Document ID: chunk:federal_register_of_legislation:F2024L01074:body:0:p44
Version: federal_register_of_legislation:F2024L01074
Segment Type: other
Provision Reference: 
Character Range: 119453–122674

Eligible financial collateral
 1.              Eligible financial collateral is collateral that meets the minimum requirements detailed in Attachment G to APS 112.

Eligible financial receivables
 1.              Eligible financial receivables are exposures with an original maturity of one year or less, where repayment occurs through the commercial or financial flows related to the borrower's underlying business operations. This includes:
        1.           self-liquidating debt arising from the sale of goods or services linked to a commercial transaction; and
        2.           general amounts owed by buyers, suppliers, renters, national and local government authorities or other non-affiliated parties that are not related to the sale of goods or services linked to a commercial transaction.
    Receivables from affiliates of the borrower (including subsidiaries and employees) and receivables associated with securitisations, sub-participations and credit derivatives must not be recognised as eligible financial receivables.
 1.              An ADI may recognise financial receivables as eligible collateral where the following conditions are satisfied:
        1.           the ADI has a perfected first priority security interest in the collateral which is legally enforceable in all relevant jurisdictions. The ADI's procedures must ensure that any legal conditions required for declaring the default of the customer are observed, and the ADI must be able to realise the collateral within a reasonable timeframe. In the event of the borrower's financial distress or default, the ADI must have the legal authority to sell or assign the receivables to other parties without the consent of the receivables' obligors;
        2.           the ADI assesses the credit risk of the financial receivables taken as collateral. Where the ADI relies on the borrower to ascertain the credit risk of the receivables, it must review the borrower's credit policy to determine its soundness and credibility;
        3.           the margin between the amount of the exposure and the value of the receivables must reflect the cost of collection, concentration within the receivables pool and concentration across the ADI's total exposures;
        4.           the ADI maintains a continuous monitoring process over the financial receivables taken as collateral;
        5.           the ADI has concentration limits that it monitors;
        6.            the receivables should be diversified and must not be unduly correlated with the borrower. Where the correlation is high, the attendant risks must be taken into account in the setting of margins for the collateral pool as a whole; and
        7.           the ADI has a documented process and the requisite facilities for collecting cash remittances from the receivables' obligor in the event of the borrower's distress or bankruptcy.

Eligible commercial or residential real estate
 1.              An ADI may recognise commercial real estate and residential real estate collateral where the following requirements are met:
        1.           the risk of the borrower defaulting is not materially dependent upon the performance or cash flow of the underlying