• PRU 4.13.1 PRU 4.13.1

    (1) An Authorised Person may not recognise the effects of CRM unless:
    (a) all documentation relating to that mitigation is binding on all relevant parties and legally enforceable in all relevant jurisdictions; and
    (b) the Authorised Person complies with the Rules set out in this Section, as applicable.
    (2) Where the calculation of Credit RWA already takes into account the Credit Risk mitigant, the provisions of this Section do not apply.

    • Guidance

      An Authorised Person should conduct sufficient legal review to verify this and have a well-founded legal basis to reach this conclusion, and undertake such further review as necessary to ensure continuing enforceability. The review should cover relevant jurisdictions such as the jurisdiction whose law governs the credit protection or Collateral agreement and the jurisdiction whose law governs the transaction subject to the credit protection or Collateral agreement. There should be sufficient written documentary evidence to adequately support the conclusion drawn and rebut any legal challenge. While an Authorised Person may use either in-house or external legal counsel, it should consider whether or not in-house counsel opinion is appropriate. The senior management of the Authorised Person should ensure that an officer of the Authorised Person who is legally qualified and independent of the parties originating the transaction reviews the legal opinion and confirms that he is satisfied that an adequate review has been completed and that he agrees with the conclusions drawn. The Regulator may request a copy of any documentation to support the CRM used by the Authorised Person.