2.1. Requirements common to guarantees and credit derivatives

Subject to point 16, for the credit protection deriving from a guarantee or credit derivative to be recognised the following conditions shall be met: the credit protection shall be direct; the extent of the credit protection shall be clearly defined and incontrovertible; the credit protection contract shall not contain any clause, the fulfilment of which is outside the direct control of the lender, that: would allow the protection provider unilaterally to cancel the protection; would increase the effective cost of protection as a result of deteriorating credit quality of the protected exposure; could prevent the protection provider from being obliged to pay out in a timely manner in the event that the original obligor fails to make any payments due; or could allow the maturity of the credit protection to be reduced by the protection provider; and it must be legally effective and enforceable in all jurisdictions which are relevant at the time of the conclusion of the credit agreement. The credit institution shall satisfy the competent authority that it has systems in place to manage potential concentration of risk arising from the credit institution's use of guarantees and credit derivatives. The credit institution must be able to demonstrate how its strategy in respect of its use of credit derivatives and guarantees interacts with its management of its overall risk profile.

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Source: EUR-Lex (Cellar) · retrieved 2026-10-09 · Text as adopted (Official Journal); later amendments are not incorporated in this text.