4.2 Verification of the establishment of appropriate safeguards by the tri-party agent to prevent breaches of the limits specified by the institution for the securities issued by the collateral issuer

For the purposes of verifying that the tri-party agent has put in place appropriate safeguards to prevent breaches of the specified limits and without prejudice to other provisions in these guidelines, institutions should ensure that the service agreement sets out at least the following elements:

• a. a clear description of the services provided by the tri-party agent with regard to collateral management including securities delivery;
• b. the limits set out by the institution and applicable to a portfolio of securities in respect of a given collateral issuer as well as the conditions for their revision and the frequency of revision;
• c. a statement confirming that the tri-party agent has put in place appropriate safeguards in accordance with paragraph 13 to ensure compliance with the specified limits;
• d. the tri-party agent’s monitoring systems, including the communication by the tri-party agent of any development that may have a material impact on its ability to effectively carry out its functions in line with the service agreement and, where applicable, in compliance with the applicable laws and regulatory requirements;
• e. the tri-party agent’s obligation to submit reports to the institution, at least on a weekly basis, on the amount and composition of the collateral received and/or managed by the tri-party agent for the account of the institution;
• f. the tri-party agent’s obligation to report immediately to the institution when a breach of the specified limits has occurred;
• g. the right of the institution or a legitimate third party (inter alia the statutory auditor, the competent authority or third parties appointed by them) to verify that WITH REGARD TO ‘TRI-PARTY REPURCHASE TRANSACTIONS’ AS SPECIFIED IN ARTICLE 403(3) CRR

the tri-party agent has put in place the safeguards in accordance with paragraph 13 of the guidelines;

• h. the communication channels to be used between the institution and the tri-party agent during the performance of the agreement.

4.2.2 Safeguards to be put in place by a tri-party agent to ensure compliance with the specified limits

The safeguards that the tri-party agent should put in place to ensure compliance with the specified limits should include the following:

• a. Tri-party collateral management is only performed in accordance with the duly signed service agreement;
• b. Tri-party agents have set up a control environment which ensures, for each communication on specified limits, that these limits are duly authorised by the institution, and are entered and processed accurately, in due time and only once in their collateral management system;
• c. Tri-party agents have set up a control environment that ensures that collateral is safeguarded, actively monitored and pricing values are duly recorded in a timely manner;
• d. Tri-party agents have set up a control environment which ensures the detection, in a timely manner, of possible breach(es) of the specified limits;
• e. When allocating collateral securities to cover an exposure, the tri-party agent’s systems ensure that their market value does not breach any of the specified limits and/or exclusions. In case of an inadequate application of the revised limits specified by the institution due to operational issues, the tri-party agent should notify the institution in good time;
• f. Tri-party agents should be contractually required to comply with the specified limits and to ensure that the eligibility profiles of collateral issuers and securities as referred to in section 4.3.1 can be verified on the basis of the information provided under the service agreement by the institution and the collateral provider.

Institutions should obtain, at least annually, an adequate level of assurance in the form of a written declaration that the tri-party agent complies with the safeguards put in place in accordance with the service agreement.