Document ID: chunk:federal_register_of_legislation:F2022L01577:body:0:p5
Version: federal_register_of_legislation:F2022L01577
Segment Type: other
Provision Reference: 
Character Range: 11411–14468

under section 11CB of the Banking Act.
19.         Where an exposure that has been excluded is hedged by a credit derivative, an ADI must recognise an exposure to the counterparty providing the credit protection in line with paragraph 5 of Attachment A of this Prudential Standard.

Connected counterparties
20.         An ADI must treat a group of connected counterparties as a single counterparty.
21.         A group of connected counterparties exists if:
(a)          two or more counterparties are linked by:
(i)            a control relationship (refer to paragraph 22 and 23 of this Prudential Standard);
(ii)         an economic interdependence relationship (refer to paragraph 24 of this Prudential Standard);
(iii)       other connections or relationships which, according to an ADI's assessment, identifies the counterparties as constituting a single risk; or
(b)          in relation to investments in structured vehicles, an ADI identifies a third party which contributes to an additional risk factor that is material, under paragraphs 27 to 30 of Attachment A of this Prudential Standard.
22.         A control relationship exists between two counterparties if one of the counterparties has direct or indirect control over the other counterparty, or if both counterparties are directly or indirectly controlled by another entity (which may be another counterparty). This includes, but is not limited, to any of the following:
(a)          the entity can exercise more than 50 per cent of the voting rights over the counterparty;
(b)          the entity has a voting agreement with other shareholders resulting in control of voting rights over the counterparty;
(c)          the entity has significant influence on the appointment of persons to or removal of persons from the counterparty's management, board committees or Board; or
(d)          the entity has significant influence on a senior manager or senior management of the counterparty (including influence  on the policies of the counterparty).
23.         In determining whether a control relationship exists, an ADI must also refer to the criteria in relevant Australian Accounting Standards.
24.         If an ADI's exposure to a non-retail counterparty exceeds five per cent of the ADI's Tier 1 Capital, the ADI must identify all non-retail counterparties linked by an economic interdependence relationship to that counterparty. An economic interdependence relationship exists between two counterparties if, in the ADI's assessment, the financial soundness of a counterparty could materially affect the financial soundness of another counterparty. This includes, but is not limited to, any of the following:
(a)          50 per cent or more of a counterparty's annual gross receipts or gross expenditures is derived from transactions with the other counterparty;
(b)          one counterparty has fully or partly guaranteed the exposure of the other counterparty, or is liable by other means, and the exposure is significant, such that the guarantor is likely to default if a claim