Banking Supervision (Large Exposure) Rules and Guidance, 2021

Summary

These are the Guernsey Financial Services Commission's rules and guidance governing how Bailiwick-licensed banks must identify, measure, limit and report large exposures to individual counterparties or groups of connected counterparties. They replace the Large Exposure Policy, 2014, and were made under the Banking Supervision (Bailiwick of Guernsey) Law, 2020.

• Scope and definition: Applies to licensed entities incorporated in the Bailiwick (with related provisions for those incorporated outside it); a large exposure is one equal to or greater than 10% of the licensee's Tier 1 net capital base.
• Concentration risk policies: Licensees must maintain board-approved policies and procedures covering concentration risk (single/connected counterparties, sector, group, commodity, off-balance sheet and market risk concentrations) and a specific large exposure policy with defined controls, monitoring methods and Board oversight.
• Related party exposures: Exposures to related parties (group entities, associates, controllers, supervised role holders and their connections) must be identified, monitored, reported through independent review, approved by the Board, conducted on arm's length terms, and not on more favourable terms than for unrelated counterparties.
• Measurement rules: Sets out how to aggregate and value exposures (gross value, accounting value, credit equivalent amounts for derivatives, treatment of covered bonds and underwriting), specified exclusions (e.g. short-term settlement exposures, central counterparty margin), and eligible credit risk mitigation techniques (collateral, netting, guarantees, credit derivatives).
• Exposure limits: Imposes limits on exposures to group entities, third parties and sovereigns.
• Reporting regime: Requires prior notification to the Commission before certain new large exposures, quarterly notification of exposures (with separate provisions for entities incorporated inside versus outside the Bailiwick), and reporting of any breaches of limits.
• Transitional and general provisions: Includes transitional arrangements, an interpretation section, and citation/commencement provisions, plus schedules on eligible collateral, new client large exposure notification, and identifying groups of connected clients.

The Commission retains discretion to exclude or modify the application of any provision for a specific licensee by written notice, and expects material changes to a licensee's large exposure policy to be discussed with it in advance.

Key obligations

• Maintain board-approved concentration risk policies and procedures covering all major sources of credit and other concentration risk
• Maintain a specific large exposure policy, formally accepted by the Board, detailing control systems, monitoring of net capital base and Board oversight
• Discuss material changes to the large exposure policy with the Commission before implementing them
• Identify, monitor and report related party exposures, ensure Board approval of such exposures, and ensure they are on arm's length terms no more favourable than for unrelated counterparties
• Aggregate the gross value of all exposures to a counterparty or group of connected counterparties for large exposure measurement purposes
• Comply with exposure limits applicable to group entities, third parties and sovereign counterparties
• Provide prior notification to the Commission before entering into certain large exposures to new counterparties
• Submit quarterly notifications of large exposures to the Commission
• Report breaches of large exposure limits to the Commission

Applies to

licensed entities incorporated within the Bailiwick, licensed entities incorporated outside the Bailiwick, banks

Deadlines

• quarterly: Licensees must submit quarterly notification of exposures to the Commission (separate provisions apply to entities incorporated within and outside the Bailiwick)

Related documents

• This document is made under Banking Supervision (Bailiwick of Guernsey) Law, 2020