(2022.08.02-ны өдрийн орчуулга)   Unofficial translation

LAW OF MONGOLIA

April 23, 2010                                                 Ulaanbaatar city

ON ASSET BACKED SECURITIES

CHAPTER ONE.

GENERAL PROVISIONS

Article 1. Purpose of law

1.1.           This law regulates the relations with respect to issuance of assets backed securities, monitoring, and protection of rights and interests of investors.

Article 2. Legislations on asset backed securities

2.1 The law on asset backed securities shall consist of the Constitution of Mongolia, Civil Code, Securities law, Company law, Law on pledge of immovable property and other legislative acts enacted in compliance with them.

2.2 If international treaties, to which Mongolia is a party, stipulate otherwise, the provisions of the international treaty shall prevail.

2.3 Any relations of liquidation of an issuer of asset backed securities are regulated by this law.

Article 3. Legal terms and definitions:

3.1 Specific words and expressions used in this Law have the following meanings:

3.1.1. "Asset" means financial instruments, which are capable of generating cash flows, such as a claim of debt/promissory note, rental or leasing contracts, and receivable of a credit card issuer;

3.1.2. "Obligor" means a person who is liable for repayment related to assets in accordance with the agreement;

3.1.3. "Investor" means an owner of an asset backed security, or his/her heir or successor;

3.1.4. "Overdue assets" are assets classified as 'delinquent' and 'defaulted' assets, in accordance with the regulations adopted by an authorized body;

3.1.5. "Seller" is an individual or legal entity other than the first obligor that transfers assets from an originator and sells to a special purpose vehicle;

CHAPTER TWO.

ASSET BACKED SECURITIES AND ASSETS POOL

Article 4. Asset backed security and its types

4.1 An asset backed security is a security which is backed by assets stipulated in this law and certifies an investor to claim against the cash flow of these assets, with the first priority.

4.2. Asset backed securities are classified as follows:

4.2.1. Backed security;

4.2.2. Covered bond.

4.3. Asset backed securities may be issued in the forms of a debt note or other types of securities permitted by the Financial Regulatory Commission ("Commission") depending on its term, interest rate and other characteristics.

Article 5. Issuer of asset backed securities

5.1. Asset backed securities can be issued by authorized legal entities specified in articles 11 and 26 of this law.

5.2. Asset backed securities are prohibited from being issued by any other legal entities except those stipulated in articles 11 and 26 of this law.

5.3. Asset purchase relations for the purpose of issuing asset backed securities will not relate to a factoring service.

5.4. On the day of issuance of asset backed securities, there should be no actions associated with bankruptcy, liquidation of the issuer of the security ("Issuer"), or any request, claim or resolution of the regulatory authority on the appointment of cessionary.

5.5. It is prohibited to issue asset backed securities in cases where any of the circumstances stipulated in clause 5.4 of this law have arisen.

Article 6. Granting license to issuer of securities

6.1. The issuer of asset backed securities shall obtain a license from the Commission, pursuant to this law.

6.2. The Commission will grant a license to issue asset backed securities to the issuers who comply with requirements stipulated in this law.

6.3. An expiry date of a license shall not be earlier than the maturity date of the asset backed security.

Article 7. Issuing asset backed securities

7.1. Asset backed securities shall be in tangible and intangible forms.

7.2. Asset backed securities may be issued by open public offering or by closed offering.

7.3. Asset backed securities can be sold directly or through brokerage firms.

Article 8. Registration of asset backed securities

8.1. Asset backed securities shall be registered by the Commission pursuant to this law.

8.2. The Commission shall approve registration procedures for asset backed securities.

8.3. The investor's rights specified in clause 4.1 of this law shall be ratified or guaranteed upon registration of asset backed securities by the Commission.

8.4. The issuer shall pay the registration fee determined by the Commission.

Article 9. Assets pool and its requirements

9.1. An asset pool will constitute the total amount of assets that secure the one-time issuance of asset backed securities.

9.2. Assets in the pool shall be owned by an issuer at the time issuance and there should not be any other encumbrances upon the assets.

