Japan's Financial Services Agency Q&A says that the legal validity of a bilateral netting agreement, including close-out netting, is confirmed through a written legal view (a legal opinion). The view reasonably states that, if a dispute arose, the competent court and authorities would find the bank's exposure to be limited to the net amount. It may be prepared by an outside law firm or the bank's own in-house legal function.
The EU Capital Requirements Regulation names the laws an opinion should refer to: the counterparty's jurisdiction of incorporation, the jurisdiction of a branch, the jurisdiction whose law governs the individual transactions, and the jurisdiction whose law governs any contract needed to effect the netting. Because validity is checked for each combination of jurisdictions, the opinions needed vary by counterparty.
An opinion states how the competent court and authorities are expected to decide. The jurisdictions and contract types to check and the handling of updates are covered on the related pages below.