BIPRU 5.3 On balance sheet netting

Eligibility

BIPRU 5.3.1R

A firm may recognise as eligible the on-balance sheet netting of mutual claims between the firm and its counterparty.

[Note: BCD Annex VIII Part 1 point 3]

BIPRU 5.3.2R

Without prejudice to BIPRU 5.6.1 R, eligibility is limited to reciprocal cash balances between a firm and a counterparty. Only loans and deposits of the lending firm may be subject to a modification of risk weighted exposure amounts and, as relevant, expected loss amounts as a result of an on-balance sheet netting agreement.

[Note: BCD Annex VIII Part 1 point 4]

Minimum requirements

BIPRU 5.3.3R

For on-balance sheet netting agreements - other than master netting agreements covering repurchase transactions, securities or commodities lending or borrowing transactions and/or other capital market-driven transactions - to be recognised for the purposes of BIPRU 5 the following conditions must be satisfied:

  1. (1)

    they must be legally effective and enforceable in all relevant jurisdictions, including in the event of the insolvency or bankruptcy of a counterparty;

  2. (2)

    the firm must be able to determine at any time those assets and liabilities that are subject to the on-balance sheet netting agreement;

  3. (3)

    the firm must monitor and control the risks associated with the termination of the credit protection; and

  4. (4)

    the firm must monitor and control the relevant exposures on a net basis.

    [Note: BCD Annex VIII Part 2 point 3]

Calculating the effects of credit risk mitigation

BIPRU 5.3.4R

Loans and deposits with a lending firm subject to on-balance sheet netting are to be treated as cash collateral.

[Note: BCD Annex VIII Part 3 point 4]