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Application provision

1.1 Unless otherwise stated, this Part applies to:



In 6 and 7, references to a counterparty exposure or an asset exposure do not include such an exposure arising from:

  1. (1) premium debts;
  2. (2) advances secured on, and not exceeding the surrender value of, the firm’s contracts of long-term insurance;
  3. (3) rights of salvage or subrogation;
  4. (4) deferred acquisition costs;
  5. (5) assets held to cover index-linked liabilities or property-linked liabilities, except that where the linked long-term contract of insurance in question includes a guarantee of investment performance or some other guaranteed benefit, 6 and 7 will nevertheless apply to assets held to cover that guaranteed element;
  6. (6) monies due from, or guaranteed by, the government of an approved State;
  7. (7) an approved security; and
  8. (8) a holding in a collective investment scheme falling within the UCITS Directive.



In 7, references to a counterparty exposure or an asset exposure do not include such an exposure resulting from debts arising from reinsurance ceded and the reinsurer's share of technical provisions.




  1. (1) a firm has a counterparty exposure, an asset exposure or a reinsurance exposure in respect of which it has rights over collateral (except where that collateral is a letter of credit); and
  2. (2) the assets constituting that collateral would, if owned by the firm, be admissible assets;

the firm may, in determining the amount of that exposure, deduct the value of that collateral in accordance with 2.2 or, in the case of a reinsurance exposure, 8.3.



  1. (1) If a firm has a counterparty exposure, asset exposure or reinsurance exposure the whole or any part of which is:
    1. (a) guaranteed by a credit institution or an investment firm subject in either case to the CRD or supervision by a third country supervisory authority with a CRD-equivalent regime; or
    2. (b) adequately mitigated by a credit derivative;
  2.       the firm may, for the purposes of 6, 7 and 8.1, treat that exposure, or that part of the exposure which is so guaranteed or mitigated, as an exposure to the guarantor or derivative counterparty, rather than to the original counterparty, asset or reinsurer.
  3. (2) For the purposes of (1), references to an exposure being guaranteed include an exposure secured by a letter of credit, but to fall within (1) the guarantee or letter of credit must be direct, explicit, unconditional and irrevocable.



For the purposes of 6 and 7, units in a collective investment scheme that does not fall within the UCITS Directive must be treated as a counterparty exposure to the issuer of the units in that scheme if the issuer and those units are to be regarded as constituting a single risk because they are so interconnected that, if the issuer were to experience financial problems, this would be likely to affect the value of the units.