diff --git a/k8s/providers/hetzner/infrastructure/cluster-policies/restrict-arc-openbao-certificate.yaml b/k8s/providers/hetzner/infrastructure/cluster-policies/restrict-arc-openbao-certificate.yaml
index 4e4ce8e72f..c0fdc50ad1 100644
--- a/k8s/providers/hetzner/infrastructure/cluster-policies/restrict-arc-openbao-certificate.yaml
+++ b/k8s/providers/hetzner/infrastructure/cluster-policies/restrict-arc-openbao-certificate.yaml
@@ -1,35 +1,39 @@
-apiVersion: kyverno.io/v1
-kind: ClusterPolicy
+# The arc-openbao-ca ClusterIssuer signs OpenBao's transport (server)
+# certificate. As a ClusterIssuer it is reachable from every namespace, so only
+# Certificates and CertificateRequests in the openbao namespace may use it; a
+# certificate it issued anywhere else could impersonate OpenBao.
+apiVersion: policies.kyverno.io/v1
+kind: ValidatingPolicy
 metadata:
   name: restrict-arc-openbao-certificate
   annotations:
     policies.kyverno.io/title: Restrict ARC OpenBao Certificate Issuance
     policies.kyverno.io/category: Security
     policies.kyverno.io/severity: high
+    policies.kyverno.io/minversion: 1.17.0
 spec:
-  background: true
-  rules:
-    - name: only-openbao-may-use-credential-ca
-      match:
-        any:
-          - resources:
-              kinds:
-                - cert-manager.io/v1/Certificate
-                - cert-manager.io/v1/CertificateRequest
-      preconditions:
-        all:
-          - key: "{{ request.object.spec.issuerRef.name || '' }}"
-            operator: Equals
-            value: arc-openbao-ca
-          - key: "{{ request.object.spec.issuerRef.kind || 'Issuer' }}"
-            operator: Equals
-            value: ClusterIssuer
-      validate:
-        failureAction: Enforce
-        message: The dedicated credential-service CA may issue only in OpenBao.
-        deny:
-          conditions:
-            any:
-              - key: "{{ request.object.metadata.namespace || '' }}"
-                operator: NotEquals
-                value: openbao
+  validationActions:
+    - Deny
+  evaluation:
+    background:
+      enabled: true
+  matchConstraints:
+    resourceRules:
+      - apiGroups: ["cert-manager.io"]
+        apiVersions: ["v1"]
+        operations: ["CREATE", "UPDATE"]
+        resources: ["certificates", "certificaterequests"]
+  variables:
+    # Only requests for the dedicated credential-service CA are restricted. An
+    # unset issuerRef.kind means a namespaced Issuer, which is a different CA.
+    # This is part of the validation rather than a matchCondition so every
+    # certificate keeps a current report result (docs/policy-reports.md).
+    - name: usesCredentialCA
+      expression: >-
+        object.spec.?issuerRef.?name.orValue('') == 'arc-openbao-ca' &&
+        object.spec.?issuerRef.?kind.orValue('Issuer') == 'ClusterIssuer'
+  validations:
+    - expression: >-
+        !variables.usesCredentialCA ||
+        object.metadata.?namespace.orValue('') == 'openbao'
+      message: The dedicated credential-service CA may issue only in OpenBao.
diff --git a/scripts/tests/test-verify-arc-transport.sh b/scripts/tests/test-verify-arc-transport.sh
index 9936c851b0..b671d4d46d 100755
--- a/scripts/tests/test-verify-arc-transport.sh
+++ b/scripts/tests/test-verify-arc-transport.sh
@@ -11,12 +11,13 @@ go build -o "$scratch/evidence" ./scripts/verify-arc-transport
 export PROOF_TEST_ROOT="$scratch"
 readonly head=1111111111111111111111111111111111111111
 export GITHUB_ACTIONS=true GITHUB_REPOSITORY=devantler-tech/platform GITHUB_REF=refs/heads/main GITHUB_SHA="$head" GITHUB_RUN_ID=12345 GITHUB_RUN_ATTEMPT=1
-# Native Kyverno v1.19.1 admission adds both rule defaults. Keep the fixture
-# independent of the verifier's expected-spec construction.
