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Overview

In this Consultation Paper (CP), the Prudential Regulation Authority (PRA) sets out its proposed changes to Supervisory Statement (SS) 17/13 ‘Credit risk mitigation’ to clarify expectations regarding the eligibility of financial collateral as funded credit protection under Part Three, Title II, Chapter 4 (Credit risk mitigation) of the Capital Requirements Regulation (575/2013) (CRR).

This CP is relevant to UK banks, building societies and PRA-designated UK investment firms that are subject to the CRR.

CP1/19

Background

The criteria for recognising collateral as eligible for credit risk mitigation (CRM) purposes are set out in CRR Part Three, Title II, Chapter 4 (Credit risk mitigation). Where the collateral is financial collateral, these criteria include that ‘the credit quality of the obligor and the value of the collateral shall not have a material positive correlation’ (CRR Article 207(2)).