Legal risk may vary from institution to institution depending on the manner in which it conducts its business and the documentation it follows. The legal risks primarily arise either due to lack of clarity of the documentation of the product or the act of the counterparty. Change in legal environment due to legislative changes and Court interpretations/proceedings also result in legal risk.
This is required by the Regulation and will apply to around 130 to 140 banking groups operating in the euro area. The assessment will involve an Asset Quality Review and Balance Sheet Assessment to be conducted by the ECB in the first quarter of 2014.