Prudential Regulation Authority Rulebook

2.1

Taking into account all relevant risks, a firm must restrict its counterparty exposures and asset exposures to prudent levels and ensure that those exposures are adequately diversified.

2.2

If a firm elects under 9.3 to make a deduction in respect of collateral, the firm must deduct from the loss so much of the value of that collateral as:

1. (1) would be realised by the firm were it to exercise its rights in relation to the collateral; and
2. (2) does not exceed any of the relevant limits in 7.4.

2.3

For the purposes of 2.1 and of determining counterparty exposure, asset exposure and reinsurance exposure, a firm must:

1. (1) only rely upon a loss mitigation technique where it has good reason to believe that, taking into account the possible circumstances of default, it is likely to be effective; and
2. (2) not rely upon preferential access to assets unless it has taken into account appropriate professional advice as to its effectiveness.