CHAPTER I

GENERAL PROVISIONS ON RISK MANAGEMENT PROCEDURES
SECTION 2

Eligibility

Eligible collateral
Article 4
1
A counterparty shall only collect collateral from the following asset classes:
a
cash in the form of money credited to an account in any currency, or similar claims for the repayment of money, such as money market deposits;
b
gold in the form of allocated pure gold bullion of recognised good delivery;
c
debt securities issued by Member States' central governments or central banks;
d
debt securities issued by Member States' regional governments or local authorities whose exposures are treated as exposures to the central government of that Member State in accordance with Article 115(2) of Regulation (EU) No 575/2013;
e
debt securities issued by Member States' public sector entities whose exposures are treated as exposures to the central government, regional government or local authority of that Member State in accordance with Article 116(4) of Regulation (EU) No 575/2013;
f
debt securities issued by Member States' regional governments or local authorities other than those referred to in point (d);
g
debt securities issued by Member States' public sector entities other than those referred to in point (e);
h
debt securities issued by multilateral development banks listed in Article 117(2) of Regulation (EU) No 575/2013;
i
debt securities issued by the international organisations listed in Article 118 of Regulation (EU) No 575/2013;
j
debt securities issued by third countries' governments or central banks;
k
debt securities issued by third countries' regional governments or local authorities that meet the requirements of points (d) and (e);
l
debt securities issued by third countries' regional governments or local authorities other than those referred to in points (d) and (e);
m
debt securities issued by credit institutions or investment firms including bonds referred to in Article 52(4) of Directive 2009/65/EC of the European Parliament and of the Council ;
n
corporate bonds;
o
the most senior tranche of a securitisation, as defined in Article 4(61) of Regulation (EU) No 575/2013, that is not a re-securitisation as defined in Article 4(63) of that Regulation;
p
convertible bonds provided that they can be converted only into equities which are included in an index specified pursuant to point (a) of Article 197 (8) of Regulation (EU) No 575/2013;
q
equities included in an index specified pursuant to point (a) of Article 197(8) of Regulation (EU) No 575/2013;
r
shares or units in undertakings for collective investments in transferable securities (UCITS), provided that the conditions set out in Article 5 are met.
2
A counterparty shall only collect collateral from the asset classes referred to in points (f), (g) and (k) to (r) of paragraph 1 where all the following conditions apply:
a
the assets are not issued by the posting counterparty;
b
the assets are not issued by entities which are part of the group to which the posting counterparty belongs;
c
the assets are not otherwise subject to any significant wrong way risk, as defined in points (a) and (b) of paragraph 1 of Article 291 of Regulation (EU) No 575/2013.

Eligibility criteria for units or shares in UCITS
Article 5
1
For the purposes of point (r) of Article 4(1), a counterparty may only use units or shares in UCITS as eligible collateral where all the following conditions are met:
a
the units or shares have a daily public price quote;
b
the UCITS are limited to investing in assets that are eligible in accordance with Article 4(1);
c
the UCITS meet the criteria laid down in Article 132(3) of Regulation (EU) No 575/2013.
For the purposes of point (b), UCITS may use derivative instruments to hedge the risks arising from the assets in which they invest.
Where a UCITS invests in shares or units of other UCITS, the conditions laid down in the first subparagraph shall also apply to those UCITS.
2
By way of derogation from point (b) of paragraph 1, where a UCITS or any of its underlying UCITS do not only invest in assets that are eligible in accordance with Article 4(1), only the value of the unit or share of the UCITS that represents investment in eligible assets may be used as eligible collateral pursuant to paragraph 1 of this Article.
The first subparagraph shall apply to any underlying UCITS of a UCITS that has underlying UCITS of its own.
3
Where non-eligible assets of a UCITS can have a negative value, the value of the unit or share of the UCITS that may be used as eligible collateral pursuant to paragraph 1 shall be determined by deducting the maximum negative value of the non-eligible assets from the value of eligible assets.

Credit quality assessment
Article 6
1
The collecting counterparty shall assess the credit quality of assets belonging to the asset classes referred to in points (c), (d) and (e) of Article 4(1) that are either not denominated or not funded in the issuer's domestic currency and in points (f), (g), (j) to (n) and (p) of Article 4(1) using one of the following methodologies:
a
the internal ratings referred to in paragraph 3 of the collecting counterparty;
b
the internal ratings referred to in paragraph 3 of the posting counterparty, where that counterparty is established in the Union or in a third country where the posting counterparty is subject to consolidated supervision assessed equivalent to that governed by Union law in accordance with Article 127 of Directive 2013/36/EU;
c
a credit quality assessment issued by a recognised External Credit Assessment Institution (ECAI) as defined in Article 4(98) of Regulation (EU) No 575/2013 or a credit quality assessment of an export credit agency referred to in Article 137 of that Regulation.
2
The collecting counterparty shall assess the credit quality of assets belonging to the asset class referred to in point (o) of Article 4(1) using the methodology referred to in point (c) of paragraph 1 of this Article.
3
A counterparty permitted to use the Internal Rating Based (IRB) approach pursuant to Article 143 of Regulation (EU) No 575/2013 may use their internal ratings in order to assess the credit quality of the collateral collected for the purposes of this Regulation.
4
A counterparty using the IRB approach in accordance with paragraph 3 shall determine the credit quality step of the collateral in accordance with Annex I.
5
A counterparty using the IRB approach in accordance with paragraph 3 shall communicate to the other counterparty the credit quality step referred to in paragraph 4 associated to the assets to be exchanged as collateral.
6
For the purposes of paragraphs 1(c), the credit quality assessment shall be mapped to credit quality steps specified pursuant to Articles 136 or 270 of Regulation (EU) No 575/2013.

