(2) A covered bond company shall be liquidated if:
1) the covered bond programme has been fulfilled;
2) the covered bond company no longer has cover assets and
rights to new cover assets according to the contract for the
administration of a cover pool.
(3) If another institution or court decides on the termination
of the operation or liquidation of a covered bond company in
accordance with other laws and regulations, liquidation of the
covered bond company shall only be permitted if the provisions of
Paragraph one of this Section are complied with, except when
proceedings regarding the imposition of coercive measures on a
legal person have been initiated in accordance with the Criminal
Law and the Criminal Procedure Law.
(4) In the cases referred to in Paragraphs one and two of this
Section, the consent of Latvijas Banka is required. If a court
decides on the termination of the operation of a covered bond
company, it shall hear Latvijas Banka before taking the decision.
If another institution decides on the termination of the
operation of a covered bond company, it shall be required to
receive a consent of Latvijas Banka before taking the
decision.
(5) The Enterprise Register of the Republic of Latvia shall
delete a covered bond company from the Commercial Register after
receipt of a written consent of Latvijas Banka for the
liquidation of the covered bond company or a relevant court
ruling.
[22 June 2023]
Chapter
III
Alienation of Cover Assets for a Covered Bond Company
Section 15. Form of a Disposal
Agreement
The issuer or alienor and a covered bond company shall enter
into a disposal agreement in writing. A disposal agreement
entered into without conforming to this requirement shall not be
valid.
Section 16. Legal Consequences of a
Disposal Agreement
(1) The issuer or alienor shall transfer cover assets to a
covered bond company according to a disposal agreement.
(2) If the permit of Latvijas Banka for the implementation of
a covered bond programme has been received, the permit specified
in the Credit Institution Law for the transfer of a credit
institution undertaking shall not be additionally required for
the alienation of cover assets according to the disposal
agreement. The provision of the Commercial Law for the joint
liability of the transferor and acquirer of the undertaking shall
not apply to the alienation of cover assets.
(3) A disposal agreement between the parties shall come into
effect at the time of its conclusion, unless the disposal
agreement provides otherwise.
(4) The right of a covered bond company to cover assets shall
be valid and exercisable without any restrictions and
reservations.
(5) The right of a covered bond company to return a cover
asset or a set thereof to the issuer or alienor, the right to
demand redress or bring a recourse action against the issuer or
alienor in relation to the cover asset shall not affect the
validity of the disposal agreement.
(6) At the moment of alienation of a cover asset, all
performances provided by a debtor or collateral provider to the
alienor or issuer in relation to the claim included in the asset
and any other payments, claims, rights, and things received by
the issuer or alienor in relation to the cover asset shall be
attributed to this cover asset and belong to a covered bond
company.
(7) The issuer or alienor shall separate the property referred
to in Paragraph six of this Section from its own property and the
property of other persons and transfer it to the covered bond
company according to the disposal agreement or an order of the
special administrator (if such has been appointed).
(8) After the alienation of cover assets to the covered bond
company, the issuer and the covered bond company shall conduct an
assessment of the derecognition of financial assets in respect of
the accounting of cover assets in accordance with Regulation No
1606/2002.
(9) The issuer or alienor is not entitled to apply set-off to
its own claims or claims of third parties against cover
assets.
[22 June 2023]
Section 17. Transfer of the
Collateral Related to Cover Assets
(1) Alienation of cover assets shall involve the transfer of
the collateral related to such assets in which the issuer or
alienor is the collateral taker to the covered bond company
(hereinafter - the transfer of collateral).
(2) Subsequent submission of such documents which provide for
changes in relation to the registration of the collateral in
public registers shall not, in accordance with this Law, affect
the transfer of collateral to the covered bond company and the
validity thereof. If the legal acts applicable to the collateral
link the use of the collateral with changes in the entries of
public registers in respect of the collateral taker, the covered
bond company shall use the collateral after the relevant changes
in the entries of public registers have been made.
(3) A covered bond company shall ensure the registration in
public registers referred to in Paragraph two of this Section on
the basis of the decision of Latvijas Banka on the permit for the
implementation of a covered bond programme or change of the
issuer. A consent of the debtor or collateral provider for the
registration of the collateral shall not be required, also if it
is alienated to a new issuer.
(4) Claims related to the collateral are transferred to the
covered bond company concurrently with the collateral and to the
same extent as they have arisen or would arise for the alienor in
accordance with this Law if the cover assets were not alienated
to the covered bond company.
(5) After alienation of the cover assets to the covered bond
company, the issuer or alienor shall be the financial collateral
taker. The covered bond company has a pre-emptive right to the
funds obtained from the realisation of the financial collateral.
The procedures for realising the financial collateral for claims
which have been transferred to the covered bond company shall, in
conformity with this pre-emptive right, be specified in the
contract for the administration of a cover pool or cover
assets.
(6) The pre-emptive right referred to in Paragraph five of
this Section shall also apply in the case of insolvency
proceedings or liquidation, resolution or reorganisation measures
of the issuer or alienor, or transfer of the credit institution
undertaking or when the covered bond programme is transferred to
another issuer.
[22 June 2023]
Section 18. Rights Related to Cover
Assets
(1) If the parties do not agree otherwise in the disposal
agreement, the cover assets are alienated and transferred to a
covered bond company together with all existing rights, claims,
and fruits, including the right to insurance indemnity which the
alienor is entitled to receive in relation to cover assets in
accordance with the legal acts or the concluded agreements.
(2) If the alienated cover assets include the right to
insurance indemnity upon occurrence of an insurance event, claims
of the alienor for the disbursement of insurance indemnity shall
be included in the cover assets, unless the parties agree
otherwise in the disposal agreement.
(3) The disbursements of insurance indemnity referred to in
Paragraph two of this Section are included in the cover assets to
the extent provided for by the laws and regulations in the field
of insurance or by the contracts entered into. A covered bond
company is entitled to allow the debtor or the collateral
provider to use the insurance indemnity (in full or in part) for
the elimination of the consequences of the insurance event.
(4) A unilateral notification of a covered bond company to the
insurer that the insured cover assets have been transferred to
the covered bond company on the basis of the disposal agreement
shall grant the right to such company to receive the disbursement
of insurance indemnity related to this cover asset.
(5) The alienation of cover assets to a covered bond company
shall not form the grounds for the amendment or termination of an
insurance contract.
Section 19. Processing of Personal
Data in the Alienation of Cover Assets
In order to exercise the rights and fulfil the obligations
specified in this Law, the issuer or alienor shall transfer to a
covered bond company the personal data related to the cover
assets in respect of which it acts as a data controller and which
it processes in relation to granting of a loan (credit) the right
to claim derived from which is included in the cover assets and
for which it undertakes the management of the credit risk. The
covered bond company shall become the data controller in respect
of the received personal data without the consent of a data
subject.
Section 20. Inclusion of Information
in the Credit Register and Databases of Credit Bureaus
(1) Information on the claims included in cover assets shall
be included in the Credit Register by the administrator in
accordance with the Law on the Credit Register. If the
administrator is not a member of the Credit Register, the
information shall be included in the Credit Register by a covered
bond company.
(2) If the relevant claim arises from a loan (credit) which
has been provided according to a consumer credit agreement in
accordance with the Consumer Rights Protection Law, the
administrator as a user of credit information shall provide
information to credit bureaus on a debt or liabilities in
accordance with the laws and regulations prescribing the
provision of such information.
Section 21. Rights and Obligations
of Debtors and Collateral Providers
(1) The inclusion of cover assets in a cover pool in
accordance with Section 16 of this Law or further alienation of
cover assets in accordance with Section 27 of this Law shall not
affect and change the rights and obligations of a debtor and a
collateral provider, except for the cases provided for in this
Law.
(2) An agreement between a debtor and an issuer under which it
is prohibited or restricted to alienate or transfer cover assets
to another person shall not be valid if the cover assets are
alienated by the issuer or alienor in the cases specified in this
Law.
(3) The provisions of such transaction by which collateral is
provided which affects the validity of the collateral itself or
the extent of the discharge of the liabilities of the collateral
provider shall not be valid in the cases of alienation of cover
assets specified in this Law.
(4) Informing or consent of the debtor or collateral provider
shall not be required for the alienation of cover assets.
(5) The alienation of cover assets to a covered bond company
shall not affect the rights and obligations of a debtor and a
collateral provider which are provided for in the laws and
regulations in the field of consumer protection.
(6) It is prohibited to set off the claims of a debtor and a
collateral provider related to the cover assets.
Chapter
IV
Administration of Cover Assets and Action with Cover Assets
Section 22. Administration of Cover
Assets
(1) An issuer and a covered bond company shall enter into a
contract for the administration of a cover pool in writing in
accordance with that specified in Section 43 of this Law. The
issuer shall inform Latvijas Banka of the entry into, amendment,
or termination of the contract for the administration of a cover
pool.
(2) For the purpose of administering cover assets, a contract
may be entered into in writing for the administration of cover
assets or the performance of specific administration activities
(hereinafter - the contract for the administration of cover
assets). The contract for the administration of cover assets
shall be entered into by a covered bond company and an alienor
who has transferred the cover assets to the covered bond company
but is not the issuer, or by a covered bond company and a third
party which is a credit institution or extrajudicial debt
recovery service provider. The alienor or the relevant third
party shall be deemed the administrator.
(3) It shall not be required for the administrator to hold a
special permit (license) for the provision of a consumer credit
service and an extrajudicial debt recovery service, insofar as
the administrator administers the cover pool or cover assets.
[22 June 2023]
Section 23. Separation of Cover
Assets from the Property of the Administrator
(1) Cover assets, including financial resources within the
meaning of the Financial Collateral Law (hereinafter - the funds)
which are administered by the administrator according to an
administration contract shall not be included in the property of
the administrator and are not used to cover the claims of
creditors of the administrator in insolvency proceedings or
liquidation, resolution or reorganisation measures. The
administrator is not entitled to apply set-off to its own claims
or claims of third parties against cover assets administered
thereby.
(2) The administrator, including an alienor who performs the
function of an administrator, shall hold, administer, and account
for cover assets separately from its own property and that of
third parties so that the cover assets may be identified as cover
assets at any moment.
(3) If the administrator is not able to fulfil its obligations
due to insolvency proceedings or liquidation, resolution or
reorganisation measures of the issuer, the administrator shall
immediately, upon request of a covered bond company or the
special administrator, transfer the administration of the cover
assets or cover pool to the covered bond company or another
person indicated by the special administrator who will administer
the cover assets.
Section 24. Protection of Cover
Assets
(1) Neither compulsory enforcement may be directed against
cover assets nor claims may be brought against the issuer,
alienor, covered bond company, or administrator in relation to
cover assets, except for the cases where it arises from the
covered bond claims. This provision shall not restrict the right
of third parties to direct compulsory enforcement against cover
assets in cases when they bring actions against a debtor or the
collateral provider itself. Compulsory enforcement may be
directed against the cover assets and also claims may be brought
against the issuer, alienor, covered bond company, or
administrator in relation to such cover assets which remain after
the discharge of liabilities of a covered bond company towards
investors and creditors of covered bonds.
(2) The fact that the assets are cover assets in the covered
bond programme included in the list of issuers and programmes of
covered bonds may be proved or certified by a certification of a
covered bond company or special administrator which is prepared
on the basis of the accounting data of the list of cover
assets.
(3) In the case of the cross-border programme, inclusion of
cover assets in the cover pool which has been established
according to a covered bond programme authorised (registered) in
another Member State shall be certified by the issuer or another
legal entity that owns the cover assets included in the relevant
covered bond programme in Latvia or another Member State.
Section 25. Rights of Investors and
Creditors of Covered Bonds to Cover Assets
(1) Investors and creditors of covered bonds have the right to
request compulsory enforcement against the cover assets if the
liabilities are not being discharged in accordance with this Law
and the provisions of the covered bond programme.
(2) Investors and creditors of covered bonds shall exercise
the right to claim against cover assets according to the
procedures provided for in the provisions of the covered bond
programme.
(3) An investor and a creditor of covered bonds individually
or an individual group of investors or creditors of covered bonds
is not entitled to separately require compulsory enforcement
against cover assets, except for when such rights are provided
for in the provisions of the covered bond programme.
Section 26. Limitation of Liability
of a Covered Bond Company
Liability of a covered bond company for all covered bond
claims shall be limited to the amount of the cover assets owned
by the covered bond company.
Section 27. Alienation of Cover
Assets
(1) A covered bond company shall alienate cover assets only in
the following cases:
1) if a cover asset is replaced with another equivalent cover
asset according to the contract for the administration of a cover
pool or does not conform to the requirements specified for the
cover asset and is replaced with another adequate cover
asset;
2) upon discharge of all covered bond liabilities towards
investors and creditors of covered bonds by selling the relevant
asset;
3) to the issuer or alienor - if the cover assets are no
longer necessary for the conformity of the cover pool with the
provisions of this Law and the covered bond programme.
(2) The provisions of Paragraph one of this Section shall not
restrict the right of the special administrator to alienate cover
assets if the cover pool is being liquidated.
Section 28. List of Cover Assets
(1) A covered bond company shall constantly maintain a
complete, up-to-date list of cover assets which allows to
identify the cover assets included in the cover pool.
