8.1 This chapter is relevant to any firm that wishes to recognise the effects of financial collateral under the Credit Risk Mitigation (CRR) Part. It is also relevant to any firm subject to other parts of the PRA Rulebook, the CRR, and other legislation that cross-refers to relevant provisions in the Credit Risk Mitigation (CRR) Part.

Requirements relating to correlated collateral

8.2 In accordance with Article 207(2) of the Credit Risk Mitigation (CRR) Part, in order for financial collateral to be an eligible credit risk mitigant, the credit quality of the obligor and the value of the collateral must not have a material positive correlation. Any financial collateral asset whose value is materially positively correlated with the obligor’s credit quality is not eligible, as it cannot be relied upon to mitigate loss at the point of default.