9.3. It is prohibited to include the following assets in the pool:

9.3.1. Collateral of an incomplete building and/or vacant land;

9.3.2. A pledged loan that exceeds the loan to value ratio set by the regulatory bodies in the law;

9.3.3. Assets classified as past due;

CHAPTER THREE.

BACKED SECURITY

Article 10. Backed security

10.1. The backed security is the security that certifies that the assets have been removed from the balance sheet of an originator, founder of securities issuer ('Founder') and seller, and that all related claim rights and receivables on the assets are transferred to the balance sheet of the special purpose vehicle, and originator, founder, and seller are completely free from liability or encumbrances.

Article 11.  Issuer of backed securities

11.1. A backed security is issued by a special purpose vehicle.

Article 12.  Establishment of Special purpose vehicle

12.1. A special purpose vehicle is a limited liability company, established under the provisions of the Company Law and Law on State Registration of Legal Entities, and holds the license specified in Article 6 of this Law.

12.2. The special purpose vehicle executes the functions of securing the investor's right of owning an asset backed security by transferring the assets pool to its balance sheet.

12.3. A separate special purpose vehicle must be established for each issuance of an asset backed security.

12.4. Banks, non-bank financial institutions, housing finance companies and other financial institutions approved by the Commission may establish special purpose vehicles.

12.5. The name of a special purpose vehicle shall consist of its given name and the term 'special purpose vehicle' or the abbreviation of 'SPV'.

12.6. Other entities, except an entity defined in clause 12.1 of this law, are prohibited from using the term 'special purpose vehicle' or the abbreviation of 'SPV' along with its given name.

12.7. The shareholders of  SPV shall not sell, exchange, pledge or transfer their shares without the consent of the Commission.

12.8. The majority of board members of SPV shall not be an authorized executive body or family member of the originator, founder, seller, or their shareholder.

12.9. Beside the provisions of Company Law, the charter of SPV shall reflect the followings:

     12.9.1. having the sole purpose of issuing backed securities;

     12.9.2. to be closed down in the case where the backed security is fully repaid.

12.10 The Commission shall approve the regulation confirming the amount of the asset, requirements for the financial statement, organizational and management structure and rights of SPV.

12.11. SPV has the following rights:

     12.11.1. to obtain assets by purchasing or transferring;

     12.11.2. to issue backed securities;

     12.11.3. to own and manage assets in accordance with the interests of investors;

     12.11.4. to conclude service agreements and other agreements on implementing its rights stated in clauses 12.10.1-12.10.3 of this law according to the regulations approved by the Commission and the prospectus of the asset backed security ('Prospectus');

     12.11.5. to repurchase the pool if the outstanding balance of the assets pool of a backed security reaches 20% of its initial value, based on the discussion with the originator, founder and seller;

     12.11.6. to use derivative contracts in accordance with this law;

12.12. SPV shall not conduct the following operations:

     12.12.1. to engage in operations other than those specified in clause 12.11 of this law;

     12.12.2. to incur debt and/or take responsibility for liabilities other than those stated in 12.11 of this law.

     12.12.3. to take a loan from others, with the condition of repaying by income from selling backed  securities;

     12.12.4. to engage in saving activities,

     12.12.5. to hire employees by labor or other contracts,

     12.12.6 to make amendments to the charter of the company without permission of the Commission.

12.13. The SPV shall hire a third party for implementing services related to the rights stated in clause 12.11 of this law.

12.14. The SPV shall bear full responsibility for  any liabilities caused by actions (or omissions) of the third party stated in clause 12.13 of this law.

12.15. The SPV shall be closed down when the tasks related to the backed securities are completed.

Article 13. Transfer of assets to SPV

13.1. The originator, founder or seller shall transfer its assets to the SPV on a contractual basis.

13.2. By transferring assets to SPV, any rights, collateral or pledges, guarantees, and other financial instruments related to the assets are considered as transferred.

13.3. After completion of payment for the backed securities, the residual assets shall be the property of the SPV.

13.4. In the following cases, any entities, except the investors and any third party who has an agreement with the SPV, should not make claim over the assets of the SPV until completion of the payment obligations of backed securities:

        13.4.1. if the assets have been purchased at their market value;

        13.4.2. if the founder, seller and service provider disposed the assets or its receivables by transferring to others via pledging, trading, repurchasing and utilizing with the permission of the investor and its legal representative;

        13.4.3. if the originator, founder and seller have sold the assets with non-recourse condition or the SPV bears risk related to the assets.

