Document ID: chunk:federal_register_of_legislation:F2022L01576:body:0:p8
Version: federal_register_of_legislation:F2022L01576
Segment Type: other
Provision Reference: 
Character Range: 20375–23387

have potential consequences for foreigners' debt and equity investments in that country. Transfer risk focuses more specifically on a borrower's capacity to obtain the foreign exchange necessary to service its cross-border debt and other contractual obligations. The monitoring of country risk factors must incorporate:
       (a)          the potential default of foreign borrowers arising from country-specific economic factors; and
       (b)          the enforceability of agreements, including the timing and ability to realise collateral under the relevant legal framework.

Credit origination
37.         An ADI must recognise and address the risks arising from different credit origination channels in its credit risk management framework. An ADI must exercise a higher level of diligence where credit assessment and approval decisions are made distant from the geographical location of a borrower or underlying collateral.
38.         Where there are material changes to origination channels, including their relative significance, an ADI must assess the impact of these changes on the ADI's credit risk profile, and appropriately address the risks of such changes.
39.         In circumstances where third parties, such as brokers or introducers, are involved in credit origination, but have no ability to approve credit risk, an ADI must have a sound oversight process of the third party. In particular, an ADI must have prudent policies and processes to ensure that reasonable inquiries have been made and reasonable steps have been taken to verify the accuracy and completeness of all relevant borrower information provided by the third party and the outcomes of these processes must be documented.

Credit assessment and approval process
40.         An ADI must establish sound credit assessment and approval criteria. These criteria must set out the borrowers that are eligible for credit, the extent and nature of credit the ADI is willing to provide and the terms and conditions the exposures would be subject to.
41.         An ADI must undertake a comprehensive assessment of a borrower's credit risk which would consider and be proportionate to the nature, type and size of the exposure. An ADI must use experienced credit judgement in adopting a scalable and flexible approach to its credit risk assessment of a borrower.
42.         An ADI must assess credit risk primarily on the strength of a borrower's repayment capacity. The ADI must not place undue reliance on collateral provided by the borrower as a substitute for a comprehensive credit assessment.
43.         An ADI must not place undue reliance on external credit ratings. An ADI must obtain adequate information to undertake a comprehensive credit assessment of a borrower.
44.         An ADI must give due consideration to the integrity and reputation of the borrower as well as its legal capacity to assume liability.

Exposures to individuals
45.         For exposures to individuals, an ADI's credit assessment must include