BIPRU 5.3 On balance sheet netting

A firm may recognise as eligible the on-balance sheet netting of mutual claims between the firm and its counterparty.

[Note: BCD Annex VIII Part 1 point 3]

Without prejudice to BIPRU 5.6.1 R, eligibility is limited to reciprocal cash balances between a firm and a counterparty. Only loans and deposits of the lending firm may be subject to a modification of risk weighted exposure amounts and, as relevant, expected loss amounts as a result of an on-balance sheet netting agreement.

[Note: BCD Annex VIII Part 1 point 4]

For on-balance sheet netting agreements - other than master netting agreements covering repurchase transactions, securities or commodities lending or borrowing transactions and/or other capital market-driven transactions – to be recognised for the purposes of BIPRU 5 the following conditions must be satisfied:

1. (1)

   they must be legally effective and enforceable in all relevant jurisdictions, including in the event of the insolvency or bankruptcy of a counterparty;

2. (2)

   the firm must be able to determine at any time those assets and liabilities that are subject to the on-balance sheet netting agreement;

3. (3)

   the firm must monitor and control the risks associated with the termination of the credit protection; and

4. (4)

   the firm must monitor and control the relevant exposures on a net basis.

   [Note: BCD Annex VIII Part 2 point 3]

Loans and deposits with a lending firm subject to on-balance sheet netting are to be treated as cash collateral.

[Note: BCD Annex VIII Part 3 point 4]