Entire Section

  • PIB 4.14 PIB 4.14 Securitisation

    • Application

      • PIB 4.14.1

        This section applies to an Authorised Firm which:

        (a) acts as an Originator in a securitisation;
        (b) transfers Credit Risk on a single item or on a pool of items by any of the legal transfer methods set out in PIB Rule A4.10.1;
        (c) acts as a Sponsor in a securitisation; or
        (d) provides Credit Enhancement, liquidity support, or Underwriting or dealing facilities relating to the items being transferred.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

    • Interpretation

      • PIB 4.14.2 PIB 4.14.2

        For the purposes of this chapter and PIB App4, "securitisation" includes Traditional Securitisation, Synthetic Securitisation and Re-securitisation, as defined below:

        (a) A Traditional Securitisation is a structure where the cash flow from an underlying pool of Exposures is used to service at least two different stratified risk positions or tranches reflecting different degrees of Credit Risk. Payments to the investors depend upon the performance of the specified underlying Exposures, as opposed to being derived from an obligation of the entity originating those Exposures. A Traditional Securitisation will generally assume the movement of assets off balance sheet.
        (b) A Synthetic Securitisation is a structure with at least two different stratified risk positions or tranches that reflect different degrees of Credit Risk where Credit Risk of an underlying pool of Exposures is transferred, in whole or in part, through the use of funded (e.g. credit-linked notes) or unfunded (e.g. credit default swaps) Credit Derivatives or guarantees that serve to hedge the Credit Risk of the portfolio. Accordingly, the investors' potential risk is dependent upon the performance of the underlying pool. A Synthetic Securitisation may or may not involve the removal of assets off balance sheet.
        (c) A Re-securitisation Exposure is a securitisation Exposure in which the associated underlying pool of Exposures is tranched and at least one of the underlying Exposures is a securitisation Exposure. In addition, an Exposure to one or more Re-securitisation Exposures is a Re-securitisation Exposure.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • PIB 4.14.3 Guidance

          The DFSA would treat other techniques to achieve the financing or re-financing of assets which are legally transferred to a scheme, by packaging them into a tradable form through the issue of Securities which are secured on the assets and serviced from the cashflows which they yield as "securitisation".

          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

    • Systems and Controls for the Use of Securitisations

      • PIB 4.14.3

        An Authorised Firm must implement and maintain appropriate risk management systems to identify, manage, monitor and, where applicable, control all risks in relation to a securitisation transaction whether the firm is an investor, Originator or Sponsor. In particular, such risk management systems should effectively address the following risks:

        (a) the liquidity and capital implications that may arise from the items returning to the balance sheet;
        (b) the Operational Risks that may arise under a securitisation; and
        (c) reputational risks that may arise as a result of its securitisation activities.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 4.14.4

        An Authorised Firm must have appropriate policies and procedures to ensure that the economic substance of the transaction is fully reflected in the process of managing the risks arising from such transactions. An Authorised Firm must have appropriate policies and procedures in place to document its systems and controls in relation to securitisation risks. These policies should include details on the capital effects of the securitisation as set out in this chapter.

        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 4.14.5 PIB 4.14.5

        An Authorised Firm must conduct periodic stress tests in relation to its securitisation activities and off balance sheet Exposures, including testing of future ability to transact securitisation as a means of Credit Risk mitigation or for liquidity purposes.

        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • PIB 4.14.5 Guidance

          1. The periodic stress testing in relation to securitisation activities referred to in PIB Rule 4.14.5 should consider the firm-wide impact of those activities and Exposures in stressed market conditions and the implications for other sources of risk. Such stress tests should include both existing securitisation Exposures and transactions in the pipeline, as there is a risk of the pipeline transactions not being completed in a stressed market scenario.
          2. The frequency and extent of stress testing to fulfil the requirements of PIB Rule 4.14.5 should be determined on the basis of the materiality of the Authorised Firm's securitisation volumes and its off-balance sheet Exposures.
          3. An Authorised Firm should have procedures in place to assess and respond to the results produced from the stress testing and these should be taken into account under the ICAAP.
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 4.14.6 PIB 4.14.6

