4.3 Determination, revision and monitoring of the limits specified by the institution to the tri-party agent for the securities issued by the collateral issuer

Institutions should determine specific limits for each collateral issuer and, if deemed necessary, exclude certain collateral issuers in order not to breach the large exposure limits set out in Article 395(1) of Regulation (EU) No 575/2013.

Limits should be expressed as an absolute amount or percentage value of all securities or a specific type of security in the collateral issuer’s portfolio.

With a view to determining the specified limits, institutions should set up eligibility profiles based on lists of collateral issuers and on types of securities which the tri-party agent could use for the composition of a given collateral issuer’s portfolio of securities. For these purposes, institutions should take into account possible connections between single collateral issuers or between single collateral issuers and clients of the whole portfolio that could lead to a group of connected clients in accordance with Article 4(1)(39) of Regulation (EU) No 575/2013.

For the purposes of determining the specified limit applicable to a portfolio of securities by a given collateral issuer, institutions should take into account the following:

• a) their current exposures to the collateral issuer and its group of connected clients, if available;
• b) their exposures to the collateral issuer and its group of connected clients, if available, during the previous calendar year;
• c) their scheduled exposures to the collateral issuer and its group of connected clients, if available, for the forthcoming 6 to 12 months;
• d) whether the institution has managed the securities issued by a collateral issuer via tri-party repos or a combination of tri-party repos and repo transactions entered into directly with a counterparty.

In addition to the elements mentioned in paragraphs 17 and 18, institutions should set limits by applying a margin of conservatism that would allow the institution to comply with the large exposure limits set out in Article 395(1) of Regulation (EU) No 575/2013 at all times.

4.3.2 Revision of the specified limits and its frequency

Institutions should ensure that the service agreement includes the circumstances under which the specified limits could be revised and the frequency of their revision.

In particular, institutions should be in the position to request the revision of the specified limits based on the reports from the tri-party agent referred to in point e) of paragraph 12 or when they are informed of any breaches of the specified limits by the tri-party agent. WITH REGARD TO ‘TRI-PARTY REPURCHASE TRANSACTIONS’ AS SPECIFIED IN ARTICLE 403(3) CRR

In determining the circumstances referred to in paragraph 20, institutions should consider their overall exposures to a collateral issuer and its group of connected clients, if available, and the risk of breaching the large exposure limits set out in Article 395(1) of Regulation (EU) No 575/2013. Institutions should also take into account their ability, with due regard to their administrative and accounting procedures and internal control mechanisms, to manage in a timely manner any other exposures to a collateral issuer they may have so as to avoid a breach of the large exposure limits.

The revision of the specified limits should take the form of a change of the absolute amount of the specified limit or the percentage value of a specific type of securities in the portfolio of a collateral issuer. It may also take the form of the exclusion or inclusion of a type of securities in the portfolio of a collateral issuer.

The revision of the specified limits should be possible during the lifetime of the service agreement and should be executed in a timely manner by the tri-party agent once it has been informed thereof.

4.3.3 Monitoring of the specified limits and its frequency

Where institutions make use of the alternative treatment, they should verify that the systems that the tri-party agent has in place to monitor the collateral composition are adequate with regard to the accurate and timely management of the specified limits.

In particular, institutions should verify that the tri-party agent’s monitoring systems allow the tri-party agent to trigger movements within the portfolio of securities of a given collateral issuer to ensure compliance with the specified limits.

Institutions should also verify that the tri-party agent manages the collateral revaluation, variation margining, income payments on the collaterals and possibly any necessary substitution of collateral in accordance with its tri-party obligations under the service agreement.