A counterparty is a natural or legal person (Legal Entity to which another Natural Person or legal person has Credit Exposure. There are many related terms, e.g: Obligor, Debtor, Borrower, Client etc. but the term counterparty is typically used in the context of bilateral financial contracts (usually a derivatives contract) where the two involved entities may have comparable risk profiles.
Issues and Challenges
- When contracting with a complex corporate entity there may be ambiguity as to who precisely is the counterparty, due to the existence of many Related Counterparties