Regulation of the European Central Bank (EU) No 795/2014Show full title

Article 7 U.K. Collateral

1. A SIPS operator shall only accept the following assets as collateral: (a) cash; and (b) assets with low credit, liquidity and market risks, i.e. assets for which the SIPS operator can demonstrate to the competent authority based on an adequate internal assessment that they meet all of the following conditions:

(i)

they have been issued by an issuer with low credit risk;

(ii)

they are freely transferable without any legal constraint or third party claims;

(iii)

they are denominated in a currency the risk of which is managed by the SIPS operator;

(iv)

they have reliable price data published on a regular basis;

(v)

they are not otherwise subject to significant wrong-way risk;

(vi)

they are not issued by the participant providing the collateral or an entity that is part of the same group as that participant, except in the case of a covered bond and only where the assets in the cover pool are appropriately segregated within a robust legal framework and satisfy the requirements set out in points (i) to (v).

In performing the internal assessment of points (i) to (vi), the SIPS operator shall define, document and apply an objective methodology.

2. A SIPS operator shall establish and implement policies and procedures to monitor the credit quality, market liquidity and price volatility of each asset accepted as collateral. A SIPS operator shall monitor on a regular basis, and at least annually, the adequacy of its valuation policies and procedures. Such review shall also be carried out whenever a material change occurs that affects the SIPS's risk exposure. A SIPS operator shall mark-to-market its collateral at least on a daily basis.

3. A SIPS operator shall establish stable and conservative haircuts and shall test them at least annually and take into account stressed market conditions. Haircut procedures shall be validated by personnel other than those who created and applied the haircut procedures at least annually.

4. A SIPS operator shall take measures to avoid concentrated holdings of certain assets where this would significantly impair the ability to liquidate such assets quickly without significant adverse price effects.

5. A SIPS operator that accepts cross-border collateral shall identify and mitigate the risks associated with its use and ensure that the cross-border collateral can be used in a timely manner.

6. A SIPS operator shall use an effective and operationally flexible collateral management system.

7. Paragraph 1 shall not apply to Eurosystem SIPS.