• Credit Risk mitigation — Collateral

    • PRU A4.12.12

      An Authorised Person may only use the financial Collateral Simplified Approach (FCSA) in its treatment of recognised Collateral for the purposes of calculating the Credit RWA for its Exposures booked in its Non-Trading Book.

    • PRU A4.12.13

      (1) For an Authorised Person using the FCSA, eligible financial Collateral comprises:
      (a) cash (as well as certificates of Deposit or other similar instruments issued by the Authorised Person) on Deposit with the Authorised Person;
      (b) gold;
      (c) any debt Securities issued by sovereigns (including a central government or Central Bank) of a jurisdiction that that has an ECA country risk score of 4 or better; and
      (d) any debt Securities issued by a PSE that is treated as a sovereign and is of a jurisdiction that has an ECA country risk score of 4 or better.
      (2) Cash-funded CLNs issued by an Authorised Person against Exposures in the Non-Trading Book which fulfil the criteria for eligible Credit Derivatives must be treated as cash collateralised transactions.
      (3) Cash, mentioned in (1)(a) includes cash on Deposit, certificates of Deposit or other similar instruments issued by the Authorised Person that are held as Collateral at a third-party bank in a non-custodial arrangement and that are pledged or assigned to the Authorised Person. This is subject to the pledge or assignment being unconditional and irrevocable. Under the FCSA, the risk weight to be applied to the Exposure covered by such Collateral must be the risk weight of the third-party bank.

    • PRU A4.12.14

      In the case of any Counterparty Risk Exposures in Rules A4.12.12 and A4.12.13, arising from an SFT which is included in the Trading Book, eligible financial Collateral includes all instruments which an Authorised Person may include in its Trading Book.