Article 14. Registration of an assets pool of backed securities

14.1. A backed securities pool shall consist of the list of assets enclosed in the prospectus submitted to the Commission.

14.2. Prior to the issuance of securities, the prospectus, the list of assets, the contract of transferring assets to the SPV, and other related documents shall be submitted to the Commission in written and electronic forms.

14.3. Upon registration of an assets pool by the Commission, the assets in the pool are deemed as transferred to the SPV.

14.4. If the asset has been a collateral of immovable property, the state registration authority shall register the collateral based on the resolution on the asset registration of the Commission, and the state registration agency for rights shall record the security.

14.5. A service fee shall not be charged for the registration specified in 14.4 of this law.

14.6. Unless the obligor's liability has been completed in accordance with the law and requested by the SPV to cancel registration, the registration stated in 14.4 of this law shall be changed only by resolution of the Commission.

14.7. Content and recording procedures for registration stated in clause 14.4 of this law shall be approved jointly by the Commission and a member of the Cabinet.

14.8. Transfer of other assets which are not stated in clause 14.4, shall not subject to the state registration process.

14.9. The Commission shall have a separate registration for the backed securities pool and approve regulations for providing information to individuals or legal entities.

Article 15. Modification in backed securities pool

15. 1 After registration of an asset backed security, the assets pool may be modified by replacing or adding an asset.

15.2 An asset in the pool specified in clause 15.1 may be replaced in the following cases:

    15.2.1 if the asset does not comply with requirements or not qualified;

    15.2.2 if the asset is overdue.

15.3 An asset can be added to the pool stated in clause 15.1 of this law in the following cases:

    15.3.1 if an asset in a backed securities pool does not meet with the requirements set in clause 32.1 of this law;

    15.3.2 if additional securities are issued via an open public offering;

15.4. If an assets pool is modified, the assets pool registration stated in clause 14.9 of this law shall be modified.

Article 16. Pledging assets to investors

16.1. Upon registration of an assets pool in accordance with article 14 of this law, the assets in the pool shall be deemed as pledged to the Investor.

16.2. The pledge right stated in clause 16.1 of this law shall constitute all rights related to the assets and income generated from assets or any other sources, all types of claim, sales income of assets owned by SPV, its intermediary or representatives, security depository or fiduciary agent.

16.3. SPV may cover the costs of registration of securities and issuance of backed securities using the income generated from assets in compliance with the procedures of the Commission and the prospectus.

 Article 17. Participants of backed securities relations

17.1. The originator, founder, seller, service provider, SPV, fiduciary agent, investor and other related parties shall be involved in the operations of issuing the backed securities.

Article 18. Originator

 18.1. The originator is  a legal entity that transferred its balance assets to SPV, and having the right of dealing with loan activities.

18.2. An originator shall have the following duties for issuing a backed security:

    18.2.1. to guarantee to repurchase or replace the assets when an asset becomes unqualified under the condition of replacing;

    18.2.2. to provide services related to the asset;

    18.2.3. to repurchase an assets pool if 20% or more of the assets in this pool are deemed as past due which should be stated in prospectus;

Article 19. Service Provider

19.1. The service provider is a legal entity which has an agreement with  SPV on customer servicing, collecting and transferring the payments related to the assets, logging, reporting, and providing other services and operations related to the assets.

19.2. The service provider shall conduct operations according to provisions of the service agreement or written instructions provided by the SPV or its representatives.

19.3. The service provider shall collect the payments from assets in a separate account, by each assets pool, and by certain parts of an assets pool.

19.4. If the service provider has failed to fulfill contractual obligations or to fulfill these obligations duly, the SPV has the right to terminate the agreement and to conclude an agreement with a new service provider.

19.5. If a service agreement has been terminated, the following items shall be transferred without any charge from a service provider to a new service provider chosen by the SPV.

    19.5.1. any cash related to the assets;

    19.5.2. all original and electronic copies of the accounting and financial reports and documents.