+# The issuance restriction is a ValidatingPolicy: its CRD adds no spec defaults
+# and it reports readiness in status.conditionStatus (as Kyverno v1.19.1 does).
 yq -o=json '.spec' k8s/providers/hetzner/infrastructure/cluster-policies/restrict-arc-openbao-certificate.yaml \
-  | jq '.rules |= map(.skipBackgroundRequests=true | .validate.allowExistingViolations=true) |
-      {spec:(. + {admission:true,emitWarning:false,validationFailureAction:"Audit"}),
-      status:{conditions:[{type:"Ready",status:"True"}]}}' >"$scratch/policy.json"
+  | jq '{metadata:{uid:"issuance-policy-uid"},spec:.,status:{conditionStatus:{ready:true}}}' >"$scratch/policy.json"
+# Native Kyverno v1.19.1 admission adds both rule defaults to the listener
+# ClusterPolicy. Keep the fixture independent of the verifier's expected-spec
+# construction.
 yq -o=json '.spec' k8s/bases/infrastructure/cluster-policies/best-practices/restrict-arc-openbao-listener.yaml \
   | jq '.rules |= map(.skipBackgroundRequests=true | .validate.allowExistingViolations=true) |
       {metadata:{uid:"policy-uid"},spec:(. + {admission:true,emitWarning:false,validationFailureAction:"Audit"}),
@@ -29,14 +30,12 @@ for file in k8s/providers/hetzner/infrastructure/cluster-policies/restrict-arc-o
   k8s/providers/hetzner/infrastructure/controllers/openbao/transport/config-map-listener.yaml; do
   mkdir -p "$scratch/source/$(dirname "$file")"
   cp "$file" "$scratch/source/$file"
-  if [[ "$file" == *cluster-policies* ]]; then
+  if [[ "$file" == *restrict-arc-openbao-listener* ]]; then
     yq -i '.spec.rules[].skipBackgroundRequests = false | .spec.rules[].validate.allowExistingViolations = false' "$scratch/source/$file"
   fi
 done
-for policy in policy listener-policy; do
-  jq '.spec.rules |= map(.skipBackgroundRequests=false | .validate.allowExistingViolations=false)' \
-    "$scratch/$policy.json" >"$scratch/explicit-$policy.json"
-done
+jq '.spec.rules |= map(.skipBackgroundRequests=false | .validate.allowExistingViolations=false)' \
+  "$scratch/listener-policy.json" >"$scratch/explicit-listener-policy.json"
 cat >"$scratch/bin/gh" <<'MOCK'
 #!/usr/bin/env bash
 printf '%s\n' "${GITHUB_SHA}"
@@ -103,15 +102,14 @@ case "$args" in
     elif [[ "${PROOF_CASE:-}" == listener_failure_open ]]; then jq '.spec.failurePolicy="Ignore"' "$PROOF_TEST_ROOT/listener-policy.json"
     elif [[ "${PROOF_CASE:-}" == listener_override ]]; then jq '.spec.rules[0].validate.failureActionOverrides=[{action:"Audit",namespaces:["openbao"]}]' "$PROOF_TEST_ROOT/listener-policy.json"
     else cat "$PROOF_TEST_ROOT/listener-policy.json"; fi ;;
-  'get clusterpolicy '*)
-    if [[ "${PROOF_CASE:-}" == source_explicit_false ]]; then cat "$PROOF_TEST_ROOT/explicit-policy.json"
-    elif [[ "${PROOF_CASE:-}" == issuance_admission_disabled ]]; then jq '.spec.admission=false' "$PROOF_TEST_ROOT/policy.json"
-    elif [[ "${PROOF_CASE:-}" == issuance_background_drift ]]; then jq '.spec.rules[0].skipBackgroundRequests=false' "$PROOF_TEST_ROOT/policy.json"
-    elif [[ "${PROOF_CASE:-}" == issuance_existing_drift ]]; then jq '.spec.rules[0].validate.allowExistingViolations=false' "$PROOF_TEST_ROOT/policy.json"
-    elif [[ "${PROOF_CASE:-}" == issuance_unknown_field ]]; then jq '.spec.rules[0].unexpected=true' "$PROOF_TEST_ROOT/policy.json"
-    elif [[ "${PROOF_CASE:-}" == issuance_exclusion ]]; then jq '.spec.rules[0].exclude={any:[{resources:{namespaces:["arc-runners"]}}]}' "$PROOF_TEST_ROOT/policy.json"
+  'get validatingpolicies.policies.kyverno.io restrict-arc-openbao-certificate '*)
