Requirements for financial collateral
Securities issued by the obligor, or any related group entity, shall not qualify as eligible collateral. This notwithstanding, the obligor's own issues of covered bonds falling within the terms of Article 129 qualify as eligible collateral when they are posted as collateral for a repurchase transaction, provided that they comply with the condition set out in the first subparagraph.
Institutions shall have conducted sufficient legal review confirming the enforceability of the collateral arrangements in all relevant jurisdictions. They shall re-conduct such review as necessary to ensure continuing enforceability.
Institutions shall fulfil all the following operational requirements:
they shall properly document the collateral arrangements and have in place clear and robust procedures for the timely liquidation of collateral;
they shall use robust procedures and processes to control risks arising from the use of collateral, including risks of failed or reduced credit protection, valuation risks, risks associated with the termination of the credit protection, concentration risk arising from the use of collateral and the interaction with the institution's overall risk profile;
they shall have in place documented policies and practices concerning the types and amounts of collateral accepted;
where the collateral is held by a third party, they shall take reasonable steps to ensure that the third party segregates the collateral from its own assets;
they shall have in place collateral management policies to control, monitor and report the following:
the risks to which margin agreements expose them;
the concentration risk to particular types of collateral assets;
the reuse of collateral including the potential liquidity shortfalls resulting from the reuse of collateral received from counterparties;
the surrender of rights on collateral posted to counterparties.