Risk assessment: Derivative Counterparties

14. An Authorised Person should include in its Credit Risk policy an adequate description of:
a. how it determines with which Derivative Counterparties to do business;
b. how it assesses and continues to monitor the credit-worthiness of those Counterparties;
c. how it identifies its actual and contingent Exposure to the Counterparty; and
d. whether and how it uses credit loss mitigation techniques, e.g. margining, taking security or Collateral or purchasing credit insurance.
15. In assessing its contingent Exposure to a Counterparty, the Authorised Person should identify the amount which would be due from the Counterparty if the value, index or other factor upon which that amount depends were to change.
16. An Authorised Person should clearly specify the delegation of its credit approval authorities. Credit authority thus delegated should be appropriate for the products or portfolios assigned to the credit committee or individual credit officers and should be commensurate with their credit experience and expertise. An officer's credit authority may, however, be increased on the basis of his her track record. An Authorised Person should ensure that credit authority is required for acquiring any types of credit Exposures, including the use of Credit Derivatives for hedging or income generation.
17. Credit authority delegated to the credit committee and each credit officer should be subject to regular review to ensure that it remains appropriate to current market conditions and the level of their performance.