Credit Risk Mitigation — Collateral
Authorised Firmmay only use the financial Collateral Simplified Approach(FCSA) in its treatment of recognised Collateralfor the purposes of calculating the Credit RWAfor its Exposuresbooked in its Non-Trading Book.
PIB A4.12.13(1) For an
Authorised Firmusing the FCSA, eligible financial Collateralcomprises:(a) cash (as well as certificates of deposit or other similar instruments issued by the Authorised Firm) on deposit with the Authorised Firm;(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 credit-linked notesissued by an Authorised Firmagainst Exposuresin the Non-Trading Bookwhich fulfil the criteria for eligible Credit Derivativesmust 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 Firmthat are held as Collateralat a third-party bank in a non-custodial arrangement and that are pledged or assigned to the Authorised Firm. This is subject to the pledge or assignment being unconditional and irrevocable. Under the FCSA, the risk weight to be applied to the Exposurecovered by such Collateralmust be the risk weight of the third-party bank.