(2) A covered bond company shall compile a list of cover
assets in a transparent manner and the list shall include at
least information on:
1) the type of cover assets in accordance with that referred
to in Sections 47, 48, and 49 of this Law;
2) the borrower, currency, loan (credit) balance, date and
number of the loan (credit) agreement;
3) the collateral for cover assets and the collateral
provider;
4) the maturity of the cover assets.
(3) A covered bond company shall update the list of cover
assets whenever a cover asset is replaced with another cover
asset, but at least once every quarter within a calendar
year.
(4) Latvijas Banka has the right to determine the structure of
the list of cover assets and the information to be included
therein in addition to the requirements referred to in Paragraph
two of this Section.
(5) Corroboration of rights in rem in the Land Register in
favour of a specific person shall not change the fact that the
cover asset is included in the list of cover assets. In legal
relationships of a creditor with a debtor, including in the case
of recovery, the corroboration of the rights in the Land Register
shall prevail.
[22 June 2023]
Chapter V
Obligations of a Covered Bond Company in the Covered Bond
Programme
Section 29. Guarantee
(1) The liabilities of the issuer towards investors and
creditors of covered bonds in covered bond claims shall be
secured by a guarantee of a covered bond company according to
which the covered bond company undertakes to be liable towards
investors and creditors of covered bonds for their covered bond
claims in accordance with the provisions of the guarantee if the
issuer fails to make or delays principal and interest payments
specified in the covered bond programme or the payments specified
in the derivative contract.
(2) The issuer and a covered bond company shall enter into a
guarantee agreement in writing in accordance with the provisions
of this Law and the covered bond programme. The issuer shall
submit to Latvijas Banka the guarantee agreement or a copy of the
guarantee agreement certified in accordance with the procedures
laid down in legal acts and also any subsequent amendments and
additions to the guarantee agreement.
(3) The guarantee liabilities of a covered bond company shall
not exceed the amount of the cover assets owned by the covered
bond company.
(4) When entering into a guarantee agreement, investors and
creditors of covered bonds shall acquire an independent right to
request the performance of the guarantee agreement and it shall
not be necessary for investors and creditors of covered bonds to
join the guarantee agreement.
(5) Investors and creditors of covered bonds are entitled to
request the discharge of the liabilities arising from the
guarantee agreement in accordance with this Law and the
provisions of the covered bond programme.
(6) The issuer shall publish and maintain on its website the
current version of the guarantee agreement so that it is
available to investors and creditors of covered bonds at any
moment.
(7) The guarantee shall be irrevocable.
(8) The guarantee agreement may be amended with the consent of
investors and creditors of covered bonds which has been received
in accordance with the procedures provided for in the provisions
of the covered bond programme.
(9) From the day when the issuer allows delay in payment of
the covered bond liabilities, the covered bond company has an
obligation to make these payments from the cover assets. The
covered bond company and the issuer have the right to apply
set-off to the extent that the covered bond company has made
payments to investors or creditors of covered bonds according to
the guarantee agreement. Set-off shall also be allowed in
insolvency proceedings or in liquidation, resolution or
reorganisation measures of the issuer.
[22 June 2023]
Section 30. Obligation of a Covered
Bond Company to Disclose Information
(1) If an issuer is not able to disclose the information
referred to in Section 44, Paragraph one of this Law due to the
fact that insolvency proceedings of the issuer have been
declared, liquidation thereof has been commenced, resolution or
reorganisation measures have been applied, the information shall
be disclosed by a covered bond company, except when the covered
bond programme is transferred to a new issuer.
(2) A covered bond company shall publish on its website the
annual statement together with the report of a sworn auditor (if
such is necessary in accordance with legal acts) immediately
after approval thereof or indicate another appropriate medium or
place where this information is published.
Chapter
VI
Representation of Interests of Investors
Section 31. Requirements Applicable
to the Representation of Interests of Investors
An issuer may provide for in the provisions of the covered
bond programme any of the requirements referred to in this
Chapter for the representation of the rights and legal interests
of investors.
Section 32. Meeting of Investors
(1) An issuer shall convene a meeting of investors if it is
provided for by the provisions of the covered bond programme in
order to decide on the representation of interests of investors,
insofar as it is not in contradiction with this Law.
(2) The procedures for convening a meeting of investors, the
quorum of the meeting, the majority of votes necessary for
deciding, the procedures for voting, also remote voting, and any
other issues related to convening and conducting of the meeting
shall be determined in the provisions of the covered bond
programme.
(3) The meeting of investors may decide that the joint
interests of investors related to covered bonds in accordance
with Section 33 of this Law shall be represented by a trustee or
by a person appointed by the issuer in accordance with Section 34
of this Law. The meeting of investors shall determine the rights,
obligations of the trustee, the settlement, the procedures for
covering expenses, and any other issues.
(4) The authorisation referred to in Paragraph three of this
Section shall not be affected by the declaration of insolvency
proceedings or liquidation of an investor, or the application of
the proceedings for the resolution or restructuring of
liabilities.
(5) The issuer shall cover all expenses related to the
organisation of the meeting of investors and the taking and
communication of decisions.
Section 33. Trustee Appointed by the
Meeting of Investors
(1) The meeting of investors may decide that a trustee shall
represent all investors when performing the activities specified
in the authorisation. An investor may not concurrently exercise
independently his or her rights conferred on the trustee.
(2) In conformity with the powers and restrictions imposed on
a trustee in a decision of the meeting of investors, the trustee
is entitled to initiate proceedings on behalf of all investors
and defend their common interests, including in legal
proceedings, without an obligation to establish the identity of
investors. In exercising such rights, it shall be sufficient if
the trustee indicates that it acts as a trustee and attaches a
decision by the meeting of investors certifying the powers of
such person and the limits of the authorisation.
(3) When protecting the interests of investors, a trustee has
the right to request withdrawal of all or any of the members of
the supervisory board or executive board of a covered bond
company by submitting a justified submission to the issuer and
Latvijas Banka. The issuer need not take such a request into
account, providing the trustee and Latvijas Banka with a relevant
justification as to why the submission of the trustee is not
being taken into account.
(4) The issuer or the special administrator (if such has been
appointed) shall, upon request of the trustee, submit to the
trustee a list of the current investors and, if it has been
requested by the trustee for the exercise of its powers, the list
shall also include information on the amount and basis of current
claims.
(5) If the covered bonds are in public circulation or are
traded at a trading venue within the meaning of the Financial
Instrument Market Law, the trustee is entitled to request and
receive a list of investors from the central securities
depository where the covered bonds have been registered.
(6) The trustee is entitled to obtain information on
insolvency proceedings or liquidation of the issuer, insofar as
it affects the settlement of the claims of investors applied in
the insolvency proceedings or liquidation of the issuer.
(7) If the trustee has been authorised to acquire assets in
the name or on behalf of investors, they are held and accounted
for separately from the trustee's own assets and from any other
assets transferred under its management. Creditors of the trustee
may not direct their claims against assets (also funds) which the
trustee has received in the name or on behalf of investors while
fulfilling the obligations of the trustee specified thereto.
[22 June 2023]
Section 34. Trustee Appointed by the
Issuer
(1) A trustee - a financial institution independent of the
issuer, an office of sworn advocates, a sworn auditor, or a
commercial company of sworn auditors - may also be appointed by
the issuer, indicating this in the provisions of the covered bond
programme.
(2) If the trustee has been appointed by the issuer and it has
not been authorised by the meeting of investors to represent the
interests of investors, the trustee shall only have the rights
referred to in Section 33, Paragraphs three, four, five, and six
of this Law and also the right to participate in the meeting of
investors.
Chapter
VII
Permit for the Implementation of a Covered Bond Programme
Section 35. Conditions for the
Commencement of a Covered Bond Programme
(1) An issuer is entitled to implement a covered bond
programme in Latvia if a permit of Latvijas Banka has been
received. The issuer shall commence the issue of covered bonds
after the conditions specified in the permit for the covered bond
programme have been met, the cover pool has been created and
transferred to a covered bond company, the guarantee agreement
has been entered into between the issuer and the covered bond
company, and other conditions provided for in legal acts and the
provisions of the covered bond programme have been met.
(2) If Latvijas Banka takes the decision to issue the permit
for the implementation of a covered bond programme, it shall post
the information on its website. The permit of Latvijas Banka
shall be applicable to all issues of covered bonds of the issuer
which are performed according to the covered bond programme,
except for the cases specified in Section 36, Paragraph three and
Section 38 of this Law.
[22 June 2023]
Section 36. Submission for a Covered
Bond Programme and Notification of the Intention to Issue Covered
Bonds
(1) An issuer who wishes to implement a covered bond programme
shall submit a submission to Latvijas Banka. The submission shall
be accompanied by the programme and other documents specified in
accordance with Paragraph four of this Section.
(2) Latvijas Banka shall examine the submission and the
documents appended thereto and shall take the decision to issue
the permit for the implementation of a covered bond programme or
to refuse to issue the permit within three months from the day
when all the necessary documents have been received. Latvijas
Banka has the right to extend the three-month term up to six
months, notifying the issuer thereof.
(3) If more than 12 months have passed since the day when the
permit has been issued for the implementation of a covered bond
programme, the issuer shall, at least 30 days before the issue of
covered bonds, also new issue of covered bonds, notify Latvijas
Banka of its intention to issue covered bonds according to the
covered bond programme so that Latvijas Banka, if necessary,
could exercise the rights specified for it in Section 38,
Paragraph one of this Law.
(4) Latvijas Banka shall determine the documents to be
submitted and the information to be included therein which is
necessary to take the decision on the permit for the
implementation of a covered bond programme or to examine the
notification referred to in Paragraph three of this Section and
also determine the procedures for the examination of the
abovementioned documents.
[22 June 2023]
Section 37. Requirements for Issuing
the Permit for the Implementation of a Covered Bond Programme
(1) Latvijas Banka shall issue the permit for the
implementation of a covered bond programme if all of the
following conditions have been met:
1) the issuer provides for the implementation of a covered
bond programme and the covered bond programme conforms to the
objectives brought forward by the issuer;
2) the covered bond programme, including the expected cover
pool, the procedures for the creation, substitution, and
supervision thereof, the cover assets intended to be used for the
establishment of a cover pool, and the cover pool monitor conform
to the requirements laid down in this Law;
3) the liabilities of the issuer towards investors and
creditors of covered bonds are secured by a guarantee of a
covered bond company conforming to the requirements of this
Law;
4) the procedures for accounting the cover assets and
technical means ensure that the cover assets are segregated in
accordance with the requirements of this Law;
5) the issuer has developed and introduced an appropriate,
comprehensive, justified, and effective set of policies,
procedures, and methodologies for the implementation of the
covered bond programme, taking into account the type, scope, and
complexity thereof, including a continuity plan for the
implementation of the covered bond programme;
6) the issuer has ensured that the covered bond programme is
implemented by competent (appropriately qualified and
experienced) persons (hereinafter - the competent persons);
7) the issuer has or will have sufficient cover assets
available to ensure that the cover pool conforms to the
requirements of this Law, taking into account even potentially
unfavourable market conditions;
8) the issuer has introduced and complies with the provisions
stipulating that the cover assets - tangible items - are
adequately insured against losses;
9) results of the stress testing by the issuer indicate
conformity with the coverage requirements and the levels of
overcollateralisation in accordance with the requirements of this
Law;
10) the issuer has assessed and provided for the prevention of
risks in relation to the fact that it is intended to include such
assets in the cover pool which are also alienated to the covered
bond company by an alienor other than the issuer, and also such
assets which are located in another Member State.
(2) Latvijas Banka shall not issue the permit for the
implementation of a covered bond programme if:
1) the issuer or the parent company of the issuer is subject
to a resolution or group resolution;
2) the manner of and the procedures for the implementation of
the covered bond programme, including the type of settlement of a
civil relationship inappropriate for the programme, endanger or
may endanger financial stability or restrict the rights of
Latvijas Banka specified in this Law to supervise the covered
bond company or the issuer;
3) the total planned amount of bonds of the covered bond
programme would disproportionately increase the liabilities of
the issuer and the capital available would not conform to the
applicable capital requirements if the covered bonds were
issued;
4) the policies, procedures, methodologies of the issuer and
the set of measures intended for the management of the identified
risks do not present a clear view or do not provide for
appropriate organisational and technical measures for the
implementation of the covered bond programme;
5) the competent persons appointed by the issuer who implement
the covered bond programme do not have sufficient qualification
or experience;
6) the issue of the permit for the implementation of a covered
bond programme would cause damage to investors or reputation of
the financial market of Latvia due to the reasons related to the
issuer, covered bond company, or cover assets or their
quality.
(3) If no issue of covered bonds has been performed within
three years from the issuing of the permit for the implementation
of a covered bond programme, the permit shall cease to be
valid.
