If one of the competent authorities is not satisfied that contractual compensation is legally binding and enforceable under the legislation of each right covered in point (b), the contractual compensation agreement is not recognized as a risk-reducing agreement for any of the counterparties. The competent authorities inform each other. 3. Legal opinions referred to in point (b) may be drawn up in reference to the types of contractual compensation. The following additional conditions must be met through compensation agreements between products: important for the issue of the angry network, albeit tedious. Compensation is such a credit risk mitigation technique. For certain pre-defined events, such as one of .B late payment parties, a number of outstanding mutual financial contracts, consolidated by the relevant counterparties under a framework contract, are balanced (conclusion). Typically, framework contracts contain clauses defining how the parties terminate their contract and how a single net payment is calculated, the result being a single claim instead of multiple claims from individual transactions. Therefore, a clearing agreement reduces the credit risk associated with transactions with a counterparty to the difference between the remaining bonds. Notification agreements are bilateral innovation contracts and other bilateral agreements (points (a) and b) Article 295 of the RRC, as well as product compensation agreements (point c) of Article 295 of the CRR. Most clearing agreements relate to other bilateral agreements covered by Article 295, point b), of the CRR, in which counterparties calculate their reciprocal exposures on derivatives transactions. A residual net commitment of the consideration is converted to an un derivative requirement and billed as part of the usual settlement process. In the second part of the notification form, institutions provide information on the nature of the compensation agreement, applicable legislation and the jurisdiction of the counterparty, including all legal support opinions.
Information about the nature of the consideration originally required in the draft consultation is not required in the new notification form. From 1 October 2020, banks must use a form to inform BaFin if they want to reduce their credit risks by clearing (see the information box “Netting als Kreditrisikominderungstechnik”). According to the CRR, the validity and applicability of compensation agreements in the various legal systems are supported by legal opinions from the institutions. In order for compensation agreements to be recognized, an institution must also carry out the monitoring and control missions covered by the RRC. In this context, Article 297, paragraphs 1 to 3, of the RRC, which provides that institutions must put in place and maintain procedures to ensure that the validity and applicability of their contractual compensation is reviewed in light of changes to the legislation applicable to the risk of risk covered by Article 296, paragraph 2, paragraph b), of the CRR. If there are changes to certain compensation conditions in a compensation agreement that has already been notified and these changes do not prejudice any of the parties involved, no separate notification is required. The precondition is that the institution be required to document that an individual audit has been conducted internally or that additional notice has been requested from outside. When institutions consider treating their compensation agreements as risk mitigations under section 295 and following of the RRC and taking them into account when calculating capital requirements, they must be recognized by the appropriate supervisory authority.