        In order to qualify for using the Rules specified in this section, and particularly the risk weighting approach outlined below, an Authorised Firm must demonstrate the following:

        (a) a comprehensive understanding of the risk characteristics of its individual securitisation Exposures, whether on balance sheet or off balance sheet, as well as the risk characteristics of the pools underlying securitisation Exposures;
        (b) ability to access the performance information on the underlying pools on an on-going basis in a timely manner; and
        (c) a thorough understanding of all structural features of a securitisation transaction that would materially impact the performance of the Authorised Firm's Exposure to the transaction, such as waterfall triggers, Credit Enhancements, liquidity enhancements, market value triggers and deal specific definitions of default.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • PIB 4.14.6 Guidance

          1. An Authorised Firm which is an investor, Originator or Sponsor of a Securitisation should fully understand the risks it has assumed in order to ensure that it can accurately determine the Capital Requirements for the Exposures arising from the securitisation in accordance with the Rules in this section.
          2. For the purposes of PIB Rule 4.14.6(b) information should include the percentage of loans 30,60, 90 days past due, default rates, prepayment rates, loans in foreclosure, property type, occupancy, average credit score etc. For Re-securitisations, Authorised Firms should have information relating to not only the underlying securitisation transactions but also the characteristics and performance of the underlying pools of such transactions.
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 4.14.7 PIB 4.14.7

        Where an Authorised Firm is either an Originator or a Sponsor of a Traditional Securitisation or a Synthetic Securitisation:

        (a) the Authorised Firm intending to conduct the securitisation must notify the DFSA at least 30 days in advance of the proposed execution of the securitisation;
        (b) the Authorised Firm conducting the securitisation must calculate its Credit RWAs for all resultant Exposures from that securitisation, in accordance with PIB section 4.8, provided the requirements of this section are met; and
        (c) the Authorised Firm conducting the securitisation must produce documentation reflecting the execution and economic substance of the transaction.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • PIB 4.14.7 Guidance

          The notification made to the DFSA under (a) should include, inter alia, amounts of assets subject to securitisation, amounts retained, details of securitisation including legal structure, rating, tranches, details of legal transfer and any Credit Risk mitigation applied and implications on the capital and liquidity position on the Authorised Firm.

          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

    • Calculation of Credit RWA Arising from Securitisations

      • PIB 4.14.8 PIB 4.14.8

        An Authorised Firm must calculate the Credit RWA amounts for Exposures arising from securitisations according to the requirements in this section.

        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • PIB 4.14.8 Guidance

          1. An Authorised Firm should apply the securitisation framework set out in this section for determining the regulatory Capital Requirements on Exposures arising from traditional and Synthetic Securitisations or similar structures that contain features common to both.
          2. This section sets out the requirements for Originators, Authorised Firms which transfer Credit Risk from their balance sheets and Sponsors in a securitisation transaction involving Non-Trading Book Exposures. This section also sets out the methodologies for calculation of RWA amounts for securitisation Exposures. The Rules setting out the methodologies for calculation of Market Risk Capital Requirement amounts for securitisation Exposures held in the Trading Book are specified in PIB chapter 5 and PIB App5 of this module.
          3. As securitisations may be structured in many different ways, an Authorised Firm engaging in the activities relating to securitisations (whether traditional or Synthetic) must ensure that the economic substance of the transaction is fully considered, and reflected, in determining the capital treatment of a securitisation, rather than relying on the legal form of the Securitisation.
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 4.14.9

        An Authorised Firm is required, subject to PIB Rule 4.14.12, to include all securitisation Exposures in its calculation of Credit RWAs relating to securitisations, including the following:

        (a) those arising from the provision of Credit Risk mitigants to a securitisation;
        (b) investments in asset backed Securities;
        (c) retention of a subordinated tranche;
        (d) extension of a liquidity facility; and
        (e) extension of Credit Enhancement.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 4.14.10

        An Authorised Firm must include in its calculation of Credit RWA all of its securitisation Exposures held in the Non-Trading Book, except for those securitisation Exposures which the Authorised Firm is required to include as deductions from T1 Capital and deductions from T2 Capital.

