Recognition of “unfunded credit risk protection” as CRM, in case of “items associated with particular high risk”

According to Article 4(1)(59) of Regulation (EU) No 575/2013 (CRR) ‘unfunded credit protection' means a technique of credit risk mitigation where the reduction of the credit risk on the exposure of an institution derives from the obligation of a third party to pay an amount in the event of the default of the borrower or the occurrence of other specified credit events . For exposures to which an institution applies the Standardised Approach under Chapter 2, Part Three, Title 2 of the CRR, Article 108(1) CRR allows the use of credit risk mitigation in accordance with Chapter 4 of Part Three, Title 2 of the CRR in the calculation of risk-weighted exposure amounts. In addition, Article 113(3) CRR clarifies that the risk weight applicable to an exposure item subject to credit protection may be amended in accordance with Chapter 4. It follows that, for an exposure treated under the Standardised Approach and assigned to the “exposures associated with particularly high risk” exposure class (under Article 112(k) CRR) forms of unfunded credit protection eligible in accordance Section 2 of Chapter 4, Part Three, Title 2 of the CRR may be considered in order to reduce the risk-weighted exposure amount in accordance with the methods described in Section 4 of the same chapter.