The ITE policy

12. The ITE policy for a Level 3 group must:

(a) be conceptually sound, consistently implemented, transparent and be subject to independent review;

(b) capture all material ITEs;

(c) include limits on acceptable levels of ITEs for a Level 3 institution in the Level 3 group having regard to:

(i) the Level 3 institution’s Board-approved limits on exposures to unrelated institutions of broadly equivalent credit status; and

(ii) the potential impact on the Level 3 group’s capital and liquidity positions, as well as the institution’s ability to continue operating, as a result of a failure of any other institution in the group; and

(d) include a description of the procedures for identifying, reviewing, controlling and reporting material ITEs within the Level 3 group. This must include:

(i) a clear statement of the respective responsibilities and compliance obligations on the Board of the Level 3 Head, its board committees and senior management of the Level 3 group in relation to the monitoring and management of material ITEs;

(ii) escalation procedures for ITEs that facilitate responses to identified policy breaches between formal reporting cycles;

(iii) the circumstances in which ITE limits may be exceeded and the authority required for approving such excesses;

(iv) procedures for resolving any conflict of interest arising in relation to ITEs;

(v) procedures for the participation of prudentially regulated institutions in Level 3 group-wide operations;

(vi) processes to ensure the transparency of dealings with entities external to the Level 3 group that are associated with ITEs;

(vii) thresholds and procedures for reporting material changes to the Board of the Level 3 Head, in both formal reporting cycles and outside formal reporting cycles; and

(viii) a timetable for a regular review of the reports by the Board of the Level 3 Head.