AI Summary of Article 209 Requirements for receivables
Receivables may qualify as eligible collateral when specific criteria related to legal certainty and risk management are met. Institutions must establish a robust legal framework ensuring clear rights over collateral, including the sale proceeds, and fulfil local enforceability requirements while conducting comprehensive legal reviews.
In terms of risk management, institutions are required to assess credit risk meticulously, maintain diversified receivables, and ensure robust monitoring processes. Furthermore, receivables from affiliates are excluded as eligible credit protection, and institutions must have clearly documented procedures for payment collection, particularly in distressed situations.
Article 209 Requirements for receivables
1. Receivables shall qualify as eligible collateral where all the requirements laid down in paragraphs 2 and 3 are met.
2. The following requirements on legal certainty shall be met:
(a) the legal mechanism by which the collateral is provided to a lending institution shall be robust and effective and ensure that that institution has clear rights over the collateral including the right to the proceeds from the sale of the collateral;
(b) institutions shall take all steps necessary to fulfil local requirements in respect of the enforceability of security interest. Lending institutions shall have a first priority claim over the collateral although such claims may still be subject to the claims of preferential creditors provided for in legislative provisions;
(c) institutions shall have conducted sufficient legal review confirming the enforceability of the collateral arrangements in all relevant jurisdictions;
(d) institutions shall properly document their collateral arrangements and shall have in place clear and robust procedures for the timely collection of collateral;
(e) institutions shall have in place procedures that ensure that any legal conditions required for declaring the default of a borrower and timely collection of collateral are observed;