Past version: effective from 21/10/2015 - 20/10/2015
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24. An Authorised Person should consider setting credit limits for maximum Exposures to single and Connected Counterparties, as well as limits for aggregate Exposures to economic sectors, geographic areas, and on total Credit Risk arising from specific types of products. By limiting Exposures in these categories, an Authorised Person can manage credit Exposure more carefully and avoid excessive concentrations of risk.
25. The Credit Risk policy of an Authorised Person should include a policy to control and monitor Large Exposures and other risk concentrations. An Authorised Person should carefully manage and avoid excessive risk concentrations of various kinds. These include Exposure to:
a. individual borrowers (in particular Exposure exceeding 10% of the firm's capital base);
b. Groups of borrowers with similar characteristics, economic and geographical sectors; and
c. types of lending with similar characteristics (e.g. those based on assets with similar price behaviour).
26. Notwithstanding the Concentration Risk limit specified as part of the prudential Rules on Large Exposures, Authorised Persons should exercise particular care in relation to facilities exceeding 10% of capital base.
27. Authorised Persons should recognise and control the Credit Risk arising from their new products and services. Well in advance of entering into business transactions involving new types of products and activities, they should ensure that they understand the risks fully and have established appropriate Credit Risk policies, procedures and controls, which should be approved by the Governing Body or its appropriate delegated committee. A formal risk assessment of new products and activities should also be performed and documented.
28. An Authorised Person in Category 1, 2, 3A or 5 is also subject to concentration limits and notification requirements as spelt out in Chapter 4.