19.6. Unless otherwise specified in the law, the service provider shall continue its contractual obligations until agreement with a new service provider comes into force.

19.7. A service fee shall be paid to the service provider, if it is stipulated in the agreement.

19.8. An originator, founder and/or seller can be a service provider.

19.9. The service provider shall be responsible for any loss to others, whether caused deliberately or not.

19.10. The Commission shall determine professional requirements, responsibilities, minimum capital requirements and other criteria for service providers.

Article 20. Fiduciary agent of assets

20.1. A fiduciary agent  is an entity  or person which has an agreement with SPV and has duties to hold and manage assets in the best interest of investors.

20.2. A fiduciary agent shall have the following duties:

    20.2.1. to hold and manage assets in the best interests of investors;

    20.2.2. to maintain detailed financial reports and records related to the assets pool of backed securities according to procedures and regulation approved by Commission, and it should be done separately from other records of the originator, founder, seller and own equity;

    20.2.3. to provide required reports to investors,

    20.2.4. to transfer the securities' payments

    20.2.5. to implement other activities for managing the assets and protecting investors' rights as may be prescribed by Commission.

20.3. An originator shall not be appointed as a fiduciary agent.

20.4. The content of the fiduciary management agreement may be determined by the Commission.

20.5. A draft copy of the fiduciary management agreement shall be enclosed with the prospectus.

Article 21. Cessionary

21.1. The Commission shall assign a cessionary if the circumstances stated in clause 22.1.3 of this law are arisen.

21.2. If it is necessary, duties of the cessionary can be carried out by the Commission.

21.3. A cessionary has the following rights and duties:

    21.3.1. to possess the assets with the purpose of protecting investors;

    21.3.2. to request to change the authorized body of SPV;

    21.3.3. to take measures to improve the security repayments;

    21.3.4. to modify or terminate the service agreement and fiduciary management agreement concluded by the SPV;

    21.3.5. to replace a service provider or conclude a servicing agreement with another entity based on the permission of Commission;

    21.3.6. to propose to close down or liquidate the SPV;

    21.3.7. other activities permitted by the Commission.

21.4. A cessionary shall perform its rights and duties stated in clause 21.3 under the supervision of the Commission.

21.5. The authorized body of the SPV and fiduciary managers are responsible for carrying out all required measures to protect investors' interests, transferring the total assets, financial reports, documents, blanks and stamps to the possession of the Cessionary and cooperating with the cessionary in all possible ways to implement his/her rights and duties.

Article 22. Closing down the SPV

22.1. The SPV should be closed for the following reasons:

    22.1.1. has completed obligations on the backed securities;

    22.1.2. the assets pool has been repurchased by originator, founder and seller;

    22.1.3. due to failure of obligations of security payments or duties reflected in the prospectus, two-thirds of the investors holding total securities require to close down.

22.2. The following entity shall make a decision to close the SPV:

    22.2.1. the SPV or shareholder of the issuer in pursuant to the provisions of 22.1.1 and 22.1.2 of this law;

    22.2.2. the court under the request of the Commission in pursuant to the provisions of 22.1.3 of this law.

Article 23. Distribution of assets of SPV that is closed

23.1. Assets of the closed SPV shall be distributed in the following orders:

    23.1.1. the costs associated with closing down;

    23.1.2. the securities payment to the investors in accordance with the priority set out in the prospectus;

    23.1.3. the claim of any person/entity other than the originator who has a receivable from the SPV according to the agreement permitted under this law;

     23.1.4. the claim of the originator who has a receivable from the SPV according to the agreement permitted under this law.

23.2. After distribution of the assets in pursuant to the provision 23.1 of this law, the remaining asset shall be distributed to the shareholders in proportion to their invested capital amount. 

CHAPTER FOUR.

COVERED BOND

Article 24. Covered bond

24.1. A covered bond is a debt obligation which is segregated from the balance sheet of the issuer, secured by claims related to mortgage loan and other pledged immovable properties stipulated in this law, and certifies payment obligations of principal and interest to the Investor within the date stated in prospectus of the security.

