Regulations and guidelines 2/2024 Risk management concerning mortgage bank operations enter into force on 1 January 2025
The Act on Mortgage Credit Banks and Covered Bonds (151/2022, hereinafter the “MCBCBA”), which implemented the Covered Bond Directive (2019/2162) into national legislation, entered into force on 8 July 2022. The MCBCBA repealed the old Act on Mortgage Credit Bank Operations (688/2010, hereinafter the “MCBOA”), which, however, applies in accordance with section 51 of the MCBCBA to previously issued covered bonds and to increasing their principal amounts in certain circumstances.
In accordance with the MCBCBA, the FIN-FSA may issue more detailed regulations subject to powers vested by the Act. Regulations and guidelines 2/2024 are based on regulations and guidelines 6/2012 “Mortgage bank authorisation procedure and risk management” provided under the MCBOA, however, taking into account the contents of reformed regulation and the emerging need for new regulations and guidelines.
The key contents of regulations and guidelines 2/2024 are as follows:
- The FIN-FSA provides a recommendation on the annual adoption by the supervised entity’s board of directors of the business plan to be presented with an application under section 8 of the MCBCBA and on the matters to be covered by the business plan.
- The FIN-FSA provides regulations on the calculation and valuation methods for overcollateralisation under section 24 of the MCBCBA and a recommendation on the monitoring of overcollateralisation ratios and the regular estimation of the effect of alternative scenarios on the overcollateralisation amount as well as on considering these effects in determining the risk appetite and risk limits.
- The FIN-FSA provides a recommendation on information to be entered in the bond register under section 27 of the MCBCBA and on the retention of records concerning entries in the bond register.
- The FIN-FSA provides a regulation on the requirement to document the calculation method of the liquidity buffer requirement under section 31 of the MCBCBA and that the method needs to be approved by the board of directors of the supervised entity, and a recommendation on the regular estimation of the effect of alternative scenarios for cash flows from contracts and maximum net outflows as well as on considering these effects in determining the risk appetite and risk limits.
- The FIN-FSA provides a recommendation on the contents of an application concerning the extension of the maturity of a covered bond and procedures for submitting the application to the FIN-FSA.
- The FIN-FSA provides a recommendation that authorised credit institutions, that are not mortgage banks, as defined in the regulations and guidelines arrange their risk management concerning mortgage bank operations as a single entity so that they have the capacity to separate them into an independent entity in the potential event of resolution.
Regulations and guidelines 2/2024 repeal regulations and guidelines 6/2012 based on the MCBOA, however so that they continue to apply to the extent that the MCBOA applies under section 51 of the MCBCBA. In connection with the new regulations and guidelines, a version of regulations and guidelines 6/2012 will be published, indicating which parts thereof will apply under section 51 of the MCBCBA.
Regulations and guidelines 2/2024 will enter into force on 1 January 2025.
The FIN-FSA has prepared a feedback summary on a comment given on the regulations and guidelines. The feedback summary and the comment received are available on the lausuntopalvelu.fi website (in Finnish).
For further information, please contact
- Antti Hietala, Senior Legal Adviser, telephone +358 9 183 5468 or antti.hietala(at)fiva.fi
- Berndt Hertsberg, Head of Division, telephone +358 9 183 5011 or berndt.hertsberg(at)fiva.fi
Appendix
Regulations and guidelines 2/2024: Risk management concerning mortgage bank operations