BIPRU 10.12 Systems and controls and general

A firm must have sound administrative and accounting procedures and adequate internal control mechanisms for the purposes of identifying and recording all large exposures and subsequent changes to them, and for that of monitoring those large exposures in the light of the firm's own exposure policies.

A firm must take reasonable care to establish and maintain adequate systems and controls to identify, monitor, and control exposures to a parent undertaking of the firm, a subsidiary undertaking of the firm, or a subsidiary undertaking of the firm's parent undertaking.

A firm must be able to demonstrate to the FSA that:

1. (1)

   it has written policies and procedures to address and control the concentration risk arising from:

   1. (a)

      exposures to counterparties and groups of connected clients;

   2. (b)

      counterparties in the same economic sector or geographic region;

   3. (c)

      the same activity or commodity; and

   4. (d)

      the application of credit risk mitigation techniques, including in particular risks associated with large indirect credit exposures (for example to a single collateral issuer); and

2. (2)

   those policies and procedures are implemented.

Other than in relation to repurchase transactions or securities or commodities lending or borrowing transactions, exposures must be reported on a gross basis, not including the recognition of credit risk mitigation.

In line with the general principle in GENPRU 2.2.1 R (Purposive interpretation) a firm must not, with a view to avoiding the additional capital requirements that it would otherwise incur on exposures exceeding the limits laid down in BIPRU 10.5 (Limits on exposures and large exposures) once those exposures have been maintained for more than ten business days:

1. (1)

   temporarily transfer the exposures in question to another person (whether in the same group or not); or

2. (2)

   undertake artificial transactions to close out the exposure during the ten business day period and create a new exposure.

A firm must notify the FSA if it enters into a transfer, transaction or arrangement of the type mentioned in BIPRU 10.12.5 R.