 Article 25. Requirements to the covered bond

25.1. A covered bond can be in a tangible and intangible form, and should have a procedure or method for calculation of the principal and its interest.

25.2. A covered bond may have the following terms:

    25.2.1. fixed term or serial;

    25.2.2. issuer should pay the payments on or before the due date;

    25.2.3. partial payment of bond principal or payment on maturity;

    25.2.4. with fixed or variable interest rates;

    25.2.5. other terms determined by the Commission.

Article 26. Issuer of the Covered bond

26.1. A covered bond can be issued by banks and/or housing finance companies.

26.2. The issuer of the covered bond shall pledge the income from assets under its own possession or recorded in its balance sheet. These assets shall be segregated from its balance sheet and the security payments are made by repayments from these assets with primary priority.

Article 27. Housing finance company

27.1. A housing finance company is a limited liability company established pursuant to the Company Law and having a license stated in article 6 of this law.

27.2. The equity capital of a housing finance company shall be comprised of cash assets, and the equity capital shall be determined by the Commission.

27.3. The name of a housing finance company shall consist of its given name and term 'housing finance company' or its abbreviation 'HFC'.

27.4. Other entities except the entity stated in clause 27.1 are prohibited to use term of 'housing finance company' or its abbreviation 'HFC' with its given name.

27.5. A housing finance company shall be established by two or more banks.

27.6. A housing finance company shall conduct the following operations:

    27.6.1. to receive and collect transferred assets from shareholder banks or other financial institutions;

    27.6.2. to set up an assets pool;

    27.6.3. to issue covered bonds;

    27.6.4. to take measures to improve repayments;

    27.6.5. to set the requirements of the assets to be purchased;

    27.6.6. to use derivative contracts as stated in this law;

    27.6.7. other operations associated with issuing asset backed securities.

27.7. A housing finance company shall have the following rights:

    27.7.1. to originate loans to shareholder banks under the terms of enforcing the payment from the pledged assets registered in the registration of special assets pool of backed securities in case of failure of performance or improper performance, and to enjoy all the loan related rights of investors specified in this law;

    27.7.2. to issue covered bonds in a way of pledging the collateral assets of the loans to the shareholder banks;

27.8. A housing finance company shall confirm its claim on the loan issued to the shareholder banks by agreement, and this right shall be included in the registration of the assets pool.

Article 28. Assets pool of covered bond

28.1. An assets pool of a covered bond shall consist of principal and other assets.

Article 29. Principal assets

 29.1. The principal asset in assets pool of covered bond shall be the mortgage loans and claims on collateral.

29.2. A financial lease, a purchase/sale agreement by loan or other similar income generating assets may be considered as a principal asset if it is permitted by the Commission.

29.3. The immovable property mortgaged loans forming the assets pool of a covered bond shall be registered in the state registration and certify the claims with first priority of the originator.

 29.4 Up to 10% of the assets pool of a covered bond may be loans for financing non-residential immovable property.

Article 30. Other assets

30.1. The following items can be considered as other additional assets in an assets pool.

    30.1.1. cash;

    30.1.2. securities issued by the Government of Mongolia and the Bank of Mongolia;

    30.1.3. loans issued in accordance with clause 27.7.1 of this law.

30.2 Other additional assets shall not be more than 20% of a covered bond assets pool.

30.3. The Commission shall set the regulation of the valuation of the other additional assets.

Article 31. Appraisal of pledged immovable property

31.1. Pledged immovable property can be appraised in accordance with relevant legislation.

31.2. The Commission may adopt regulations on such appraisal.

Article 32. Requirements for covered bond assets pool

32.1. The assets pool of a covered bond shall meet the following requirements:

    32.1.1. income from assets pool shall be sufficient to implement the obligations under the covered bond;

    32.1.2. the nominal principal balance of the assets in the pool shall be not less than 110% of the outstanding payment amount of the bond;

    32.1.3. the average interest rate of the assets in the pool shall be equal or more than the interest rate of the bond;

    32.1.4. the average term of assets in the pool shall not be less than the average term of the bond.