+    if [[ "${PROOF_CASE:-}" == issuance_admission_disabled ]]; then jq '.spec.evaluation.admission={enabled:false}' "$PROOF_TEST_ROOT/policy.json"
+    elif [[ "${PROOF_CASE:-}" == issuance_background_drift ]]; then jq '.spec.evaluation.background.enabled=false' "$PROOF_TEST_ROOT/policy.json"
+    elif [[ "${PROOF_CASE:-}" == issuance_not_ready ]]; then jq '.status.conditionStatus.ready=false' "$PROOF_TEST_ROOT/policy.json"
+    elif [[ "${PROOF_CASE:-}" == issuance_unknown_field ]]; then jq '.spec.unexpected=true' "$PROOF_TEST_ROOT/policy.json"
+    elif [[ "${PROOF_CASE:-}" == issuance_exclusion ]]; then jq '.spec.matchConditions=[{name:"not-arc-runners",expression:"object.metadata.namespace != \"arc-runners\""}]' "$PROOF_TEST_ROOT/policy.json"
     elif [[ "${PROOF_CASE:-}" == issuance_failure_open ]]; then jq '.spec.failurePolicy="Ignore"' "$PROOF_TEST_ROOT/policy.json"
-    elif [[ "${PROOF_CASE:-}" == issuance_override ]]; then jq '.spec.rules[0].validate.failureActionOverrides=[{action:"Audit",namespaces:["arc-runners"]}]' "$PROOF_TEST_ROOT/policy.json"
+    elif [[ "${PROOF_CASE:-}" == issuance_override ]]; then jq '.spec.validationActions=["Audit"]' "$PROOF_TEST_ROOT/policy.json"
     else cat "$PROOF_TEST_ROOT/policy.json"; fi ;;
   'get kustomization '*) printf '{"metadata":{"generation":1},"status":{"observedGeneration":1,"lastAppliedRevision":"latest@sha256:aaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaa","conditions":[{"type":"Ready","status":"True"}]}}' ;;
   'get service '*) printf '{"spec":{"selector":{"app.kubernetes.io/name":"openbao","app.kubernetes.io/instance":"openbao","statefulset.kubernetes.io/pod-name":"openbao-2"},"ports":[{"name":"arc-tls","port":8204,"targetPort":8204,"protocol":"TCP"}]}}' ;;
@@ -296,7 +294,7 @@ for name in sealed split_health stale_probe admit_privilege api_failure api_vali
   listener_content listener_churn listener_audit listener_admission_disabled listener_failure_open listener_override \
   listener_admit listener_api_error issuance_admission_disabled issuance_exclusion issuance_failure_open issuance_override \
   listener_background_drift listener_existing_drift listener_unknown_field \
-  issuance_background_drift issuance_existing_drift issuance_unknown_field \
+  issuance_background_drift issuance_not_ready issuance_unknown_field \
   identity_stale identity_ordinal_only; do run_case "$name" 1; done
 run_case replacement 4
 run_case cleanup_failure 4
diff --git a/scripts/verify-arc-transport.sh b/scripts/verify-arc-transport.sh
index 3b77ee8124..ca2e055814 100755
--- a/scripts/verify-arc-transport.sh
+++ b/scripts/verify-arc-transport.sh
@@ -101,10 +101,13 @@ jq -e --arg server "https://$host:8204" '.spec.provider.vault.server == $server
  .spec.provider.vault.auth.kubernetes == {mountPath:"kubernetes",role:"arc-secret-reader",serviceAccountRef:{name:"arc-secret-reader"}}' "$scratch/store.json" >/dev/null
 kc -n "$namespace" get configmap arc-openbao-ca -o json >"$scratch/ca.json"
 jq -er '.data["ca.crt"] | select(startswith("-----BEGIN CERTIFICATE-----"))' "$scratch/ca.json" >"$scratch/ca.pem"
-kc get clusterpolicy restrict-arc-openbao-certificate -o json >"$scratch/policy.json"
-policy_spec k8s/providers/hetzner/infrastructure/cluster-policies/restrict-arc-openbao-certificate.yaml >"$scratch/issuance-spec.json"
+# The issuance restriction is a ValidatingPolicy: its CRD adds no spec
+# defaults, so the live spec must equal the source spec exactly, and its
+# readiness lives in status.conditionStatus.ready.