[22 June 2023]
Section 38. Prohibition to Issue
Covered Bonds and to Implement New Issue of Covered Bonds
(1) Latvijas Banka has the right to prohibit an issuer from
issuing covered bonds, including to implement new issue of
covered bonds, according to a covered bond programme if:
1) the issue of covered bonds would disproportionately
increase the liabilities of the issuer (including from bonds
already issued by the issuer but not yet paid) in comparison to
the assets indicated in the financial statement or consolidated
financial statement of the issuer;
2) the issuer, the covered bond programme, the cover pool, the
cover pool monitor, the covered bond company or the operation
thereof does not conform to the requirements laid down in this
Law;
3) the issuer has provided false information to Latvijas Banka
in relation to the new issue of covered bonds.
(2) A prohibition to perform new issue of covered bonds shall
not affect the validity of the covered bonds issued previously
and the rights of investors and creditors of covered bonds
according to the covered bond programme.
(3) An issuer is not entitled to perform the subsequent issues
provided for in the covered bond programme starting from the day
when the special administrator has been appointed for the
implementation of the covered bond programme in accordance with
the procedures laid down in this Law.
[22 June 2023]
Section 39. List of Issuers and
Covered Bond Programmes
(1) Latvijas Banka shall maintain a list of issuers and
covered bond programmes and shall publish it on its website.
(2) Information on the following shall be indicated in the
list:
1) the covered bond programme, including:
a) the title;
b) the date when the permit was issued;
c) the currency;
d) the total nominal amount of covered bonds;
e) the central securities depository in which it is planned to
register the issue;
f) the law applicable to the issue;
g) the implementation term;
h) the type of the term structure;
i) the trading venue of covered bonds;
j) other most essential characteristics of covered bonds;
2) amendments to the covered bond programme;
3) the issuer and the alienor other than the issuer;
4) the covered bond company providing a guarantee;
5) the cover pool monitor;
6) the place where the information intended for investors is
available;
7) the decision of Latvijas Banka to prohibit the issue of new
covered bonds.
(3) Latvijas Banka shall, upon request of the issuer, mark the
covered bond programme in the list referred to in Paragraph one
of this Section as completed and fulfilled, if all the
liabilities of the issuer to investors and creditors of covered
bonds arising from the covered bond programme have been
discharged. The issuer has the obligation to submit to Latvijas
Banka the information confirming this.
[22 June 2023]
Chapter
VIII
Obligations of the Issuer
Section 40. Obligations of the
Issuer for Ensuring a Covered Bond Programme
(1) The issuer shall ensure that during the entire operation
of a covered bond programme:
1) the covered bond programme, the cover pool, and the cover
assets conform to the requirements of this Law, and the cover
pool, the cover assets, and the covered bonds issued according to
the covered bond programme conform to the provisions of the
covered bond programme;
2) a cover pool monitor who corresponds to the requirements of
this Law has been appointed for the cover pool;
3) all structural features of the covered bonds provided for
in the covered bond programme have been conformed to, including
the fact that after conclusion of the disposal agreement the
covered assets have been segregated from the assets of the
issuer;
4) a procedure under which it is provided for that cover
assets - tangible items - are adequately insured against losses
has been developed and is being followed;
5) members of the supervisory board or executive board of the
covered bond company conform to the provisions of this Law which
apply to the activities, transactions, and actions of the covered
bond company with assets;
6) the requirements for the continuity plan for the
implementation of the covered bond programme are conformed
to.
(2) Paragraph one, Clauses 5 and 6 of this Section shall not
be applicable if the special administrator has been
appointed.
Section 41. Information to be
Provided to Latvijas Banka
(1) The issuer shall, once a quarter, provide Latvijas Banka
with at least the following information on the covered bond
programme:
1) the assets included in the cover pool, including:
a) the composition of the cover pool in accordance with the
requirements of Section 47 of this Law, including the primary
assets and substitution assets included in the cover pool in
accordance with the requirements of Sections 48 and 49 of this
Law;
b) the use of derivative contracts in accordance with the
requirements of Section 56 of this Law;
2) the cover assets which were replaced in the previous
quarter and which have been included in the cover pool;
3) the activities performed by the cover pool monitor in the
previous quarter for ensuring the supervision of the cover pool
in accordance with the requirements of Section 61 of this
Law;
4) the conformity with the coverage requirements in accordance
with Section 54 of this Law;
5) the liquidity buffers of the cover pool in accordance with
Sections 57 and 58 of this Law;
6) the extendable maturity structures if they are applied in
accordance with the requirements of Section 68 of this Law;
7) the stress testing and the results thereof in accordance
with the requirements of Section 59 of this Law;
8) the transactions concluded by the covered bond company in
accordance with the requirements of Section 11 of this Law,
except when the special administrator has been appointed.
(2) Latvijas Banka has the right to determine the information
to be submitted in addition to that referred to in Paragraph one
of this Section and also the structure of the report to be
submitted and the procedures for its submission.
(3) The issuer shall, without delay, inform Latvijas Banka if
the cover pool no longer conforms to the requirements of this Law
or the covered bond programme.
[22 June 2023]
Section 42. Continuity Plan for the
Implementation of a Covered Bond Programme
(1) The issuer shall develop and introduce a continuity plan
for the implementation of a covered bond programme specifying the
procedures that ensure adequate implementation of the covered
bond programme in the case the special administrator has been
appointed. Latvijas Banka is entitled to request the correction
of the plan if it does not conform to the requirements of this
Law. The abovementioned plan shall provide for the action of a
covered bond company in the case when the special administrator
has been appointed or the performance of the contract for the
administration of cover assets or the cover pool becomes
difficult, or another reasonable obstacle or risk arises for the
operation of the company.
(2) In order to ensure the costs provided for in the
continuity plan for the covered bond programme, including the
costs for the changes in the entries in public registers and the
implementation of the covered bond programme by the special
administrator, which may occur in the next 180 days, the issuer
shall, in addition to the requirements of this Law for liquidity
buffers, transfer the relevant funds to the covered bond
company.
[22 June 2023]
Section 43. Obligations of the
Issuer in the Administration of the Cover Pool
(1) A contract for the administration of a cover pool which is
entered into in accordance with Section 22 of this Law shall
determine at least the following obligations of the issuer:
1) to account the cover assets included in the cover pool;
2) to ensure that the amount of cover assets is sufficient in
order to adequately cover the covered bond liabilities,
administration costs, and operating costs of the covered bond
company;
3) to make timely payments of covered bond liabilities to
investors and creditors of covered bonds;
4) to ensure that the cover assets are and will be of
sufficient quality, thus guaranteeing to investors and creditors
of covered bonds that the risk of the covered bond company not
being able to cover the covered bond claims in a timely manner
remains low over the entire implementation period of the covered
bond programme;
5) to ensure that the cover pool, cover assets, liquidity
buffers, and derivative contracts conform to the provisions of
this Law and the provisions of the covered bond programme;
6) to ensure the fulfilment of the level of
overcollateralisation.
(2) The contract for the administration of a cover pool shall
determine the provisions and the procedures for the use of cover
assets, financing of operating costs of the covered bond company,
and the obligations of the issuer if the specified financing is
insufficient to cover the operating costs of the covered bond
company.
(3) The costs of administrating the cover pool and the maximum
permissible operating costs of the covered bond company that are
covered by the issuer shall be determined by the provisions of
the covered bond programme.
Section 44. Obligation of the Issuer
to Provide Information to Investors
(1) The issuer shall, once a quarter, within 20 days after the
end of the quarter, provide investors with information on the
covered bond programme so that investors could assess the profile
and risks of the abovementioned covered bond programme and
evaluate their own investment. The issuer shall provide investors
with at least the following information on the cover pool:
1) the value of the cover pool and the outstanding covered
bonds;
2) the list of International Securities Identification Numbers
(ISIN) in accordance with the standard stipulated by the
International Organization for Standardization for all the
covered bonds included in the abovementioned programme;
3) the geographical distribution and type of cover assets, and
the method for measuring the ratio between the credit amount and
the collateral;
4) detailed information on market risk, including interest
rate risk, currency risk, and credit and liquidity risks;
5) the extendable maturity structure, including a report on
the events triggering the extension of maturity;
6) the level of the required and available coverage and the
level of statutory, contractual, mandatory, and voluntary
overcollateralisation;
7) the proportion of loans (credits) if a default has occurred
in accordance with Article 178 of Regulation No 575/2013 or if
the repayment of loans (credits) is delayed for more than 90
days;
8) the amount of liquidity buffers;
9) the proportion of cover assets denominated in a foreign
currency in the cover pool.
(2) Latvijas Banka has the right to set requirements for the
issuer regarding the information to be disclosed to investors,
the content and scope of such information in addition to the
requirements of Paragraph one of this Section, and the structure
of the report.
(3) The issuer shall publish on its website the information to
be disclosed to investors on the covered bond programme over the
entire implementation period of the covered bond programme.
[22 June 2023]
Chapter
IX
Change of the Issuer and Amendments to a Covered Bond
Programme
Section 45. Change of the Issuer of
a Covered Bond Programme
(1) The issuer has the right to transfer a covered bond
programme to another credit institution which has obtained the
license (permit) for the operation of a credit institution in a
Member State. The provisions laid down in the first sentence of
this Paragraph shall also be applicable in resolution or
reorganisation measures.
(2) The transfer of a covered bond programme referred to in
Paragraph one of this Section shall be deemed the transfer of a
credit institution undertaking within the meaning of the Credit
Institution Law and it shall be carried out in accordance with
the provisions of the Credit Institution Law for the transfer of
a credit institution undertaking.
(3) If the transfer of a covered bond programme will not
adversely affect the interests of the investors and creditors of
covered bonds, Latvijas Banka shall take the decision to allow
the transfer of the covered bond programme to another credit
institution and it shall be notified to the issuer and the credit
institution in writing.
(4) A credit institution which takes over a covered bond
programme of the issuer shall take place of the issuer in all
legal relationships arising from the covered bond programme.
(5) The issuer which transfers a covered bond programme shall,
within 14 days, notify the investors and creditors of covered
bonds thereof.
(6) The transfer of a covered bond programme carried out with
the authorisation of Latvijas Banka shall not be deemed invalid
and shall not be contested in the insolvency proceedings or
liquidation of the issuer, or in the application of resolution or
reorganisation measures.
(7) The provisions of this Section shall also be applicable if
a covered bond programme is transferred by the special
administrator in the cases provided for in this Law.
[22 June 2023]
Section 46. Amendments to the
Provisions of a Covered Bond Programme
(1) The issuer shall make amendments to the provisions of a
covered bond programme in accordance with the procedures
specified in these provisions.
(2) If the provisions of a covered bond programme provide the
right for the issuer to make amendments to these provisions, the
issuer may only make such amendments upon obtaining prior consent
of Latvijas Banka.
(3) Latvijas Banka shall, within 14 days, examine the
amendments to the covered bond programme submitted thereto, allow
to make amendments to the provisions or not allow it if the
amendments to the proposed provisions of the covered bond
programme could adversely affect the interests of the investors
and creditors of covered bonds.
(4) Latvijas Banka may extend the term referred to in
Paragraph three of this Section by 14 days, notifying the issuer
of the reasons for the extension of the term.
[22 June 2023]
Chapter X
Cover Pool
Section 47. Composition of the Cover
Pool
(1) The following cover assets shall be included in the cover
pool:
1) funds which the issuer lends to a covered bond company in
order for it to purchase primary assets and substitution
assets;
2) primary assets and substitution assets;
3) transaction values of derivative contracts;
4) funds obtained from the cover assets referred to in Clause
2 or 3 of this Paragraph;
5) collateral received by a covered bond company in relation
to the derivative contracts entered into by it.
(2) The assets referred to in Paragraph one, Clause 2 of this
Section shall form a cover pool from the moment when they are
alienated to a covered bond company.
(3) At least 85 per cent of the required value of cover assets
shall consist of primary assets.
(4) It shall be permitted to include such cover assets in the
cover pool which are alienated to a covered bond company by an
alienor other than the issuer if these assets conform to the
requirements for cover assets laid down in this Law.
(5) In addition to other requirements of this Section, the
cover pool shall conform to that specified in Article 129 of
Regulation No 575/2013.
Section 48. Primary Assets
Primary assets shall only include assets of the following
classes:
1) public sector assets - the exposures referred to in Article
129(1)(a) and Article 129(1)(b) of Regulation No 575/2013;
2) residential mortgage assets - loans (credits) secured by
residential immovable property, as defined in Article 129(1)(d)
of Regulation No 575/2013;
3) commercial mortgage assets - loans (credits) secured by
commercial immovable property, as defined in Article 129(1)(f) of
Regulation No 575/2013;
4) maritime assets - loans (credits) secured by a ship
mortgage, as defined in Article 129(1)(g) of Regulation No
575/2013;
5) the assets which are loans to capital companies controlled
by a public entity or in cases where the law allows such capital
companies to issue loans (credits) or to provide guarantees
themselves - loans (credits) guaranteed by such capital companies
in conformity with the provisions of Section 55, Paragraph
six.
Section 49. Substitution Assets
Substitution assets shall include exposures that conform to
the requirements of Article 129(1)(c) and (1)(a)(a), (b), (c),
and (d) of Regulation No 575/2013.
Section 50. Selection of Assets in a
Covered Bond Programme
(1) When submitting the submission for the receipt of the
permit for the implementation of a covered bond programme in
accordance with Section 36, Paragraph one of this Law, the issuer
may request the permission for the implementation of a covered
bond programme according to which covered bonds of one class or
different asset classes are issued.