32.2. Detailed requirements to the assets pool shall be determined by the Commission.

Article 33. Registration of the assets pool of covered bond

33.1. The issuer of a covered bond shall undertake the registration of the assets pool securing the bonds.

33.2. The registration of the assets pool shall be maintained in a unified form for all bonds issued or separated by each bond issued.

33.3. If an issuer of a covered bond is a bank, the registration shall be submitted to the Commission and Bank of Mongolia. If it is a housing finance company, the registration shall be submitted to the Commission.

33.4. The assets pool registration template of a covered bond and its maintenance procedures shall be regulated by the Commission.

33.5. Upon the registration of a covered bond in accordance with this law, it is considered that the assets pool is separated from the issuer's assets and is collateralized.

33.6. When the state registration authority of rights makes a supplementary description on assets in the assets pool of a covered bond, the provisions 14.5-14.7 of this law shall apply.

Article 34. Modifications on the assets pool of a covered bond

34.1. The issuer is eligible to issue additional securities or increase the amount of principal assets in the pool at any time with the purpose of complying with requirements stated in article 32 of this law.

34.2. The issuer may replace the assets any time under the permission of the assets pool registration controller, as stated in clause 36.4.3 of this law.

Article 35. Separation and collateralization of a covered bond assets pool

35.1. Upon registration of the assets pool of a covered bond, it shall be deemed that the assets have been separated from other assets of the issuer, and the issuer shall record it separately in its balance sheet.

35.2. It is prohibited to use the assets in the assets pool of a covered bond for another purpose which is not sspecified in this law.

35.3. The investor has a priority right to claims upon the assets in the assets pool of the covered bond.

35.4. If several investors have a same priority rights to claims from the same assets' pool, priority will be given by the order of issuance date and it will be paid on a pro-rata basis.

35.5. The derivative contractual parties associated with the assets pool of the covered bond have a right to conclude and terminate the agreement, disclaim, and have a right to proceed against the issuer under the investors' rights.

35.6. The covered bond payments shall be fully covered by the assets of the pool.

35.7. After the repayment of each claim from a corresponding assets pool of the covered bond, the investors shall have equal rights to be repaid their residual payment from other assets of the issuer if those are not included in the assets pool of a covered bond.

35.8. Unless the issuer is bankrupted or it is not possible to fulfill its obligations, the covered bond assets pool or issuer's obligations can be transferred to others consistent with regulations set by the Commission.

Article 36. Controller of the assets pool registration of a covered bond

36.1. The controller of the assets pool registration of a covered bond ("Controller of the assets pool registration") has the duty to provide oversight control on registration of the assets pool, provide standards of the assets pool and check whether they meet the requirements stated in article 36 of this law.

36.2. The Commission shall issue a special permit to the controller of assets pool registration, and shall provide regulation for professional requirements, appointment, dismissal and replacement of the controller.

36.3. The controller of the assets pool registration shall be appointed by the issuer of the covered bond, and a written notice of such appointment should be sent to the Commission within three working days.

36.4 The controller of the assets pool registration shall have the following duties:

    36.4.1. to verify whether the assets pool meets the requirement in this law and regulations set by the Commission;

    36.4.2. to control replacement of the assets in the assets pool and any transactions related to the assets pool;

    36.4.3. to give permission on withdrawal transactions from the assets pool;

    36.4.4. to confirm any modifications in the registration of the assets pool and to inform the Commission and Bank of Mongolia within 15 days;

    36.4.5. to conduct scheduled audits on registration of the assets pool within the period set by the Commission;

    36.4.6. to provide a report including recommendations on eliminating any violations of the registration process to the Commission and Bank of Mongolia within 15 days of completion of scheduled audits stated in clause 35.4.5 of this law.

    36.4.7. to take other required measures to protect the investors' rights.

36.5. The controller of the assets pool registration is entitled to demand information and  read and familiarize with any documents related to the assets pool securing the bonds from the issuer and  the state registration agency of rights.

Article 37. Conservatorship

37.1. Conservatorship is considered necessary in the following circumstances:

    37.1.1. a bankruptcy case has been filed in relation to the issuer of the covered bond;

    37.1.2. the issuer is presumed to be closed;

    37.1.3. the regulatory body has decided to restructure the issuer in accordance with grounds stated in this law.

