Document ID: chunk:federal_register_of_legislation:F2022L01577:body:0:p3
Version: federal_register_of_legislation:F2022L01577
Segment Type: other
Provision Reference: 
Character Range: 5701–8877

ensure that these policies are reviewed regularly (at least annually) and that they remain adequate and appropriate for the ADI's risk appetite, risk profile, capital and balance sheet size.

Control of large exposures and risk concentrations
11.         An ADI's large exposures and risk concentrations policy must give consideration to particular counterparties, groups of connected counterparties, industries, countries and asset classes and form part of the ADI's risk management strategy and risk management framework required under CPS 220. Unlimited exposures to any individual counterparty (e.g. a general guarantee of the obligations of a counterparty) is not permitted.
12.         An ADI's policies on large exposures and risk concentrations must, at a minimum, cover:
(a)          exposure limits for:
(i)            various types of counterparties (including, but not limited to,  governments, government-related entities, ADIs and foreign equivalents, corporate and individual borrowers and credit risk mitigation (CRM) providers);
(ii)         groups of connected counterparties;
(iii)       individual industry sectors (where applicable);
(iv)        individual countries (where applicable). The limits for individual countries should consider, amongst other things, any potential transfer risks where a borrower is not able to convert local currency into foreign exchange and consequently would be unable to make debt service payments to the ADI. This risk can arise from exchange restrictions imposed by the government in the borrower's country;  and
(v)          various asset classes,
that are commensurate with the ADI's risk appetite, risk profile, capital and balance sheet size;
(b)          the circumstances in which the exposure limits may be exceeded and the authority and processes required for approving such excesses (e.g. by the ADI's Board or a board committee);
(c)          the process for identifying, measuring, evaluating, monitoring, controlling and reporting large exposures and risk concentrations of the ADI; and
(d)          stress testing and scenario analysis of the ADI's large exposures and risk concentrations to assess the impact of changes in market conditions and key risk factors (e.g. economic cycles, interest rates, liquidity conditions or other market movements) on its risk profile, capital and earnings.
13.         An ADI must ensure that:
(a)          adequate systems and controls are in place to identify, measure, monitor and report large exposures and risk concentrations of the ADI in a timely manner; and
(b)          large exposures and risk concentrations of the ADI are reviewed at least annually.
14.         Certain types of exposures and counterparties are excluded from the prudential limits in paragraph 30 of this Prudential Standard. An ADI must have adequate processes and controls in place to monitor these excluded exposures. An ADI is expected to consider how the risks arising from these types of exposures are incorporated into its risk management framework under CPS 220, including establishing internal limits and triggers commensurate with its risk appetite.

Identifying large exposures
15.