(2) The issuer shall determine in the provisions of a covered
bond programme which subsequent amendments to the provisions
shall be deemed significant in relation to changes in the risk
profile related to the choice of assets, including the Member
State where the assets are located, over the entire
implementation period of the covered bond programme.
(3) If the issuer wants to make significant changes in the
risk profile which are referred to in Paragraph two of this
Section, the issuer shall submit to Latvijas Banka amendments to
the covered bond programme and an assessment of the impact of
such changes on successful implementation of the covered bond
programme and shall request a permission from Latvijas Banka to
make the relevant amendments to the provisions of the covered
bond programme.
(4) Latvijas Banka shall examine the amendments referred to in
Paragraph three of this Section and submitted thereto to the
covered bond programme on significant changes in the risk profile
in accordance with the procedures laid down in Section 46 of this
Law and shall take the decision to allow to make amendments to
the covered bond programme and to make changes in the risk
profile or not to allow them if Latvijas Banka cannot ascertain
the impact of changes in the risk profile on successful
implementation of the covered bond programme.
[22 June 2023]
Section 51. Requirements Applicable
to the Cover Pool
(1) Assets that include claims the repayment of which is
delayed for more than 90 days may not be included in the cover
pool.
(2) If default within the meaning of Article 178(1) of
Regulation No 575/2013 occurs for assets after their inclusion in
the cover pool, the value of the cover assets related to the
outstanding loan (credit) shall be determined as follows:
1) 70 per cent of the value of the loan (credit) included in
the cover pool if the repayment of the loan (credit) is delayed
for more than 90 days, but for not longer than 180 days, and the
ratio of the credit amount to the value of collateral is less
than 50 per cent;
2) 40 per cent of the value of the loan (credit) included in
the cover pool if the repayment of the loan (credit) is delayed
for more than 90 days, but for not longer than 180 days, and the
ratio of the credit amount to the value of collateral is greater
than 50 per cent;
3) 0 per cent of the value of the loan (credit) included in
the cover pool if the repayment of the loan (credit) is delayed
for more than 180 days.
(3) The cover assets referred to in Section 48, Clause 1, 2,
or 3 of this Law shall be included in the cover pool if the
collateral is located in a Member State.
(4) The cover assets referred to in Section 48, Clause 4 of
this Law shall be included in the cover pool if the relevant ship
mortgage has been registered in a Member State.
(5) Latvijas Banka may, on the basis of a submission of the
issuer, allow to derogate from the provisions of Paragraph two of
this Section for a specific period if the issuer established
that, irrespective of its will, the conformity of the cover pool
with the provisions of this Law cannot be ensured in a timely
manner. The issuer shall concurrently take all measures in order
to ensure that the cover pool conforms to the requirements of
this Section. The issuer shall, without delay, inform Latvijas
Banka of the circumstances referred to in the first sentence of
this Paragraph by submitting a submission.
(6) Latvijas Banka shall examine the submission of the issuer
referred to in Paragraph five of this Section and take a decision
within 14 days. If necessary, the term for the examination of the
submission may be extended by 14 days, informing the issuer
thereof.
[22 June 2023]
Section 52. Ratio of the Credit
Amount to the Value of Collateral
(1) The ratio of the credit amount to the value of collateral
for the primary assets referred to in Section 48, Clause 2 of
this Law shall not exceed 70 per cent.
(2) The ratio of the credit amount to the value of collateral
for the primary assets referred to in Section 48, Clauses 3 and 4
of this Law shall not exceed 60 per cent.
(3) The ratio referred to in Paragraphs one and two of this
Section is determined for the cover asset on the day when it is
included in the cover pool for the first time.
Section 53. Valuation and Value
Indexation of Cover Assets
(1) The issuer shall valuate cover assets according to the
requirements for the management of credit risk stipulated by
Latvijas Banka, including for the applicable valuation standards,
and the requirements for persons who are entitled to value
assets.
(2) The valuation of cover assets shall be adjusted according
to the indexation of the market value of assets which is mad at
least once per calendar year, unless the provisions of the
covered bond programme provide for more frequent indexation or it
is required by Latvijas Banka or the cover pool monitor. The
methods to be used in the valuation of cover assets and the
indexation procedures for the valuation of cover assets shall be
determined in the provisions of the covered bond programme.
[22 June 2023]
Chapter
XI
Coverage and Overcollateralisation
Section 54. Coverage Requirement
(1) Covered bond liabilities are covered by claims arising
from the cover assets included in the cover pool which ensure
conformity with the coverage requirements.
(2) The conformity with the coverage requirement specified in
Paragraph one of this Section shall be ensured by the following
cover assets:
1) the primary assets;
2) the substitution assets;
3) the liquid assets held as liquidity buffers in accordance
with that specified in this Law;
4) the claims arising from such derivative contracts which
conform to the requirements of Section 56 of this Law.
(3) Unsecured claims are not used to fulfil a coverage
requirement if a default of the debtor should be established in
accordance with Article 178 of Regulation No 575/2013.
(4) The coverage requirement specified in Paragraph one of
this Section has been met if the total remaining principal amount
of the claims resulting from the loans (credits) used in the
calculation of the coverage requirement and included in the cover
assets and the value of the derivative are equal to or greater
than the total nominal amount outstanding on the covered bonds.
Equivalent (comparable) methodology shall be used for the
calculation of the nominal amount on the cover assets and the
outstanding covered bonds.
Section 55. Level of
Overcollateralisation
(1) The issuer shall ensure that the total remaining principal
amount of the claims resulting from the loans (credits) included
in the cover assets and the value of the derivative are not less
than 105 per cent of the total nominal amount outstanding on the
covered bonds (hereinafter - the statutory
overcollateralisation), except for that specified in Paragraph
six of this Section.
(2) Latvijas Banka is entitled to request, at any time, that
the issuer provides a higher level of overcollateralisation than
specified in Paragraph one of this Section if the cover pool is
insufficient to protect the interests of investors and creditors
of covered bonds (hereinafter - the mandatory
overcollateralisation).
(3) The provisions of the covered bond programme may provide
that the issuer provides a higher level of overcollateralisation
than the statutory overcollateralisation and the mandatory
overcollateralisation (hereinafter - the contractual
overcollateralisation).
(4) Voluntary overcollateralisation is overcollateralisation
that exceeds the statutory overcollateralisation, the mandatory
overcollateralisation, and the contractual
overcollateralisation.
(5) For the calculation of overcollateralisation, all types of
cover assets referred to in Section 54, Paragraph two of this Law
may be taken into account.
(6) Covered bonds for which claims resulting from loans
(credits) for capital companies controlled by public entities
have been used as cover assets or which the abovementioned
capital companies guarantee and include in the pool as primary
assets shall be subject to the level of the statutory
overcollateralisation in the amount of not less than 110 per cent
in conformity with all of the following conditions:
1) a capital company controlled by a public entity provides
public services on the basis of a permit (license) or
registration which has been issued or made in accordance with the
provisions of external legal acts, a concession contract, a
delegation contract, or another type of authorisation granted by
the State or local government institution;
2) a capital company controlled by a public entity:
a) has the right to receive grants in order to ensure its
financial stability and solvency in relation to the provision of
public services;
b) the procedures for determining the profit share to be
disbursed in dividends have been laid down in accordance with the
Law on Governance of Capital Shares of a Public Entity and
Capital Companies.
(7) Within the meaning of this Section, public services are
the public services, medical treatment, air traffic, public
transport, and traffic safety services referred to in the law On
Regulators of Public Utilities if they are provided by a capital
company controlled by a public entity.
[22 June 2023]
Chapter
XII
Mitigation of Risks Related to Cover Assets and Liabilities
Section 56. Use of Derivatives
(1) The issuer may administer market risks, including interest
rate risk and foreign exchange risk, which affect cover assets by
using derivatives. Derivative contracts shall be entered into
only for the purpose of hedging the abovementioned risks.
(2) The issuer shall enter into a derivative contract or shall
ensure that a covered bond company enters into such a contract in
conformity with the following requirements:
1) the use of derivatives is adjusted to the level of risk,
and, when the relevant risk no longer exists, the derivative
contract may be terminated;
2) the derivative transactions are sufficiently
documented;
3) the insolvency proceedings or liquidation, resolution or
reorganisation measures of the issuer do not form the grounds for
the termination of the derivative contract or immediate discharge
of its liabilities, yet default under the relevant derivative
contract may be considered a justified reason for the termination
of such contract;
4) set-off is not allowed for claims arising from other
derivative contracts entered into with the issuer;
5) the cover assets are not used as collateral to secure
liabilities according to the derivative contract;
6) the derivative contract contains provisions which provide
an obligation for the other counterparty to provide sufficient
collateral for the event if its creditworthiness deteriorates to
an unacceptable level. In accordance with these provisions, the
counterparty shall ensure sufficient collateral or such
counterparty shall be replaced.
(3) Paragraph two, Clause 5 of this Section shall not restrict
the issuer from providing a covered bond company with additional
necessary funds for the provision of such collateral which is
necessary for entering into a derivative contract.
(4) If the obligation referred to in Paragraph two, Clause 6
of this Section is not fulfilled, the issuer shall enter into a
new contract or ensure entry into such contract in accordance
with the provisions of Paragraph two of this Section in order to
achieve the objective specified in the abovementioned
Paragraph.
(5) The issuer shall ensure and submit a written certification
to Latvijas Banka that the use of derivatives satisfies the
requirements of Paragraph two of this Section. The certification
shall include the hedging criteria for the selection of
counterparties in order to ensure theirs creditworthiness and to
promote the highest possible credit rating of covered bonds, and
also a certification of the fulfilment of these criteria. The
certification shall be accompanied by a derivative contract.
(6) When transferring covered bond programmes, the
liabilities, rights, and obligations arising from the derivatives
shall be transferred to the new issuer together with the cover
assets, but such a contract may not be terminated on the basis of
the transfer of the covered bond programme.
[22 June 2023]
Section 57. Liquidity Buffers
(1) The issuer shall ensure that the cover assets always
include such liquid assets, i. e. funds or financial instruments,
that are available to cover the maximum cumulative net liquidity
outflows specified in the covered bond programme for the next 180
days. Liquid assets shall not include funds which have been
provided to the covered bond company by a counterparty to the
derivative contract as a financial collateral.
(2) If extendable maturity structures are used in relation to
the covered bonds, it shall be considered that the covered bonds
are repurchased within the extended maturity period.
(3) Liquid assets that form liquidity buffers of the cover
pool shall be protected against claims of other persons as cover
assets and also they shall be segregated from other assets of the
issuer, and it shall be ensured that these funds may be used at
any moment to meet the requirements for liquidity buffers laid
down in this Law.
(4) Liquidity buffers may be held with the issuer, but the
covered bond company and the issuer shall, upon request of
Latvijas Banka, without delay, but not later than within seven
days, ensure that the liquidity buffers, i.e. financial
instruments or funds, are transferred to another credit
institution which has received the licence (permit) for the
operation of a credit institution in the Member State.
[22 June 2023]
Section 58. Eligible Assets for
Liquidity Buffers
(1) The liquidity buffers of the cover pool shall consist of
the following:
1) assets that qualify as Tier 1, Tier 2A, or Tier 2B assets
in accordance with Commission Delegated Regulation (EU) 2015/61
of 10 October 2014 to supplement Regulation (EU) No 575/2013 of
the European Parliament and the Council with regard to liquidity
coverage requirement for Credit Institutions (hereinafter - the
Delegated Regulation No 2015/61) which are valued in accordance
with the Delegated Regulation No 2015/61 and which have not been
issued by the credit institution which is the issuer, a parent
undertaking thereof (except when it is a public sector entity
within the meaning of Article 4(1)(8) of Regulation No 575/2013),
a subsidiary thereof or another subsidiary of its parent
undertaking, or a securitisation special purpose entity with
which the credit institution has close links (within the meaning
of Article 4(1)(38) of Regulation No 575/2013);
2) short-term deposits with a credit institution corresponding
to the credit quality step 1, 2, or 3, and also other short-term
claims against credit institutions corresponding to the credit
quality step 1 or 2 in accordance with Article 129(1)(c) of
Regulation No 575/2013.
(2) In order to calculate the liquidity buffers of the cover
pool, the issuer shall apply the market value of liquid assets in
accordance with Article 9 of the Delegated Regulation No
2015/61.
(3) Unsecured claims in default in accordance with Article 178
of Regulation No 575/2013 shall not be included in the liquidity
buffers of the cover pool.
Section 59. Stress Testing
(1) The issuer shall ensure an adequate, comprehensive, and
risk-appropriate stress testing process by integrating stress
tests into the risk management process.
(2) The issuer shall, at least once a quarter, carry out
stress testing at various levels of financial turmoil and thus
determine whether the cover assets are sufficient to cover the
total nominal amount outstanding on the covered bonds.
(3) Stress testing shall cover all risks that can
significantly affect the risk profile of covered bonds.
(4) When carrying out the stress testing indicated in
Paragraph two of this Section, the issuer shall take into account
certain hedging instruments, including derivative contracts and
other contracts entered into to hedge risks.