37.2. If the conservatorship has occurred as stated in clause 37.1, the Commission shall take the following actions immediately.

    37.2.1. the assets pool shall be separated from the issuer's balance sheet until completion of the investor's claim;

    37.2.2. a cessionary will be appointed by the issuer jointly with the Bank of Mongolia if it is a bank or Commission itself if it is a housing finance company when the issuer became insolvent;

37.3. In case of conservatorship, the controller of the assets pool registration shall be responsible for the following duties until appointment of a cessionary:

    37.3.1. to possess the assets pool of the covered bond;

    37.3.2. to collect an income from the assets pool of a covered bond.

37.4. The controller of the assets pool registration shall be responsible for submission of original copies of all accounts and documents to the cessionary in order to protect the pool that is securing the bonds.

37.5. The cessionary shall send one of the following proposals to the regulatory body by which it is appointed:

    37.5.1. to sell the assets in the pool to prepay the bond payments;

    37.5.2. to transfer the assets pool of the covered bond and their obligations to another issuer without modifying the term of the bond;

    37.5.3. to transfer the assets pool of the covered bond to a fiduciary manager in case the method stated in clause 37.5.2 is not applicable;

    37.5.4. to take measures to improve the repayments of the covered bond;

37.6. Based on the proposal of the cessionary as stated in clause 37.5 of this law, the regulatory body shall make a decision.

37.7. A service fee shall be paid to the cessionary from income generated from the asset pool that is securing the covered bond and the amount of the fee shall be set by the Commission and/or the Bank of Mongolia in conformity with the standard fees of the banks and financial sector.

37.8. Special regulations related to the implementation of these provisions of this law shall be approved by the Commission and the Bank of Mongolia.

37.9. Insolvency of the Issuer shall not be grounds for approving the claims to prepay bond payment to the investor.

CHAPTER FIVE.

PROTECTING THE INVESTORS' INTERESTS

Article 38. Meet requirements of investors

38.1. Investor's requirements shall be met by all rights related to the assets.

Article 39. Reporting to investors

39.1. The issuer shall prepare reports by each classification of securities and submit them to the investor and the Commission on a half-yearly basis.

39.2. The report stated in clause 39.1 of this law shall reflect the following information:

    39.2.1. the outstanding balance of the assets pool;

    39.2.2. the amount of principal payments paid on time and overdue principal payments;

    39.2.3. the amount of prepaid principal payments;

    39.2.4. the amount of non-performing or past due assets;

    39.2.5. other information that can impact the financial condition of the assets and asset backed securities.

39.3. The Commission shall confirm the format and contents of the report stated in clause 39.1 of this law.

Article 40. External audit

40.1. An external audit on the issuer's activities shall be conducted by an auditor approved by the Commission.

40.2. The Commission shall confirm the type and frequency of an external audit, professional requirements for auditors, their responsibilities and regulations for approving auditors.

Article 41. Measures improving the repayments

41.1. If required, the issuer of asset backed securities shall take measures to improve the repayments.

Article 42. Issuing guarantee

42.1. A guarantee can be issued on the covered bond by the lender, a housing finance company, the Government, the Bank of Mongolia and another other third party.

CHARTER SIX.

MISCELLANEOUS

Article 43. Participation of Bank of Mongolia

43.1. The powers or authority of the Bank of Mongolia to monitor and regulate banks' operations as stated in the Banking Law shall be apply equally to the banks, those implementing the functions of lender, and fiduciary stated in this law.

43.2. Authorizing the Commission to regulate the bank's operation related to the issuance of covered bonds shall not change or limit the authority of the Bank of Mongolia to monitor and regulate the banks' operations.

Article 44. Penalties to be imposed to violators of legislation

44.1. If the actions of an official violating this law are not of a criminal nature, he/she shall be subject to liability specified in the Civil Service Law.

44.2 A person or legal entity that violates this law shall be subject to liability specified in the Criminal Code or the Law on Infringement.

(This article was revised according to the law dated 4 December, 2015)

Article 45. Law enforcement date

45.1. This law will be effective from January 1, 2011.

SPEAKER OF THE STATE GREAT KHURAL    D. DEMBEREL