A licensed central counterparty that adopted the Advanced Measurement Approach for the calculation of the central counterparty’s capital requirement relating to operational risk may recognise the risk mitigating impact of insurance, provided that–
| (a) |
the insurance provider— |
| (i) |
has a minimum credit rating of A, or the equivalent thereof, in respect of its ability to pay claims; and |
| (ii) |
is independent from the central counterparty, that is, a third party entity or institution; or |
| (b) |
when a central counterparty obtains insurance through captives or affiliates, the central counterparty must transfer its risk exposure to an independent third-party entity or institution, for example, through re-insurance, provided that the entity or institution that provides the re-insurance complies with the eligibility criteria specified in this Regulation; and |
| (c) |
the insurance policy— |
| (i) |
has an initial term of no less than one year; or |
| (ii) |
when an insurance policy has a residual term of less than one year, the central counterparty makes provision for appropriate haircuts that reflect the declining residual term of the policy, which haircut must be equal to 100% in respect of policies with a residual term of 90 days or less; |
| (iii |
has a minimum notice period for cancellation of 90 days; |
| (iv) |
does not contain any exclusions or limitations triggered by supervisory actions or, in the case of a failed central counterparty, that preclude the central counterparty, curator or liquidator from recovering for damages suffered or expenses incurred by the central counterparty, except when an event occurs after the initiation of liquidation or other insolvency proceedings in respect of the central counterparty, provided that the insurance policy may exclude any fine, penalty or punitive damages resulting from supervisory actions. |
| (d) |
the central counterparty’s calculations relating to risk mitigation— |
| (i) |
reflect the central counterparty’s insurance coverage; |
| (ii) |
are consistent with the actual likelihood and impact of loss used in the central counterparty’s overall determination of its operational risk capital; |
| (e) |
the central counterparty’s framework for the recognition of insurance is documented; |
| (f) |
the central counterparty adequately discloses its use of insurance for operational risk mitigation purposes; |
| (g) |
by way of appropriate discounts or haircuts, the central counterparty’s methodology for the recognition of insurance captures— |
| (i) |
the insurance policy’s cancellation terms and residual term; |
| (ii) |
any uncertainty of payment; |
| (iii) |
any mismatches in protection; and |
| (h) |
the central counterparty’s recognition of operational risk mitigation through insurance is limited to 20% of the central counterparty’s total capital requirement in respect of operational risk, calculated in terms of the Advanced Measurement Approach. |
Statistics Act, 1999
