Document ID: chunk:federal_register_of_legislation:F2024L00886:body:0:p7
Version: federal_register_of_legislation:F2024L00886
Segment Type: other
Provision Reference: 
Character Range: 16446–19267

liabilities are no longer available to offset longer-term assets.

Treatment of collateral and guarantees as risk mitigants
31.         A fund that holds certain types of collateral against an asset, 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.

Collateral
32.         Where a fund possesses eligible collateral against an asset, it may treat the underlying asset as an exposure to the Eligible Collateral Item. This means that the asset is subject to the limits in Attachment A with respect to the collateral, rather than the underlying counterparty.
33.         For the purposes of paragraph 32, collateral held against an asset can be recognised 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. The Eligible Collateral Item must also be held for the period for which the asset is held.
34.         If the asset is a reinsurance asset, collateral can also be recognised if it satisfies the requirements of paragraphs 35 and 36.
35.         For the purposes of paragraph 32, collateral held against a reinsurance asset will be recognised if the following conditions are satisfied:
(a)          the collateral must take the form of:
(i)            assets held in Australia which form part of a trust fund maintained by a trustee resident in Australia for the benefit of the life company;
(ii)         assets held in Australia under the control of a custodian resident in Australia where the assets are held for the benefit of the life company;
(iii)       deposits under the control of the life company held by an ADI in Australia; or
(iv)        a combination of two or more forms of collateral specified above;
(b)          the law of the collateral agreement must be the law of an Australian state or territory and the parties must submit to the exclusive jurisdiction of the Courts therein;
(c)          where an agreement provides for arbitration, the seat of arbitration must be a capital city of a state or territory of Australia and the arbitral proceedings must be conducted in accordance with the arbitration law applicable in that jurisdiction;
(d)          the assets held under the collateral arrangement must be available for drawdown at any time the life company is satisfied that the reinsurer has failed to make a payment required under the related reinsurance arrangements;
(e)          the right of the life company to draw upon the collateral to meet the reinsurer's obligations must be enforceable in the winding-up of the life company regardless of whether or not claims have been paid by the life company;
(f)           the collateral must be available to