8.For synthetic securitisations, the use of credit risk mitigation (CRM) techniques (i.e., collateral, guarantees and credit derivatives) for hedging the underlying exposure may be recognized for risk-based capital purposes only if the conditions outlined below are satisfied:

1. a.Credit risk mitigants comply with the requirements set out for CRM in the Central Bank’s Standard for Credit Risk.
2. b.Eligible collateral is limited to that specified as eligible under in the Central Bank’s Standards for Credit Risk (eligible collateral pledged by SPEs may be recognized).
3. c.Eligible guarantors are as defined in the Central Bank’s Standard for Credit Risk (SPEs are not considered to be eligible guarantors).
4. d.Significant credit risk associated with the underlying exposures is transferred by the bank to third parties.
5. e.Instruments used to transfer credit risk do not contain terms or conditions that limit the amount of credit risk transferred.
6. f.The bank obtains a legal opinion that confirms the enforceability of the contract.
7. g.Such other conditions as the Central Bank shall provide after notification to banks pursuant to a circular or otherwise.

9.Clean-up calls for synthetic securitisations also must satisfy the conditions set out in Section D below. If a synthetic securitisation incorporates a call (other than a clean-up call) that effectively terminates the transaction and the purchased credit protection on a specific date, the bank should treat this as required under the Central Bank’s Standard for Credit Risk for CRM maturity mismatch. This requirement does not apply to synthetic securitisations that are assigned a risk weight of 1250%.