Recital 7

(7)The structure of a transaction should not constitute an additional exposure where the circumstances of the transaction ensure that losses on an exposure to this transaction can only result from default events of underlying assets. An additional exposure should be recognised where the transaction involves a payment obligation of a certain person in addition to, or at least in advance of, the cash flows from the underlying assets, given that investors could suffer additional losses in the event of default of this person although no default event has occurred for an underlying asset. An additional exposure should also be recognised where the circumstances of the transaction enable cash flows to be redirected to a person who is not entitled to receive them as investors could suffer additional losses, although no default event for an underlying asset has occurred. No additional exposure should be recognised for undertakings for collective investment in transferable securities (UCITS) as referred to in Directive 2009/65/EC of the European Parliament and of the Council ² , given that cash flows cannot be redirected to a person who is not entitled under the transaction to receive these cash flows. This should also be assumed for entities that are subject to equivalent requirements pursuant to Union legislative acts or to legislation of a third country.