(5) If, as a result of the stress testing indicated in
Paragraph two of this Section, it may be concluded that the level
of the statutory overcollateralisation is not met, the issuer has
the obligation to ensure that additional cover assets are
included in the cover pool until the level of the statutory
overcollateralisation is ensured in accordance with the relevant
stress testing scenarios applicable to the relevant turmoil.
Chapter
XIII
Supervision of Cover Assets
Section 60. Appointment and Removal
of Cover Pool Monitor
(1) The issuer shall, to ensure continuous supervision of the
cover pool, appoint the cover pool monitor who is a sworn auditor
or a commercial company of sworn auditors and is independent of
the issuer and the auditor thereof.
(2) A sworn auditor or a commercial company of sworn auditors
which has audited the issuer within the previous two years may
not be a cover pool monitor.
(3) The issuer shall inform Latvijas Banka of a candidate for
the position of cover pool monitor 30 days before the day when it
starts to perform the official duties thereof.
(4) Latvijas Banka has the right not to allow the cover pool
monitor to commence the performance of its official duties if it
does not meet the requirements brought forward in this Law for a
cover pool monitor and also order the issuer to remove the cover
pool monitor without delay if it does not comply with the legal
acts in the field of covered bonds or it fails to adequately
perform the duties thereof.
(5) In addition to that referred to in Paragraphs four, six,
and eight of this Section, the cover pool monitor shall terminate
the performance of the duties in the following cases:
1) all covered bond claims have been fully settled;
2) the special administrator has been appointed.
(6) The cover pool monitor is entitled to resign from the
performance of the official duties of the cover pool monitor,
notifying the issuer thereof in writing at least 60 days in
advance and explaining reasons for such resignation.
(7) The issuer shall enter into a written agreement with the
cover pool monitor for the supervision of cover pool prior to the
issue of covered bonds.
(8) The issuer has the right to remove the cover pool monitor
from office on its own initiative, concurrently appointing a new
cover pool monitor. In such case, the issuer shall notify the
cover pool monitor in writing of the removal from office at least
30 days in advance.
[22 June 2023]
Section 61. Activities of Cover Pool
Monitor
(1) A cover pool monitor has the following obligations:
1) regularly, at least once a year, to verify that the
following corresponds to the requirements of the legal acts in
the field of covered bonds:
a) the contract for the administration of a cover pool;
b) the composition of cover assets in the cover pool and the
requirements applicable thereto;
c) the primary assets;
d) the substitution assets;
e) the valuation of assets;
f) the coverage requirements;
g) the overcollateralisation;
h) the liquidity buffers;
2) regularly, but at least once a year, to verify the accuracy
of entries in the accounting of cover assets in relation to each
cover asset in the cover pool;
3) regularly, but at least once a year, to verify that the
covered bond company and the issuer conform to the requirements
of this Law and adequately fulfil the obligations which are
related to:
a) the use of derivative contracts;
b) the liquidity buffers and the assets corresponding
thereto;
c) the stress testing;
d) the provision of information to investors;
4) to cooperate with Latvijas Banka within the scope of the
cover pool supervision.
(2) The cover pool monitor shall provide a report on the cover
pool to the issuer, the covered bond company, and Latvijas Banka
altogether on the conformity of the fulfilment of all the
requirements referred to in Paragraph one, Clauses 1, 2, and 3 of
this Section with the Law. The cover pool monitor shall indicate
in the report the method used for the verifications referred to
in Paragraph one, Clauses 1, 2, and 3 of this Section and for
drawing the relevant conclusions.
(3) The cover pool monitor shall provide the report referred
to in Paragraph two of this Section within 60 days after the end
of the relevant reporting period.
(4) If the issuer or the cover pool does not conform to the
requirements of this Law, the cover pool monitor shall, without
delay, inform the covered bond company, the trustee (if such has
been appointed), and Latvijas Banka thereof.
(5) If the issuer or the covered bond company fails to provide
sufficient information and explanations to the cover pool monitor
in accordance with Section 62 of this Law, the cover pool monitor
shall, without delay, inform Latvijas Banka thereof.
[22 June 2023]
Section 62. Right to Receive
Information
While performing its functions, the cover pool monitor is
entitled:
1) to access all accounting documents of the issuer and the
covered bond company without delay and also other information
(regardless of the medium in which the information is stored)
related to the cover pool, the assets included therein, and the
administration thereof;
2) to request information from:
a) any employee of the issuer or the covered bond company;
b) any person who provides services to the issuer or the
covered bond company which are related to the activity of the
covered bond company.
Section 63. Liability of Cover Pool
Monitor for Losses
A cover pool monitor shall be liable towards investors for any
losses incurred by them due to gross negligence or wrongful
intent of the cover pool monitor. Claims regarding the
compensation for the losses referred to in this Section shall
lapse within three years.
Chapter
XIV
Special Administrator
Section 64. Appointment of the
Special Administrator
(1) Latvijas Banka shall appoint the special administrator to
a covered bond company for the implementation of a covered bond
programme in the following cases:
1) the liquidation of the issuer has been initiated (declared)
or the insolvency proceedings of the issuer have been
declared;
2) the license (permit) of a credit institution has been
revoked for the issuer;
3) the resolution or group resolution is applied to the
issuer;
4) the coverage requirement laid down in Section 54, Paragraph
one of this Law is not fulfilled;
5) there are special circumstances which indicate that
adequate functioning of the issuer or the covered bond company or
the implementation of the covered bond programme is
endangered.
(2) Latvijas Banka shall notify the issuer of the decision to
appoint the special administrator not later than on the day after
taking the decision and shall publish the decision on its
website.
(3) Upon the appointment of the special administrator, rights
of the issuer in relation to the implementation of the covered
bond programme and the right to exercise the voting rights of the
issuer and other rights of a shareholder or stockholder of the
covered bond company in the covered bond company are suspended.
The abovementioned rights, including to the alienation of shares
or stocks of the covered bond company to another issuer, shall be
exercised by the special administrator.
(4) Upon the appointment of the special administrator on the
basis of this Law, the rights of members of the executive board
and supervisory board of the covered bond company are terminated.
The special administrator shall submit changes in the composition
of the executive board or supervisory board of the covered bond
company to the Enterprise Register of the Republic of Latvia,
appending the decision of Latvijas Banka to appoint the special
administrator.
[22 June 2023]
Section 65. Requirements for a
Candidate for the Office of Special Administrator
(1) A person who has the right to be a liquidator of credit
institutions in accordance with Section 131, Paragraph one of the
Credit Institution Law shall be appointed as the special
administrator.
(2) Latvijas Banka shall determine the procedures for
selecting a candidate for the office of special administrator and
assessing the suitability of a candidate and the information
necessary for such assessment.
[22 June 2023]
Section 66. Status of the Special
Administrator
(1) The special administrator shall not depend on the issuer,
creditors of the issuer, investors, and creditors of covered
bonds, and the instructions of the abovementioned persons shall
not be binding to him or her.
(2) While fulfilling the obligations and exercising the rights
specified in this Law, the special permit (license) for the
provision of consumer credit services or for the provision of
debt recovery services shall not be required for the special
administrator.
Section 67. Rights and Obligations
of the Special Administrator
(1) The special administrator shall act on behalf and in the
interests of all investors and creditors of covered bonds in
order to achieve the fullest possible settlement of the claims of
all covered bonds. The special administrator shall represent the
issuer or the covered bond company in the implementation of the
covered bond programme.
(2) The special administrator is entitled to administer the
cover pool and exercise all rights of the administrator according
to the contract entered into for the administration of a cover
pool until the transfer of the administration activities of the
cover pool to another administrator.
(3) The special administrator also has the right to alienate
or otherwise use cover assets in accordance with that specified
in this Law, enter into loan (credit) agreements, and use
derivatives in accordance with that specified in Section 56 of
this Law.
(4) The special administrator shall exercise the voting rights
of the issuer in a covered bond company, take decisions to
appoint or remove officials of the supervisory board or executive
board of the covered bond company, and also is entitled to
alienate shares or stocks of the covered bond company owned by
the issuer to a new issuer who takes over the covered bond
programme.
(5) The special administrator shall ensure that payments to
investors and creditors of covered bonds are made according to
the provisions of the covered bond programme. If a covered bond
company does not have sufficient funds to make payments, the
special administrator shall decide on the necessary activities
for obtaining the funds.
(6) The special administrator shall verify that the set of
cover assets is sufficient to cover all covered bond liabilities.
The value of the set of cover assets shall be calculated in
accordance with Section 53 and Section 54, Paragraph four of this
Law.
(7) In conformity with the interests of investors and
creditors of covered bonds and when trying to achieve as
advantageous solution for the issuer as possible in relation to
the transfer of the covered bond programme of the new issuer, the
special administrator shall take the necessary measures to
transfer the covered bond programme and the cover pool to another
issuer. Such action shall also be considered necessary on a
priority basis even if the cover pool and cover assets conform to
the requirements of this Law, the set of cover assets according
to the valuation is sufficient to cover the covered bond
liabilities, but the transfer of the covered bond programme and
the cover pool is necessary to complete the insolvency
proceedings or liquidation of the issuer in accordance with
Section 77, Paragraph eight of this Law.
(8) The special administrator is entitled to bring a claim for
the annulment of the alienation of cover assets if the
transaction has not been concluded according to the provisions of
the programme and causes losses to investors and creditors of
covered bonds.
(9) In addition to the rights and obligations referred to in
this Section and also the activities performed by the special
administrator in the name of or on behalf of the issuer, the
special administrator shall also have the following rights and
obligations:
1) to perform, enter into, amend, and terminate the contracts
necessary for the administration of a cover pool, including to
enter into contracts for the administration of cover assets, and
also to bring claims in relation to the contracts referred to in
this Clause;
2) without a special authorisation, to enter into, amend, and
terminate transactions involving cover assets in the name of the
covered bond company, and also to exercise all the rights of the
covered bond company related to the cover assets and collateral
thereof in the name of or on behalf of the covered bond
company;
3) to prepare and submit to Latvijas Banka amendments to the
provisions of the covered bond programme;
4) to supervise and perform the necessary activities so that
the covered bond programme, the cover pool, and the cover assets
conform to the requirements of the laws and regulations in the
field of covered bonds and the covered bond programme;
5) to take loans from a credit institution if it is necessary
for the fulfilment of the covered bond claims according to the
provisions of the covered bond programme and to act the cover
assets in order to secure the loans referred to in this
Clause;
6) to invite specialists in order to receive accounting,
auditing, and legal services, and also to ensure representation
of the special administrator in State administration and judicial
institutions and to receive other services necessary to ensure
the performance of the functions of the special administrator
specified in this Law;
7) once a quarter, and also upon expiry of the powers, to
submit to Latvijas Banka a report on its activity in accordance
with Section 73, Paragraph four of this Law;
8) upon expiry of the powers, to transfer documents and other
files in accordance with Section 75, Paragraph six of this Law,
subject to prior agreement thereupon;
9) in the case of declaring the insolvency proceedings or
liquidation of the issuer, to submit a list of investors and
creditors of covered bonds to the administrator of the insolvency
proceedings of the issuer.
(10) An issuer, an alienor, a covered bond company, and
outsourced service providers attracted by them shall provide the
special administrator with all the information, documents, and
explanations necessary for the performance of the functions
thereof in relation to the implementation of the covered bond
programme.
[22 June 2023]
Section 68. Application of the
Extendable Maturity Structure
(1) The issuer may not extend the maturity of covered bonds at
its discretion, also in the case provided for in Paragraph two of
this Section.
(2) It may be provided for in the provisions of the covered
bond programme that the covered bonds are issued with such
extendable maturity structure which determines a one-off
extension of the maturity of payment liabilities. Investors and
creditors of covered bonds are informed thereof according to the
procedures provided for in the provisions of the programme.
(3) The special administrator has the right to use the
extendable maturity structure if it is so provided for in the
covered bond programme in conformity with the following
conditions:
1) both trigger events causing the extension of the maturity
have occurred:
a) the declaration of the insolvency proceedings or
liquidation of the issuer, the application of resolution or
reorganisation measures;
b) the circumstances that give reason to believe that it will
not be possible for the issuer to make current payments to
investors within the specified terms;
2) the information provided to investors on the extendable
maturity structure is sufficient to be able to assess the risks
related to the discharge of the covered bond liabilities and the
information shall include a description of the following:
a) the events causing extension of the maturity;
b) the consequences of the declaration of the insolvency
proceedings or liquidation of the issuer, the imposition of
resolution or reorganisation measures on the extension of the
maturity of the covered bonds;
3) the extended (final) maturity of the covered bonds is
determined as a specific date.
(4) In the case of declaration of the insolvency proceedings
or liquidation of the issuer, application of resolution or
reorganisation measures, the extension of the maturity shall not
affect the priority of covered bond claims and also shall not
change the procedures (order) for paying cover bonds specified
initially in the covered bond programmes.
(5) The extension of the maturity shall not affect the rights
of investors and creditors of covered bonds specified in this Law
to request the discharge of covered bond liabilities from the
issuer and the covered bond company in case of declaration of
insolvency proceedings or liquidation of the issuer, resolution
or reorganisation measures.
