Document ID: chunk:federal_register_of_legislation:F2023L00671:body:0:p5
Version: federal_register_of_legislation:F2023L00671
Segment Type: other
Provision Reference: 
Character Range: 11236–14223

or where the asset has been guaranteed, as a means of reducing risk may apply a different approach to determining the Asset Concentration Risk Charge for that asset. Where the assets in question are reinsurance recoverables due from non-APRA-authorised reinsurers, different rules regarding treatment of collateral and guarantees apply (refer to paragraphs 28 to 34).

Collateral
23.         Subject to paragraph 24, where a regulated institution possesses eligible collateral against an asset (other than reinsurance recoverables due from non-APRA-authorised reinsurers), it may treat the underlying asset as an exposure to the Eligible Collateral Item. This means that the asset is included in the limits in Attachment A with respect to the collateral, rather than the underlying counterparty.
24.         For the purposes of paragraph 23, collateral is recognised only to the extent that it takes the form of a registered charge, registered mortgage or other legally enforceable security interest in, or over, an Eligible Collateral Item. Eligible Collateral Items are cash, government securities, or debt obligations (i.e. loans, deposits, placements, interest rate securities and other receivables) where the counterparty has a counterparty grade of 1, 2 or 3. The Eligible Collateral Item must be held for a period not less than that for which the asset is held.
25.         Where the fair value of the collateral does not cover the full value of the asset, the collateral counterparty rating can only replace that part of the asset that is covered by the collateral. The remaining portion of the asset must be treated as an exposure to the underlying counterparty.

Guarantees
26.         Subject to paragraph 27, where a regulated institution possesses an asset (other than reinsurance recoverables due from non-APRA-authorised reinsurers) that has been explicitly, unconditionally and irrevocably guaranteed for its  remaining term to maturity by a guarantor with a counterparty rating (or for governments, the long-term foreign currency credit rating) of grade 1, 2 or 3, it may treat the underlying asset as an exposure to the counterparty providing the guarantee. This means that the asset is included in the limits in Attachment A with respect to the guarantee, rather than the underlying counterparty.
27.         Guarantees provided to a regulated institution by its own parent or a related entity are not eligible for the treatment provided for in paragraph 26.

Reinsurance recoverables due from non-APRA authorised reinsurers

Collateral
28.         Subject to paragraphs 29, 30 and 33, where a regulated institution possesses eligible collateral in Australia against reinsurance recoverables due from a non-APRA-authorised reinsurer, it may elect to treat the reinsurance recoverable as an exposure to the eligible collateral. This means that the asset is included in the limits in Attachment A with respect to the collateral, rather than the underlying reinsurer.
29.