        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 4.14.11

        Repurchased securitisation transactions must be treated as retained securitisation Exposures.

        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

    • Deductions

      • PIB 4.14.12

        (1) An Authorised Firm may deduct SE Exposures which it has chosen not to treat in accordance with Rules PIB 4.14.8 to PIB 4.14.11 from Capital Resources — 100% from CET1.
        (2) Credit-Enhancing Interest-Only Strips (net of the deductions from CET1 Capital required at PIB Rule 4.14.13) are deducted 100% from CET1 Capital.
        (3) Deductions from capital may be calculated net of specific provisions taken against relevant securitisation Exposures.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 4.14.13 PIB 4.14.13

        An Authorised Firm must include as deductions from CET1 Capital any increase in issued capital or reserves resulting from a securitisation, such as that associated with expected future margin income resulting in a gain-on-sale that is recognised as issued capital or reserves.

        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • PIB 4.14.13 Guidance

          Gain-on-sale arises when there has been an increase in equity of the Authorised Firm associated with recognising the discounted value of the expected future margin income as part of the regulatory capital.

          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 4.14.14

        An Authorised Firm must assign a securitisation Exposure to a Credit Quality Grade based on the external credit assessment (where available) that is applicable to the securitisation Exposure in accordance with relevant Rules in this chapter.

        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

    • Implicit Support

      • PIB 4.14.15

        An Originator or a Sponsor of a securitisation must not provide Implicit Support to a securitisation transaction with a view to reducing potential or actual losses to investors outside of its contractual obligations;

        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 4.14.16

        If an Originator fails to comply with PIB Rule 4.14.15 in respect of a securitisation, it:

        (a) must include all the underlying Exposures of the securitisation in its calculation of Credit RWAs as if those Exposures had not been Securitised and were on the balance sheet of the Authorised Firm;
        (b) must not recognise any gain-on-sale of assets to the securitisation; and,
        (c) must disclose to investors that the Authorised Firm has provided non contractual support and the regulatory capital impact of doing so.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

    • Requirements in Order for a Traditional Securitisation to be Excluded from the Calculation of RWA

      • PIB 4.14.17

        (1) An Authorised Firm which is an Originator or a Sponsor of a Traditional Securitisation may exclude Securitised Exposures from the calculation of Credit RWA amounts only if all of the conditions detailed in PIB Rule A4.10.1 have been complied with.
        (2) An Authorised Firm meeting the requirements specified in PIB Rule A4.10.1 must hold regulatory capital against any securitisation Exposures it retains.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

    • Requirements in Order for a Synthetic Securitisation to be Excluded from the Calculation of RWA

      • PIB 4.14.18 PIB 4.14.18

        (1) An Authorised Firm which is an Originator or a Sponsor of a Synthetic Securitisation may recognise the effects of Credit Risk mitigation of the Synthetic Securitisation in calculating its SE Exposure RWAs, only if:
        (a) all of the conditions detailed in PIB Rule A4.10.2 have been complied with;
        (b) the effects of Credit Risk mitigation are obtained through eligible credit protection, eligible financial Collateral or both; and
        (c) Credit Risk is transferred to third parties.
        (2) In relation to (b), the Credit Risk mitigation techniques used must meet the requirements of PIB section 4.13.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • PIB 4.14.18 Guidance

          In relation to (1)(c) the transferor is deemed to have effective control over the transferred Credit Risk Exposures if it has the ability to repurchase the assets, or is obliged to retain the risk of the transferred assets. This does not include the retention of servicing rights.