Section 69. Decision of the Special
Administrator on Early Redemption of Covered Bonds
By taking into account the restrictions specified in Section
81 of this Law, the special administrator has the obligation to
take the decision on early redemption of covered bonds and
liquidation of the cover pool if, according to the valuation, the
set of cover assets is not sufficient to cover all covered bond
liabilities and liabilities of a covered bond company (if the
issuer is not able to discharge them, there is no new issuer that
could take over the covered bond programme, and the special
administrator has failed to reduce the amount of these
liabilities), and the covered bond company does not have
sufficient liquid assets to secure net cash outflows according to
the provisions of the covered bond programme for at least the
next 180 days, and it is not expected that the abovementioned
flow would be ensured after such short-term difficulties.
Section 70. Subordination of a
Covered Bond Company to the Special Administrator
A covered bond company and members of its supervisory board or
executive board shall be bound by instructions of the special
administrator in all matters which, in accordance with this Law,
are within the competence of the special administrator.
Section 71. Cooperation Between the
Issuer and the Special Administrator
(1) The issuer shall continue to administer the cover pool
until the moment when the administration of the cover pool is
taken over by the special administrator or another
administrator.
(2) Upon request of the special administrator, the issuer
shall continue to perform individual administration activities of
the cover assets until the moment when performance of the
relevant administration activities is taken over by the special
administrator or a manager appointed thereby.
(3) The special administrator is entitled to continue to use
software, databases, intellectual property rights, and licenses
necessary for the implementation of the covered bond programme
and the management of cover assets on the basis of the same
provisions, including in respect of the fee, which were used by
the issuer.
(4) The issuer shall transfer to the special administrator all
information, contracts, and documents related to the covered bond
programme, cover assets, and the administration thereof.
Section 72. Supervision of the
Special Administrator
(1) Latvijas Banka shall supervise the activities of the
special administrator and the conformity thereof with the
requirements of this Law.
(2) Latvijas Banka has the right to become acquainted with all
documentation at the disposal of the special administrator and
related to a covered bond programme.
(3) Latvijas Banka has the right to request explanations from
the special administrator and to receive any other information
necessary in relation to the fulfilment of the obligations of the
special administrator and the covered bond programme.
[22 June 2023]
Section 73. Expenses of the Special
Administrator
(1) Expenses of the special administrator over the entire
period of the activities thereof shall not exceed 0.15 per cent a
year from the value of the cover pool on the day when the special
administrator is appointed. Expenses of the special administrator
are covered from the income obtained from the cover assets.
(2) Expenses of the special administrator shall include all
expenses necessary for the performance of the rights and
obligations of the special administrator, including his or her
monthly remuneration in accordance with Paragraph three of this
Section and any other expenses incurred by the special
administrator in relation to the performance of his or her rights
and obligations.
(3) Monthly remuneration of the special administrator shall
correspond to the amount of the average monthly work remuneration
of those employed in the financial and insurance field in the
year before last published in the official statistical
notification of the Central Statistical Bureau which is rounded
up to full euros and to which a coefficient of 5 is applied.
(4) The special administrator shall, once a quarter, and also
upon termination of his or her term of office, submit a report on
the activities thereof to Latvijas Banka. The report shall
include information on the amount of remuneration received, the
covered administration costs of the covered bond programme, the
fulfilment of the covered bond obligations, the condition of the
cover pool, the used cover assets and other information that
provides a true and complete view of the activities of the
special administrator.
[22 June 2023]
Section 74. Liability for Losses
The special administrator shall be liable towards the issuer,
investors, creditors of covered bonds, and creditors of a covered
bond company for the losses incurred by them as a result of the
activities of the special administrator. Claims regarding the
compensation for the losses referred to in this Section shall
lapse within three years.
Section 75. Resignation, Removal,
and Expiry of Powers of the Special Administrator
(1) Latvijas Banka shall take the decision that the powers of
the special administrator are terminated in the following
cases:
1) when the special administrator resigns;
2) in accordance with Paragraph three of this Section;
3) when the implementation of the covered bond programme is
completed;
4) when the covered bond programme is transferred to another
issuer.
(2) The special administrator shall notify Latvijas Banka in
writing of the intention to resign from the fulfilment of the
duties of the special administrator at least 60 days in
advance.
(3) Latvijas Banka shall take the decision to remove the
special administrator if:
1) his or her non-conformity with the requirements of Section
65, Paragraph one of this Law is established;
2) he or she fails to adequately fulfil the obligations
specified in this Law or the requirements of other laws and
regulations in respect of a covered bond programme;
3) it is established that the circumstances referred to in
Section 64, Paragraph one, Clause 3, 4, or 5 of this Law do not
exist anymore.
(4) The liquidator which has been appointed for the
liquidation of a covered bond company, the issuer, or such issuer
to which the covered bond programme has been transferred shall,
as a shareholder or stakeholder of the covered bond programme or
a newly appointed special administrator, apply changes in the
Enterprise Register of the Republic of Latvia in the composition
of the supervisory board or executive board of the covered bond
company, appending the decision of Latvijas Banka to remove the
special administrator, appoint a new special administrator, or
transfer the covered bond company to a new issuer, or appending a
document of Latvijas Banka for the consent to the termination of
the operation of the covered bond programme.
(5) Latvijas Banka shall notify the decision to remove the
special administrator to the issuer in accordance with the
procedures laid down in Section 64, Paragraph two of this Law for
the notification of the decision on the appointment.
(6) The special administrator shall transfer documents and
other files to the person indicated by Latvijas Banka within the
term indicated by Latvijas Banka.
[22 June 2023]
Chapter
XV
Procedures for the Settlement of Claims and Protection of
Investors and Creditors of Covered Bonds in the Insolvency
Proceedings of the Issuer
Section 76. Procedures for the
Settlement of Claims
(1) The claims of investors and the claims of creditors of
covered bonds against the issuer and the covered bond company in
the liquidation of the cover pool in accordance with Section 69
of this Law and in the insolvency proceedings of the issuer shall
be mutual claims of one round, and claims of investors shall not
have a particular advantage in comparison to the claims of the
creditors of covered bonds.
(2) The claims of investors and creditors of covered bonds
referred to in Section 77, Paragraph three of this Law in the
insolvency proceedings of the issuer shall be claims of one round
as the claims of other legitimate creditors in accordance with
Section 139.3, Clause 1 of the Credit Institution
Law.
Section 77. Claims of Investors and
Creditors of Covered Bonds in the Insolvency Proceedings of the
Issuer
(1) If the insolvency proceedings of the issuer have been
declared, the amount of claims of investors and creditors of
covered bonds against a covered bond company shall be limited by
the cover assets owned by the covered bond company.
(2) If the cover assets are not sufficient to cover the claims
of all investors and creditors of covered bonds, the claims of
the investors and creditors of covered bonds shall be settled
from the cover assets in proportion to the claims of all
investors and creditors of covered bonds.
(3) Investors and creditors of covered bonds shall have the
right to claim in the insolvency proceedings of the issuer
against the issuer to the extent in which the claims of investors
and creditors of covered bonds are not covered by cover
assets.
(4) The special administrator shall, immediately after his or
her appointment or upon request of Latvijas Banka or the
administrator of the insolvency proceedings of the issuer, value
the cover assets and notify Latvijas Banka and the administrator
of the insolvency proceedings of the issuer of such valuation.
The special administrator shall immediately inform the
administrator of the insolvency proceedings of the issuer of the
amount of the covered bond claims which, according to the
valuation made, is not covered by the cover assets.
(5) The special administrator shall approve and submit to the
administrator of the insolvency proceedings of the issuer a list
of investors and creditors of covered bonds in the following
cases:
1) according to the valuation made by the special
administrator, the set of cover assets is not sufficient to cover
all covered bond claims;
2) the covered bond claims have not been settled in full
amount.
(6) The administrator of the insolvency proceedings of the
issuer shall include the relevant investors and creditors of
covered bonds in the list of creditors of the issuer. It shall
not be required for investors and creditors of covered bonds to
take any additional activities to submit their claims in the
insolvency proceedings of the issuer.
(7) The special administrator shall, upon request of the
administrator of the insolvency proceedings of the issuer,
provide information to the administrator of the insolvency
proceedings of the issuer on the amount of the non-settled
covered bond claims, the progress of the transfer of the covered
bond programme, further alienation or use of cover assets, and
any other information necessary for the insolvency proceedings of
the issuer.
(8) Insolvency proceedings or liquidation proceedings of the
issuer may be completed and settlement of the claims of the
creditors of the issuer referred to in Section 76, Paragraph two
of this Law and those following them shall be permitted if the
covered bond programme is transferred to another issuer or
covered bond claims have been settled from the cover assets. If
the covered bond programme has not been transferred to another
issuer and the covered bond claims have not been settled from the
cover assets, they shall be settled in conformity with Section
76, Paragraph two of this Law after the special administrator has
submitted information to the administrator of the insolvency
proceedings of the issuer on non-settled covered bond claims.
(9) In order for the settlement of the covered bond claims
from the cover assets not to protract in case of insolvency of
the issuer and the interests of other creditors of the issuer not
be affected, the special administrator shall consult with the
administrator of the insolvency proceedings of the issuer on the
impact of the activity of the special administrator on insolvency
proceedings of the issuer. The special administrator shall act
without delay and submit non-settled covered bond claims to the
administrator of the insolvency proceedings of the issuer in
accordance with Paragraphs four and seven of this Section,
conforming to the extent possible with the term for the
submission of claims of creditors specified in the Credit
Institution Law and not exceeding them without a justified
reason.
[22 June 2023]
Chapter
XVI
Characteristics of the Application of the Laws and Regulations
Governing Insolvency Proceedings or Liquidation, Resolution or
Reorganisation Measures
Section 78. Non-Application of
Separate Legal Provisions to the Issuer
(1) The legal acts that restrict, suspend, amend, terminate,
or reduce the liabilities of the issuer in the insolvency
proceedings or liquidation of the issuer, resolution or
reorganisation measures shall not be applicable to the
liabilities of the issuer arising from covered bonds.
(2) Any restrictions specified in the legal acts which are
applicable to the activities of the issuer in relation to the
administration of cover assets shall not be applicable during the
insolvency proceedings or liquidation of the issuer or during the
application of resolution or reorganisation measures, except for
the case specified in Section 71, Paragraphs one and two of this
Law.
Section 79. Insolvency Proceedings
of a Covered Bond Company
(1) The Insolvency Law shall be applicable to a covered bond
company insofar as it is not provided for otherwise in this
Law.
(2) Legal protection proceedings shall not be applicable to a
covered bond company registered in Latvia.
(3) The application for the insolvency of a covered bond
company may be submitted to a court and a court may only declare
the company insolvent after all covered bond claims have been
settled in full.
(4) Transactions involving cover assets entered into by the
special administrator may not be contested and recognised as
invalid in the insolvency proceedings of a covered bond
company.
Section 80. Cover Assets in the
Insolvency Proceedings or Liquidation, Resolution or
Reorganisation Measures of an Alienor
(1) Insolvency proceedings or liquidation, resolution or
reorganisation measures of an alienor shall not affect the
validity of the disposal agreement and the right of a covered
bond company to the cover assets alienated thereto.
(2) Cover assets, including the funds obtained by the alienor
in relation to the administration of the alienated cover assets
after entry into effect of the disposal agreement shall not be
part of the property of the alienor and shall not be used to
cover the claims of creditors of the alienor in insolvency
proceedings or liquidation, resolution or reorganisation
measures.
(3) Insolvency proceedings or liquidation, resolution or
reorganisation measures of the alienor shall not affect the
obligation of the alienor to transfer the cover assets held by
the alienor at the moment of the commencement of the insolvency
proceedings or liquidation, resolution or reorganisation measures
or received by the alienor after commencement thereof. The
administrator of the insolvency proceedings of the alienor shall
transfer the cover assets referred to in this Paragraph to a
covered bond company upon request of the covered bond company or
the special administrator.
Section 81. Restrictions on
Immediate Discharge of Liabilities
(1) Declaration of the insolvency proceedings or liquidation
of the issuer, application of resolution or reorganisation
measures shall not form the grounds for immediate discharge of
the liabilities of the issuer arising from a covered bond
programme.
(2) Legal acts, provisions of a covered bond programme, or
terms and conditions of a contract determining immediate
discharge of the liabilities of the issuer or covered bond
company shall not be applicable to the payment liabilities of the
issuer arising from the provisions of the covered bond
programme.
(3) Legal acts or terms and conditions of a contract
determining immediate discharge of the liabilities of a covered
bond company shall not be applicable to the liabilities of the
covered bond company towards investors and creditors of covered
bonds.
Section 82. Prohibition of
Set-off
The set-off of claims of the issuer, investors, and creditors
of covered bonds is prohibited from the moment when the
insolvency proceedings or liquidation of the issuer are declared,
or resolution or reorganisation measures are applied.
