Risk management

(1) The Pfandbrief bank must have a suitable risk management system for the Pfandbrief business. The system must ensure the identification, assessment, steering and monitoring of all associated risks, in particular counterparty default risks, interest-rate, currency and other market price risks, operational risks and liquidity risks. In addition,
1. the concentration of risks must be limited by means of a limit system,
2. a procedure must be maintained that ensures the reduction of risk in the event of a sharp increase in risk; the procedure must include the early information of decision-makers,
3. the risk management system must be adapted to changing conditions at short notice and reviewed at least annually,
4. a risk report prepared under this provision must be submitted to the management board at appropriate intervals, at least quarterly. The risk management system must be documented in detail and in a comprehensible manner.
(2) Before commencing business in new products, kinds of business or new markets, the Pfandbrief bank must carry out and document a comprehensive analysis of the risks involved and the resulting requirements for the risk management system. The Pfandbrief bank may take assets into cover only after having acquired firmly established experience-based knowledge with regard to this new business, and, for business in new markets in the field of mortgage lending, not before the expiry of two years after its commencement. The existence of firmly established experience-based knowledge must be documented in detail, in text form. The Pfandbrief bank may enter in the cover register only such claims created by third parties for which it has itself subsequently satisfied itself of the creditworthiness of the claim debtor or, in the case of loan claims, of compliance, at the creation of those loan claims, with the banking-law requirements applicable to the lending business.