ICC Banking Commission-endorsed CRR article 194 Legal Opinions
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Transposing the Basel 3 accord through the CRD IV regulations, the European Union issued the Capital Requirements Regulation which entered into effect on January 1, 2014 (CRR). CRR article 194 requires financial institutions that use credit mitigation arrangements to ensure that they are legally effective and enforceable in all relevant jurisdictions. To that end, those institutions are required to provide, upon request of their regulators, the most recent version of the independent, written and reasoned legal opinion or opinions that it used to that end.
Answering the concern expressed by its member banks that are subject to CRR article 194 (which includes any bank that undertakes banking activity in the EU) as to the additional costs that will likely ensue from their duty to obtain an independent legal opinion for each guarantee, letter of credit or reimbursement undertaking that they use as a credit protection, the ICC Banking Commission commissioned its Legal Committee to oversee and arrange for the drafting by law firm Sullivan & Worcester generic legal opinions stating the effectiveness of demand guarantees and counter-guarantees, standby letters of credit and bank-to-bank reimbursements issued subject to ICC rules.
Four standard opinions in relation to English law-governed demand guarantees and counter-guarantees under URDG, standby letters of credit under UCP or ISP, and bank-to-bank reimbursements under URR were approved by the Banking Commission leadership following recommendation of its Legal Committee.
To the extent that national bank regulators were additionally to require a specific local legal opinion, local firms can opine from a local law standpoint on the generic legal opinion, thus limiting substantially the likely costs and delays.
Banking Commission member organizations may freely use and assert the attached opinions for internal risk and credit management purposes, regulatory audits and investigations, or litigation, provided they do not alter the form or the substance of those opinions and refer to them as “ICC Banking Commission-endorsed CRR article 194 Legal Opinions”. Nonmembers are strictly prohibited from using or relying directly or indirectly on those opinions. Infringements will lead to appropriate legal action for misappropriation of ICC proprietary material.