Chapter
XVII
General Provisions for the Implementation of the Cross-border
Programme
Section 83. Applicability of the
Laws and Regulations of Latvia in the Cross-border Programme
(1) This Law and other legal acts of Latvia shall govern the
following issues in the cross-border programme:
1) the protection of non-disclosable information and the
personal data processing in conformity with the directly
applicable legal acts of the European Union, in respect of the
cover assets and collateral which is or was located in Latvia
until transfer of assets to a covered bond company of another
Member State or an issuer of another Member State;
2) the protection of cover assets located in Latvia against
claims of third parties, the imposition of compulsory
enforcement, and the prohibition of set-off against claims in
respect of cover assets;
3) the provisions for the consent of a debtor and a collateral
provider to the alienation of cover assets or the provision of
information in the case of alienation of a cover asset, the
rights and obligations of a debtor and a collateral provider in
relation to the use of cover assets within the scope of a covered
bond programme if the relevant cover asset is located in
Latvia;
4) segregation of the funds which belong to the cover pool and
have been transferred into the account of a credit institution in
Latvia from the property of the account holder in the insolvency
proceedings of the account holder, except where the account
holder is a branch of a credit institution of a Member State in
Latvia;
5) other issues in accordance with the Civil Law and other
legal acts binding in Latvia.
(2) The provisions of Sections 5 and 19 of this Law for the
personal data processing and the transfer of non-disclosable
information in the case of the cross-border programme shall also
be applicable to the transfer of the relevant information and
data to the persons and institutions involved in the
implementation or supervision of this programme the rights and
obligations of which conform to the rights and obligations of the
persons and institutions referred to in Sections 5 and 19 of this
Law.
(3) If, according to a covered bond programme authorised
(registered) in another Member State, the cross-border programme
is implemented in Latvia and the explanation of terms provided in
this Law does not conform to that specified in the law of the
programme country, the provisions of the law of this country
where the relevant covered bond programme has been authorised
(registered) shall be applied.
Section 84. Special Administrators
from other Member States
(1) If the special administrator is required for the
implementation of a covered bond programme authorised
(registered) in a Member State, his or her powers to carry out
activities in Latvia shall be confirmed by a decision of the
supervisory authority of the Member State or another confirmation
corresponding to the legal acts of the relevant Member State.
(2) The rights and obligations of the special administrator
appointed by the supervisory authority of another Member State
which he or she may exercise in Latvia shall be determined by the
law of a Member State insofar as it is not in contradiction with
Section 83 of this Law.
(3) The activities referred to in Paragraph one of this
Section in relation to the implementation of a covered bond
programme may be carried out by a person authorised by the
special administrator if it is provided for in the legal acts of
a Member State.
Section 85. Supervision of the
Implementation of a Covered Bond Programme in the Cross-Border
Programme
(1) Latvijas Banka shall have the supervisory functions and
powers in the cross-border programme which have been specified in
this Law if the implementation of the relevant covered bond
programme has been authorised (registered) in Latvia.
(2) The supervisory authority of a covered bond programme of a
Member State is entitled to perform the supervisory activities of
a covered bond programme in Latvia which have been specified in
the legal acts of a Member State in relation to the part of the
cover pool located in Latvia under a covered bond programme
authorised (registered) in a Member State and a covered bond
company registered in Latvia which, in accordance with a covered
bond programme authorised (registered) in the relevant Member
State, includes cover assets in Latvia or part thereof in the
cover pool.
(3) The supervisory authority of a covered bond programme of a
Member State shall inform Latvijas Banka of the performance of
the planned activities of the covered bond programme in Latvia in
the cases referred to in Paragraph two of this Section.
(4) Latvijas Banka and the supervisory authority of the
covered bond programme of another Member State shall consult and
cooperate on the matters which are related to the supervision of
the cross-border programme.
[22 June 2023]
Chapter
XVIII
Characteristics of the Implementation of the Cross-border
Programme in Cases where Cover Assets have been Alienated to a
Covered Bond Company of a Member State or the Issuer of a Member
State does not Form a Covered Bond Company
Section 86. Special Provisions for
the Activity of a Covered Bond Company of a Member State in
Latvia
(1) The exceptions to the licensing requirements specified for
a covered bond company registered in Latvia in Section 10 of this
Law, the provisions for the administration and protection of
cover assets, and also other applicable laws and regulations of
Latvia, in accordance with that specified in Section 83 of this
Law, shall be applicable to the issuer of a Member State or a
covered bond company of a Member State when administering the
cover assets included in the cover pool which have been
registered or the collateral of which is located or has been
registered in Latvia.
(2) If secondary insolvency proceedings have been initiated
against a covered bond company of a Member State in Latvia in
accordance with Regulation (EU) No 2015/848 of the European
Parliament and of the Council of 20 May 2015 on insolvency
proceedings, the provisions of Section 79 of this Law shall be
applied to the covered bond company of a Member State in these
proceedings.
Section 87. Characteristics of the
Cross-border Programme without Alienating Cover Assets and
without Forming a Covered Bond Company
(1) An issuer of another Member State may include in the cover
pool the assets located in Latvia also if, in accordance with the
legal acts of the programme country, the issuer is authorised to
conduct segregation of cover assets in the covered bond programme
without the alienation of cover assets to the covered bond
company.
(2) The inclusion of cover assets in the cover pool of an
issuer of another Member State which is carried out by a branch
of a credit institution of that issuer in Latvia shall be
permitted without forming a covered bond company if the branch of
the issuer of the Member State ensures that the transferred
assets are administered in Latvia.
(3) An issuer of a Member State which, in the case referred to
in Paragraph one of this Section, includes in the cover pool the
assets transferred to a Latvian branch of this issuer shall
segregate these cover assets in the Latvian branch in accordance
with the legal acts of the programme country and other
requirements for the segregation of cover assets specified in
this Law shall not be applied thereto.
(4) When applying this Law in the case referred to in
Paragraph one of this Section, it shall be deemed that the
segregation of cover assets is considered equivalent to the
alienation of cover assets, including Section 21 of this Law.
(5) In addition to that referred to in Section 16, Paragraph
two of this Law, the permit of Latvijas Banka shall not be
required also if, in accordance with the legal acts of the
programme country, the cover assets are transferred to the
special administrator or another person specified in the legal
acts of a Member State.
(6) Any liquidation of the cover pool and insolvency
proceedings or a similar procedure within the meaning of the
legal acts of the programme country shall be conducted in
accordance with the legal acts of the abovementioned Member
State, irrespective of whether the collateral is located or
registered in Latvia. If the legal acts of the programme country
provide for liquidation, bankruptcy (within the meaning of the
legal acts of a Member State), or similar procedures of the cover
pool as a group of things in accordance with the abovementioned
legal acts, the relevant proceedings in Latvia shall be
considered as the insolvency proceedings of a credit institution
of the Member State.
[22 June 2023]
Chapter
XIX
Alienation of Assets in the Cross-border Programme
Section 88. Alienation of Assets to
an Issuer of Another Member State or to a Covered Bond
Company
(1) An alienor is entitled to alienate assets to an issuer of
another Member State or a covered bond company for inclusion in
the cover pool of such covered bond programme which is authorised
(registered) in another Member State if the alienated assets may
be used as cover assets in accordance with the legal acts of the
programme country, the purpose of the transfer of assets has been
stated clearly in the disposal agreement, and the permit of
Latvijas Banka referred to in the Credit Institution Law has been
received for the transfer of credit institution undertakings.
(2) In the cases referred to in Paragraph one of this Section,
the alienor shall ensure the following:
1) after alienation the assets are still administrated in
Latvia and the alienation of assets does not deteriorate the
legal position of debtors and collateral providers in comparison
with what it would have been if the assets were alienated to a
covered bond company operating in Latvia;
2) documents and other information related to the alienated
assets are available upon request to legal entities that are
entitled to become acquainted with them in accordance with legal
acts.
[22 June 2023]
Section 89. Inclusion of Cover
Assets Located in Another Member State in the Cover Pool
(1) The issuer shall, in accordance with the provisions of a
covered bond programme, include in the cover pool the cover
assets located in another Member State, including assets
transferred to a branch of the issuer's credit institution
located in another Member State if they conform to the cover
assets requirements laid down in this Law. Such a covered bond
programme shall be implemented in accordance with the provisions
laid down in this Law, taking into account the provisions of
Paragraphs two and three of this Section.
(2) If the provisions of a covered bond programme provide for
the inclusion of the cover assets located in another Member State
in the cover pool, the issuer shall, prior to including the cover
assets in the cover pool, ascertain whether the legal acts of the
Member State:
1) do not prohibit the inclusion of these cover assets in the
cover pool in a covered bond programme outside the Member
State;
2) ensure the protection of the rights of cover assets,
investors, and creditors of covered bonds to cover assets which
is equivalent to the protection of cover assets specified in this
Law;
3) do not provide for a framework impeding or restricting
performance of the functions of the cover pool monitor specified
in this Law.
(3) Latvijas Banka may, upon request of the issuer, including
in order to prevent a disproportionate administrative burden on
the issuer, allow to include in the cover pool the cover assets
located in another Member State which meet the quality
requirements for the cover assets of the cover pool laid down in
Chapter X of this Law, irrespective of whether procedures
different from those laid down in the laws and regulations of
Latvia, but which do not cause damage to the interests of
investors and creditors of covered bonds, are laid down in the
Member State for the valuation, supervision of cover assets, or
any other procedural activities related to the cover assets.
[22 June 2023]
Chapter
XX
Issue of Covered Bonds in a Credit Institution Group
Section 90. Use of Covered Bonds as
Cover Assets
(1) A credit institution which is registered in Latvia, has
received the licence (permit) for the activities of a credit
institution and belongs to a credit institution group is
entitled, in accordance with this Law, to issue covered bonds for
sale within the group (hereinafter - the covered bonds issued
internally) so that another credit institution belonging to this
group could use these bonds as cover assets if it is thus
provided for in the legal acts of the programme country and the
covered bond programme authorised (registered) in that Member
State.
(2) A credit institution which is registered in Latvia, has
received the licence (permit) for the activities of a credit
institution and belongs to a credit institution group may not use
the covered bonds issued internally in the group of another
credit institution of this group as cover assets for the
implementation of a covered bond programme authorised
(registered) in Latvia.
Section 91. Requirements for Cover
Assets
(1) The covered bonds issued internally in the group shall, at
the moment of issue, correspond to the credit quality step 1, as
referred to in Part Three, Title II, Chapter 2 of Regulation No
575/2013, and the cover assets of the covered bonds shall conform
to Sections 47, 48, and 49 of this Law. If, in the event of
deterioration in the credit quality, the covered bonds henceforth
correspond to the credit quality step 2 in accordance with
Regulation No 575/2013, Latvijas Banka may allow that these
covered bonds continue to be part of the covered bonds included
in the cover pool of the credit institution group in case when
the deterioration in the credit quality step is not related to a
violation of the requirements to be met in order to receive the
permit referred to in Section 37 of this Law.
(2) Latvijas Banka shall inform the European Banking Authority
of the decisions taken in accordance with Paragraph one of this
Section.
[22 June 2023]
Chapter
XXI
Supervision
Section 92. General Provisions of
Supervision
(1) Latvijas Banka shall supervise the implementation of a
covered bond programme, including monitor the issue of covered
bonds by verifying and assessing the compliance with the
requirements laid down in this Law.
(2) In the supervision process, before taking the decisions
provided for in this Law, Latvijas Banka shall also assess the
potential impact of the relevant decisions on the stability of
the financial system of Latvia and other Member States.
(3) Latvijas Banka has the obligation, without delay, to take
supervisory measures in accordance with this Law in order to
prevent deficiencies in the activities of an issuer, an alienor,
and a covered bond company which endanger or could endanger the
stability of the financial system or could cause significant
losses to the economy of the whole country.
[22 June 2023]
Section 93. Payments to Latvijas
Banka
(1) The issuer shall provide in the provisions of a covered
bond programme that the covered bond company shall make payments
to Latvijas Banka.
(2) The covered bond company shall make payments to Latvijas
Banka in the amount of up to 0.001 per cent per year of the
nominal value of the covered bonds issued, but not less than EUR
5000 per year.
[22 June 2023]
Section 94. Functions of Latvijas
Banka
Latvijas Banka shall perform the following functions:
1) before taking the decision to issue the permit for the
implementation of a covered bond programme, verify that the
issuer has introduced adequate and effective operating
procedures, that the issuer has ensured that the covered bond
programme is implemented by competent persons, that the
restrictions referred to in Section 11, Paragraph one of this Law
and applicable to a covered bond company and the conditions
specified for the issuer in Section 37, Paragraph one of this Law
have been complied with;
2) supervise whether the cover assets conform to the
eligibility and asset valuation criteria specified in this
Law;
3) supervise whether the cover assets are sufficient according
to the coverage requirements;
4) assess the candidate for the office of cover pool monitor
and, in the cases specified in this Law, instruct the issuer to
remove the cover pool monitor;
5) appoint the special administrator in accordance with
Section 64 of this Law and remove the special administrator in
the cases specified in Section 75 of this Law;
6) perform any other functions specified in this Law, the Law
on Latvijas Banka, and other legal acts.
