The South African Reserve Bank published a consultation from the country’s financial markets authorities, the Prudential Authority (PA) and the Financial Sector Conduct Authority (FSCA), on the expansion of eligible collateral types and the risk management protocols for the use of non-cash collateral.
The main objective of the consultation is to communicate proposals by the authorities in relation to the following matters:
(a) The further expansion of eligible collateral types
(b) Proposed risk management measures to be implemented by providers
Law firm White & Case summarized some of the points:
The authorities propose three asset types to be recognised as eligible collateral in satisfying either initial or variation margin requirements. These are:
- US government bonds;
- European Central Bank government bonds; and
- United Kingdom government bonds, subject to the bonds being issued with a credit rating by a registered credit rating agency in South Africa.
A provider will only be allowed to make use of non-cash collateral subject to the provider having in place the following minimum risk management requirements:
- collateral risk management policies, procedures and processes;
- collateral management systems;
- valuation collateral ; and
- limit frameworks.