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PRA consultation paper published on eligibility requirements for guarantee CRM


20 February 2018

On Friday 16 February 2018, the PRA published a consultation paper on the eligibility of guarantees as unfunded credit risk mitigation (CRM).

The consultation paper contains some significant points for UK-regulated banks and CRR investment firms that make use of unfunded CRM. It will also be relevant to unfunded CRM providers to those entities, wherever located and whether or not subject to the CRR themselves. The proposed guidance in the consultation paper on the substantive and geographic scope of Article 194(1) legal opinions is likely to be of interest to all such entities in terms of cost and process.

The proposed quantitative guidance on ‘timeliness’ for protection payments, while relevant to all, is likely to be of particular interest in markets where longer payment periods typically apply (without an initial payment and subsequent true-up structure), eg to providers and recipients of insurance/insurance-like CRM and unfunded CRM provided by public sector bodies such as multilateral development banks MDBs). The consultation paper’s proposed guidance on exclusions from guarantee cover, while relevant to all, is likely to be of particular interest to providers and recipients of insurance/insurance-like CRM.

To read our overview of the paper, please click here.


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