[22 June 2023]
Section 95. Rights of Latvijas
Banka
In addition to the rights specified for Latvijas Banka in the
Law on Latvijas Banka and other legal acts, Latvijas Banka is
entitled to take the following actions in the supervision of the
implementation of a covered bond programme:
1) to request that violations of legal acts and operational
deficiencies be eliminated, including the preparation and
implementation of plans for the elimination of the consequences
of such violations or deficiencies within the term set by
Latvijas Banka;
11) to request a review of the continuity plan for
the implementation of the covered bond programme or other
policies, procedures, and methodologies;
2) to request the issuer, the covered bond company, and the
cover pool monitor, and also any other persons related to the
implementation of the covered bond programme to provide
information, including restricted access information, which is
necessary for the performance of the supervisory functions
specified in this Law;
3) to carry out on-site and remote inspections;
4) to inform the issuer or the covered bond company of the
need to take measures for the liquidation of the covered bond
company if the covered bond programme has been fulfilled, the
existence thereof is no longer necessary, and the issuer has not
liquidated it itself.
[22 June 2023]
Section 96. Cooperation Between the
Supervisory Institutions of Member States
(1) In order to ensure supervision of such issuers which
implement a covered bond programme, Latvijas Banka shall
cooperate with the supervisory institutions and resolution
institutions of the relevant Member State if the resolution is
applied to the credit institution issuing covered bonds, and also
shall provide to and receive from those institutions the
information necessary for the supervision. Latvijas Banka may
disclose the following within the scope of this cooperation:
1) information on the basis of a request from the supervisory
institution of a Member State;
2) information relevant to the supervisory institution of a
Member State on its own initiative. Within the meaning of this
Section, information shall be considered essential if it could
affect the protection of investors in relation to the issue of
covered bonds in another Member State.
(2) Latvijas Banka may enter into contracts with the
supervisory institutions of Member States on cooperation and
exchange of information.
(3) Latvijas Banka is entitled to inform the European Banking
Authority if the supervisory institution of another Member State
does not cooperate or, upon justified request of Latvijas Banka,
does not provide information or does not provide it within a
reasonable term.
[22 June 2023]
Section 97. Information on Covered
Bonds to be Published on the Website of Latvijas Banka
In addition to the obligation referred to in Section 39,
Paragraph one of this Law, Latvijas Banka shall publish the
following information on its website:
1) on the legal acts in the field of covered bonds and also,
in accordance with Section 103 of this Law, information on the
administrative acts which have been issued in accordance with
this Law;
2) a list of the issuers and covered bond programmes which are
permitted to use the term "European covered bond".
[22 June 2023]
Section 98. Informing of the
European Banking Authority
Latvijas Banka shall, on an annual basis, submit to the
European Banking Authority a list of the credit institutions and
covered bond programmes included in the list of issuers and
covered bond programmes.
[22 June 2023]
Section 99. Reporting on Potential
and Actual Violations
(1) Any person may report to Latvijas Banka on potential and
actual violations of this Law, the regulations of Latvijas Banka
issued on the basis of this Law, and also Regulation No
575/2013.
(2) Latvijas Banka shall create and maintain a safe reporting
system which includes at least the following elements:
1) the procedures for the receipt of reports on
violations;
2) personal data protection of such person who is reporting on
the violation and also personal data protection of such natural
person who is allegedly responsible for committing the
violation;
3) safeguarding the confidentiality of the person who is
reporting on the violation, except when the disclosure of such
information is provided for in the laws and regulations of the
Republic of Latvia.
(3) The procedures for reporting on potential and actual
violations of this Law, the regulations of Latvijas Banka issued
on the basis of this Law, and also Regulation No 575/2013 and the
procedures for processing the reports received by Latvijas Banka
shall be determined in the regulations of Latvijas Banka.
(4) Reporting which, in accordance with Paragraphs one and
five of this Section, may be conducted by the employees of the
issuer, alienor, and covered bond company shall not be considered
as the violation of the prohibition to disclose information
specified in the contract and any legal act, and the person may
not be held liable for such reporting. Discriminatory or other
unfair activities may not, due to such reporting, be directed
against the employees of the issuer, alienor, and covered bond
company who report on potential and actual violations.
(5) The issuer, alienor, and covered bond company shall
develop a procedure according to which an independent and special
internal channel for reporting a violation shall be established
and shall ensure that employees of the issuer, alienor, and
covered bond company can report on possible and actual violations
of this Law, the regulations of Latvijas Banka issued on the
basis of this Law, and also Regulation No 575/2013. The procedure
developed by the issuer, alienor, and covered bond company for
the establishment of an internal channel for reporting a
violation shall ensure conformity with the requirements of
Paragraph two, Clauses 2 and 3, and also Paragraph four of this
Section.
[22 June 2023]
Chapter
XXII
Liability
Section 100. Sanctions and
Administrative Measures Imposed by Latvijas Banka
(1) Latvijas Banka may impose the following sanctions for the
violations referred to in Section 101 of this Law:
1) to revoke the permit for the implementation of a covered
bond programme;
2) to make a public statement, indicating the person
responsible for the violation and the nature of the
violation;
3) to issue a warning for operational deficiencies and
violations;
4) to impose the fine specified in Section 102 of this
Law;
5) [22 June 2023];
6) to impose on the issuer or a covered bond company the
obligation to recall or remove a member of the supervisory board
or executive board of the covered bond company, the cover pool
monitor, and also any other person whose duties include the
implementation of a covered bond programme and activities related
to cover assets.
(2) Latvijas Banka may impose the following administrative
measures for the violations referred to in Section 101 of this
Law:
1) to request the natural or legal person responsible for the
violation to cease the relevant activity;
2) to impose on the issuer, a member of the supervisory board
or executive board of the covered bond company, or another
natural person responsible for the violation a temporary
prohibition to perform his or her official duties until the day
when the final ruling enters into effect, but not longer than for
two years.
(3) When taking the decision to impose sanctions and
administrative measures on persons who have violated the laws and
regulations governing the financial market, and on the amount of
a fine, Latvijas Banka shall take into account the circumstances
specified in the Law on Latvijas Banka and also the measures
taken by the person to prevent the recurrence of the violation
and to mitigate the possible systemic consequences of the
violation and the extent of the damage caused to third parties
thereby, and also assess the proportionality, effectiveness, and
deterrent nature of the sanctions and administrative measures to
be imposed.
[22 June 2023]
Section 101. Imposition of Sanctions
and Administrative Measures
Latvijas Banka may impose the sanctions and supervisory
measures specified in Section 100 of this Law for the violations
of Articles 129 and 178 and Title II, Chapter 2 of Regulation No
575/2013 or of the regulations of Latvijas Banka issued on the
basis of Section 28, Paragraph four, Section 36, Paragraph four,
Section 41, Paragraph two, Section 44, Paragraph two, Section 65,
Paragraph two, and Section 99, Paragraph three of this Law,
including for the following violations:
1) the credit institution issues covered bonds without
receiving the permit for the implementation of a covered bond
programme;
2) the credit institution has received the permit for the
implementation of a covered bond programme by providing false
information or using other illegal means;
3) the issuer issues such covered bonds which do not ensure
conformity with the rights of investors and creditors of covered
bonds in the insolvency proceedings of the issuer or in the
resolution of the issuer;
4) the issuer issues such covered bonds in respect of which
the requirements applicable to the cover assets, including the
requirements for the list of cover assets, have not been complied
with;
5) the issuer issues such covered bonds which are secured by
assets located outside the Member State;
6) the credit institution group issues the covered bonds
issued internally, violating the requirements for the use of
cover assets in the credit institution group;
7) the issuer or covered bond company fails to ensure the
conformity of the cover pool to the requirements of this Law;
8) the issuer or covered bond company fails to comply with the
requirements for the use of derivative contracts;
9) the issuer or covered bond company fails to ensure the
requirements for the segregation of cover assets;
10) the issuer or covered bond company violates the
information disclosure requirements or fails to provide complete
or accurate information to Latvijas Banka, including on the
liabilities of the issuer, and also to the cover pool monitor or
the special administrator;
11) the issuer or covered bond company fails to maintain
liquidity buffers of the cover pool on a long-term basis;
12) the issuer which issues covered bonds by applying
extendable maturity structures or the covered bond company has
failed to comply with the conditions for the extendable maturity
structures;
13) the issuer violates the information disclosure
requirements or fails to provide complete or accurate information
to the investor;
14) the issuer, alienor, or covered bond company fails to
comply with the requirements for reporting on potential and
actual violations;
15) violations of Article 129 of Regulation No 575/2013 in
relation to exposures in the form of covered bonds;
(16) the default of a debtor laid down in Article 178 of
Regulation No 575/2013.
[22 June 2023]
Section 102. Fine
1) For the violations referred to in Section 101, Clauses 1,
2, 4, 6, 7, 9, 10, 11, 12, 13, 15, and 16 of this Law, Latvijas
Banka is entitled to impose on a legal person a fine of up to 10
per cent of the sum of net income of the previous financial year
which conforms to the sum which, in accordance with Regulation No
575/2013, is used in order to calculate the own funds
requirements for operational risk according to the basic
indicator approach.
(2) A fine of up to 10 per cent of the annual income may be
imposed for the violations referred to in Paragraph one of this
Section also on such natural person who is responsible for
committing the violation and is a member of a management body of
the issuer or covered bond company or an employee thereof at the
moment of committing the violation.
(3) The imposition of the sanctions referred to in Paragraph
one of this Section on a legal person shall not release members
of the supervisory board or executive board and the natural
persons responsible for committing violations from civil,
administrative, and criminal liability provided for in laws and
regulations.
[22 June 2023]
Section 102.1 Statute of
Limitation
(1) Latvijas Banka is entitled to initiate proceedings not
later than within five years from the day of committing the
violation but in case of a continuous offence - from the day of
terminating the violation.
(2) The calculation of the statute of limitation specified in
Paragraph one of this Section shall be stopped from the day when
the proceedings have been initiated.
(3) Latvijas Banka may take the decision on the imposition of
the sanctions and administrative measures specified in this Law
within two years from the day when the proceedings have been
initiated.
(4) Latvijas Banka shall terminate the proceedings if the
decision on the imposition of sanctions and administrative
measures provided for in this Law has not been taken within the
term specified in Paragraph three of this Section.
[22 June 2023]
Section 103. Publication of the
Sanctions and Administrative Measures Imposed
(1) Latvijas Banka shall publish on its website information on
the sanctions and administrative measures imposed on persons,
indicating information on the person (for a natural person - the
given name, surname; for a legal person - the name and
registration number), the violation committed thereby (the type,
the imposed sanction, administrative measure, the date of entry
into effect of the decision), and also the information on the
appeal against the administrative act issued by Latvijas Banka
and the given court ruling. The information shall be published
without delay after the addressee has been informed of the
sanctions and administrative measures imposed.
(2) Latvijas Banka may publish the information referred to in
Paragraph one of this Section without identifying the person if,
after prior assessment, it has been ascertained that the
disclosure of the data of the natural person on whom a sanction
or an administrative measure has been imposed is not commensurate
or that the disclosure of the data of the natural or legal person
may jeopardise the stability of the financial market or the
course of initiated criminal proceedings, or cause incommensurate
damage to the persons concerned.
(3) If it is expected that the circumstances referred to in
Paragraph two of this Section may cease to exist within a
reasonable period, the publication of the information referred to
in Paragraph one of this Section may be delayed for this
period.
(4) The information published in accordance with the
procedures laid down in this Section shall be available on the
website of Latvijas Banka for at least five years from the date
of the publication of information. The personal data contained in
the publication shall be kept on the website only for as long as
necessary, but for no longer than five years.
(5) Latvijas Banka shall inform the European Banking Authority
of the sanctions and administrative measures imposed on
persons.
(6) Latvijas Banka has the right, in accordance with the
procedures laid down in Paragraph one of this Section, to publish
information on other decisions which it has taken in accordance
with this Law if such decisions may affect the interests of
investors and creditors of covered bonds but do not pose a threat
to the stability of the issuer, the alienor, the covered bond
company, or the financial market.
[22 June 2023]
Section 104. Appeal of an
Administrative Act Issued by Latvijas Banka
(1) When appealing an administrative act issued by Latvijas
Banka, the application shall be submitted to the Regional
Administrative Court. The court shall examine the case as the
court of first instance. The case shall be examined in the
composition of three judges. The judgement of the Regional
Administrative Court may be appealed by filing a cassation
complaint.
(2) The appeal of the administrative act referred to in
Paragraph one of this Section, except for an administrative act
on the imposition of a fine, shall not suspend the operation of
this act.
[22 June 2023]
Transitional
Provisions
1. With the coming into force of this Law, the Law on Mortgage
Bonds (Latvijas Republikas Saeimas un Ministru Kabineta
Ziņotājs, 1998, No. 21; 2000, No. 13, 2001, No. 16; 2002, No.
22; 2006, No. 21) is repealed.
2. Section 21, Paragraph two of this Law shall also apply to
an agreement between a debtor and an issuer which has been
entered into prior to the day of coming into force of this
Law.
Informative
Reference to European Union Directives
The Law contains legal norms arising from Directive (EU)
2019/2162 of the European Parliament and of the Council of 27
November 2019 on the issue of covered bonds and covered bond
public supervision and amending Directives 2009/65/EC and
2014/59/EU.
The Law has been adopted by the Saeima on 27 May
2021.
President E. Levits
Adopted 9 June 2021
1The Parliament of the Republic of
Latvia
Translation © 2024 Valsts valodas centrs (State
Language Centre)