Specific requirements for eligible assets
Article 7
1
Counterparties shall only use the assets referred to in points (f), (g) and (j) to (p) of Article 4(1) as collateral where their credit quality has been assessed as credit quality steps 1, 2 or 3 in accordance with Article 6.
2
Counterparties shall only use the assets referred to in points (c), (d) and (e) of Article 4(1) that are not denominated or funded in the issuer's domestic currency as collateral where their credit quality has been assessed as credit quality steps 1, 2, 3 or 4 in accordance with Article 6.
3
Counterparties shall establish procedures for the treatment of assets exchanged as collateral in accordance with paragraphs 1 and 2 whose credit quality is subsequently assessed to be:
a
step 4 or beyond for assets referred to in paragraph 1;
b
beyond step 4 for assets referred to in paragraph 2.
4
The procedures referred to in paragraph 3 shall meet all of the following requirements:
a
they shall prohibit counterparties from exchanging additional assets assessed to be of the credit quality referred to in paragraph 3;
b
they shall establish a schedule by which assets assessed to be of the credit quality referred to in paragraph 3 and already exchanged as collateral are replaced over a period of time not exceeding 2 months;
c
they shall set a credit quality step that requires the immediate replacement of the assets referred to in paragraph 3;
d
they shall allow counterparties to increase the haircuts on the relevant collateral insofar as the collateral has not been replaced in accordance with the schedule referred to in point (b).
5
Counterparties shall not use assets classes referred to in Article 4(1) as collateral where they have no access to the market for those assets or where they are unable to liquidate those assets in a timely manner in case of default of the posting counterparty.

Concentration limits for initial margin
Article 8
1
Where collateral is collected as initial margin in accordance with Article 13, the following limits shall apply for each collecting counterparty:
a
the sum of the values of the initial margin collected from the asset classes referred to in points (b), (f), (g), and (l) to (r) of Article 4(1) issued by a single issuer or by entities which belong to the same group does not exceed the greater of the following values:
1. 15 % of the collateral collected from the posting counterparty;
2. EUR 10 million or the equivalent in another currency;
b
the sum of the values of the initial margin collected from the asset classes referred to in points (o), (p) and (q) of Article 4(1), where the asset classes referred to in points (p) and (q) of that Article are issued by institutions as defined in Regulation (EU) No 575/2013, does not exceed the greater of the following values:
1. 40 % of the collateral collected from the posting counterparty;
2. EUR 10 million or the equivalent in another currency.
The limits laid down in the first subparagraph shall also apply to shares or units in UCITS where the UCITS primarily invests in the asset classes referred to in that subparagraph.
2
Where collateral is collected as initial margin in accordance with Article 13 in excess of EUR 1 billion and each of the counterparties belong to one of the categories listed in paragraph 3, the following limits to the amount of initial margin in excess of EUR 1 billion collected from a counterparty shall apply:
a
the sum of the values of the initial margin collected from the asset classes referred to in points (c) to (l) of Article 4(1) issued by a single issuer or by issuers domiciled in the same country shall not exceed 50 % of the initial margin collected from that counterparty;
b
Where initial margin is collected in cash, the 50 % concentration limit referred to in point (a) shall also take into account the risk exposures arising from the third-party holder or custodian holding that cash.
3
The counterparties referred to in paragraph 2 shall be one of the following:
a
institutions identified as G-SIIs in accordance with Article 131 of Directive 2013/36/EU;
b
institutions identified as O-SIIs in accordance with Article 131 of Directive 2013/36/EU;
c
counterparties which are not pension scheme arrangements and for which the sum of the values of the collateral to be collected exceeds EUR 1 billion.
4
Where collateral is collected as initial margin in accordance with Article 13 in excess of EUR 1 billion by or from a pension scheme arrangement, the collecting counterparty shall establish procedures to manage concentration risk with respect to collateral collected from the asset classes referred to in points (c) to (l) of Article 4(1), including adequate diversification of that collateral.
5
Where institutions referred to in points (a) and (b) of paragraph 3 collect initial margin in cash from a single counterparty that is also an institution referred to in those points, the collecting counterparty shall ensure that not more than 20 % of that initial margin is held by a single third-party custodian.
6
Paragraphs 1 to 4 shall not apply to collateral collected in the form of financial instruments that are the same as the underlying financial instrument of the non-centrally cleared OTC derivative contract.
7
The collecting counterparty shall assess compliance with the conditions laid down in paragraph 2 of this Article at least every time that initial margin is calculated in accordance with Article 9(2).
8
By way of derogation from paragraph 7, a counterparty referred to in points (a), (b) and (c) of Article 2(10) of Regulation (EU) No 648/2012 may assess compliance with the conditions laid down in paragraph 2 quarterly, provided that the amount of initial margin collected from each individual counterparty is at all times below EUR 800 million during the quarter preceding the assessment.
Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) (OJ L 302, 17.11.2009, p. 32).
Art. 8(3) (as previously modified by the Technical Standards (European Market Infrastructure) (EU Exit) (No. 3) Instrument 2019 ("EMIR No.3") made by the PRA on 9.4.2019) amended (30.11.2025) by The Financial Services and Markets Act 2023 (Capital Buffers and Macro-prudential Measures) (Consequential Amendments) Regulations 2025 (S.I. 2025/1023), regs. 1(2), 10