+kc get validatingpolicies.policies.kyverno.io restrict-arc-openbao-certificate -o json >"$scratch/policy.json"
+yq -o=json '.spec' k8s/providers/hetzner/infrastructure/cluster-policies/restrict-arc-openbao-certificate.yaml >"$scratch/issuance-spec.json"
 jq -e --slurpfile expected "$scratch/issuance-spec.json" '.spec == $expected[0] and
- any(.status.conditions[]; .type == "Ready" and .status == "True")' "$scratch/policy.json" >/dev/null
+ .status.conditionStatus.ready == true' "$scratch/policy.json" >/dev/null
 for layer in infrastructure infrastructure-controllers; do
   kc -n flux-system get kustomization "$layer" -o json | jq -ce 'select(.status.observedGeneration == .metadata.generation and
     any(.status.conditions[]; .type == "Ready" and .status == "True")) | .status.lastAppliedRevision | select(test("^latest@sha256:[0-9a-f]{64}$"))' >"$scratch/$layer-revision"
@@ -299,7 +302,7 @@ for object in 'secretstore openbao' 'configmap arc-openbao-ca'; do
   jq -Sc '{uid:.metadata.uid,spec:.spec,data:.data}' "$scratch/$original.json" >"$scratch/before"
   cmp -s "$scratch/before" "$scratch/after" || fail transport-churn
 done
-kc get clusterpolicy restrict-arc-openbao-certificate -o json | jq -Sc '{uid:.metadata.uid,spec:.spec}' >"$scratch/after"
+kc get validatingpolicies.policies.kyverno.io restrict-arc-openbao-certificate -o json | jq -Sc '{uid:.metadata.uid,spec:.spec}' >"$scratch/after"
 jq -Sc '{uid:.metadata.uid,spec:.spec}' "$scratch/policy.json" >"$scratch/before"
 cmp -s "$scratch/before" "$scratch/after" || fail issuance-policy-churn
 kc -n external-secrets get pods -l app.kubernetes.io/name=external-secrets -o json | jq -Sc '[.items[]|{uid:.metadata.uid,ip:.status.podIP,node:.spec.nodeName,containers:.status.containerStatuses}] | sort_by(.uid)' >"$scratch/after"
diff --git a/tests/policy-failure-actions.json b/tests/policy-failure-actions.json
index c3715885fe..37991c19fd 100644
--- a/tests/policy-failure-actions.json
+++ b/tests/policy-failure-actions.json
@@ -1,6 +1,6 @@
 {
   "restrict-explicit-dns-records/approved-platform-records": "Enforce",
-  "restrict-arc-openbao-certificate/only-openbao-may-use-credential-ca": "Enforce",
+  "restrict-arc-openbao-certificate": "Enforce",
   "restrict-arc-openbao-listener/public-listener-settings-only": "Enforce",
   "require-baseline-workers-for-hcloud-volumes/require-baseline-worker-affinity": "Enforce",
   "require-baseline-workers-for-hcloud-volumes/report-claim-lookup-failure": "Audit",
diff --git a/tests/restrict-arc-openbao-certificate/kyverno-test.yaml b/tests/restrict-arc-openbao-certificate/kyverno-test.yaml
index ac431ea03a..555bffd49a 100644
--- a/tests/restrict-arc-openbao-certificate/kyverno-test.yaml
+++ b/tests/restrict-arc-openbao-certificate/kyverno-test.yaml
@@ -8,32 +8,35 @@ resources:
   - resources.yaml
 results:
   - policy: restrict-arc-openbao-certificate
-    rule: only-openbao-may-use-credential-ca
     resources:
       - openbao/server-certificate
     kind: Certificate
     result: pass
   - policy: restrict-arc-openbao-certificate
-    rule: only-openbao-may-use-credential-ca
     resources:
       - openbao/server-request
     kind: CertificateRequest
     result: pass
   - policy: restrict-arc-openbao-certificate
-    rule: only-openbao-may-use-credential-ca
     resources:
       - arc-runners/impersonated-server
     kind: Certificate
     result: fail
   - policy: restrict-arc-openbao-certificate
-    rule: only-openbao-may-use-credential-ca
     resources:
       - arc-runners/impersonated-request
     kind: CertificateRequest
     result: fail
+  # Same issuer name, but a namespaced Issuer (explicit or by default) is a
+  # different CA and not restricted.
   - policy: restrict-arc-openbao-certificate
-    rule: only-openbao-may-use-credential-ca
     resources:
       - cert-manager/unrelated-ca
+      - arc-runners/same-name-namespaced-issuer
     kind: Certificate
-    result: skip
+    result: pass
+  - policy: restrict-arc-openbao-certificate
+    resources:
+      - arc-runners/same-name-default-kind
+    kind: CertificateRequest
+    result: pass
diff --git a/tests/restrict-arc-openbao-certificate/resources.yaml b/tests/restrict-arc-openbao-certificate/resources.yaml
index 507e6e8b77..c76ef88b36 100644
--- a/tests/restrict-arc-openbao-certificate/resources.yaml
+++ b/tests/restrict-arc-openbao-certificate/resources.yaml
@@ -63,3 +63,28 @@ spec:
     name: unrelated-selfsigned
     kind: Issuer
     group: cert-manager.io
+---
+apiVersion: cert-manager.io/v1
+kind: Certificate
+metadata:
+  name: same-name-namespaced-issuer
+  namespace: arc-runners
+spec:
+  secretName: synthetic-namespaced-tls
+  dnsNames:
+    - namespaced.arc-runners.svc.cluster.local
+  issuerRef:
+    name: arc-openbao-ca
+    kind: Issuer
+    group: cert-manager.io
+---
+apiVersion: cert-manager.io/v1
+kind: CertificateRequest
+metadata:
+  name: same-name-default-kind
+  namespace: arc-runners
+spec:
+  request: dGVzdA==
+  issuerRef:
+    name: arc-openbao-ca
+    group: cert-manager.io