16.The Standards requires that banks obtain a legal opinion to confirm true sale to demonstrate that the transferor does not maintain effective or indirect control over the transferred exposures and that the exposures are legally isolated from the transferor in such a way (e.g., through the sale of assets or through sub-participation) that the exposures are put beyond the reach of the transferor and its creditors, even in bankruptcy or receivership. However, that legal opinion need not be limited to legal advice from qualified external legal counsel; it may be in the form of written advice from in-house lawyers.

17.For synthetic securitisations, risk transference through instruments such as credit derivatives may be recognized only if the instruments used to transfer credit risk do not contain terms or conditions that limit the amount of credit risk transferred. Examples of terms or conditions that would violate this requirement include the following:

1. (a)Clauses that materially limit the credit protection or credit risk transference, such as an early amortization provision in a securitisation of revolving credit facilities that effectively subordinates the bank’s interest, significant materiality thresholds below which credit protection is deemed not to be triggered even if a credit event occurs, or clauses that allow for the termination of the protection due to deterioration in the credit quality of the underlying exposures.
2. (b)Clauses that require the originating bank to alter the underlying exposures to improve the pool’s average credit quality.
3. (c)Clauses that increase the bank’s cost of credit protection in response to deterioration in the pool’s quality.
4. (d)Clauses that increase the yield payable to parties other than the originating bank, such as investors and third-party providers of credit enhancements, in response to a deterioration in the credit quality of the reference pool.
5. (e)Clauses that provide for increases in a retained first-loss position or credit enhancement provided by the originating bank after the transaction’s inception.