Subject to Article 215a(1), in the calculation of the Basic Solvency Capital Requirement, guarantees shall only be recognised where explicitly referred to in this Chapter, and where in addition to the qualitative criteria laid down in Articles 209 and 210, all of the following criteria are met:
the credit protection provided by the guarantee is direct;
the extent of the credit protection is clearly set out and incontrovertible;
the guarantee does not contain any clause, the fulfilment of which is outside the direct control of the lender, that:
would allow the protection provider to cancel or change the protection unilaterally;
would increase the effective cost of protection as a result of a deterioration in the credit quality of the protected exposure;
could prevent the protection provider from being obliged to pay out in a timely manner in the event that the original obligor fails to make any payments due;
could allow the maturity of the credit protection to be reduced by the protection provider;
on the default, insolvency or bankruptcy or other credit event of the counterparty, the insurance or reinsurance undertaking has the right to pursue, in a timely manner, the guarantor for any monies due under the claim in respect of which the protection is provided and the payment by the guarantor shall not be subject to the insurance or reinsurance undertaking first having to pursue the obligor;
the guarantee is an explicitly documented obligation assumed by the guarantor;
the guarantee fully covers all types of regular payments the obligor is expected to make in respect of the claim.
In the case of a guarantee covering residential mortgage loans, the requirements in the first subparagraph, points (c)(iii) and (d), shall only be required to be satisfied within 24 months.
For the purposes of the first subparagraph, point (c), a clause in the guarantee contract providing that flawed due diligence or fraud by the lending institution cancels or diminishes the extent of the credit protection offered by the guarantor, shall not disqualify that guarantee from meeting the requirements of the first subparagraph, point (c).
For the purposes of the first subparagraph, point (c), the guarantor may make one lump sum payment of all monies due under the claim, or may assume the future payment obligations of the obligor covered by the credit protection contract.
For the purposes of the first subparagraph, an insurance or reinsurance undertaking shall be able to demonstrate to the satisfaction of the supervisory authority that it has in place systems to manage potential concentration of risk arising from its use of guarantees. An insurance or reinsurance undertaking shall be able to demonstrate to the satisfaction of the supervisory authority how its strategy in respect of its use of guarantees interacts with its management of its overall risk profile.