          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 4.14.19

        (1) An Authorised Firm meeting the conditions in PIB Rule 4.14.18 must still hold regulatory capital against any securitisation Exposures it retains.
        (2) The Authorised Firm may recognise the effects of Credit Risk mitigation of eligible financial Collateral pledged by any SPE, but it may not recognise any SPE which is an Issuer of securitisation Exposures as an eligible protection provider.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

    • Operational Requirements for Use of External Credit Assessments

      • PIB 4.14.20

        The external credit assessment used for determining the applicable risk weight for a CR Exposure must be determined by taking into account the entire amount of Credit Risk (principal and interest) an Authorised Firm is exposed to.

        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 4.14.21

        Credit assessments can only be considered from an ECAI, and must meet the following criteria:

        (a) any credit assessments used for the purposes of risk weighting must be publicly available;
        (b) the external credit rating agencies must have expertise and market acceptance in rating securitisations of the nature being used for risk weighting purposes;
        (c) Authorised Firms must apply external credit rating agency ratings consistently to all tranches of securitisations;
        (d) where an Exposure has two ratings from external credit rating agencies the less favourable rating must be used; and
        (e) where an Exposure has more than two assessments by external credit rating agencies the two most favourable ratings can be selected, the review of these assessments is then determined in line with (d).
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 4.14.22

        Where any Credit Risk mitigation has been considered as part of any rating applied to a tranche of a securitisation, the risk weighting should be used and no additional capital recognition is permitted.

        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 4.14.23

        An Authorised Firm must treat any securitisation Exposure as an unrated Exposure where:

        (a) the external credit assessment incorporates the credit protection provided directly to the SPE by a protection provider which is not an eligible protection provider;
        (b) the external credit assessment is at least partly based on unfunded support provided by the Authorised Firm itself (e.g. if an Authorised Firm buys ABCP) where it provides an unfunded securitisation Exposure extended to the ABCP Programme, such as a liquidity facility or Credit Enhancement, and that Exposure plays a role in determining the credit assessment on the ABCP, the Authorised Firm must treat the ABCP as if it were not rated and continue to hold capital against the other securitisation Exposures it provides);
        (c) the Credit Risk mitigant is not obtained by the SPE but is separately obtained and applied to a specific securitisation Exposure (e.g. a particular tranche); or
        (d) the Credit Risk mitigation does not meet the eligibility criteria for mitigation specified in PIB section 4.13.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 4.14.24

        Where Credit Risk mitigation is applied to a specific Exposure within a securitisation the Authorised Firm must treat the Exposure as unrated, and then use the mitigation as set out in PIB section 4.13 should the Rules contained in that section apply.

        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 4.14.25

        An Authorised Firm must not use an external credit rating agency rating for risk weighting purposes where the assessment is at least partly based on unfunded support provided by the Authorised Firm itself.

        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 4.14.26

        The treatment outlined in PIB Rule 4.14.24 also applies to Exposures in the Authorised Firm's Trading Book. An Authorised Firm's Capital Requirement for such Exposures held in the Trading Book can be no less than the amount required under the Non-Trading Book.

        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

    • Calculation of RWA Amounts for Securitisation Exposures

      • PIB 4.14.27

        (1) In order to calculate the RWA amount for a securitisation position, the relevant risk weight must be assigned to the Exposure value of the position in accordance with this section, based on the credit quality of the position.
        (2) For the purposes of this Rule, the credit quality of a position must be determined by reference to the applicable credit quality assessment from a recognised external credit rating agency.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 4.14.28

        In cases where there are Exposures to different tranches in a securitisation, the Exposure to each tranche must be considered a separate securitisation position.

        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 4.14.29

        The Exposure value of an off-balance sheet securitisation position must, subject to PIB A4.2.2, be its nominal value multiplied by a CCF of 100%, wherever applicable.

        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 4.14.30

        The Exposure value of a securitisation position arising from a financial derivative must be determined in accordance with Rules PIB 4.6.14 to PIB 4.6.21 dealing with treatment of financial derivatives.

        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

    • Assigning Risk Weights

      • PIB 4.14.31

        An Authorised Firm must assign a risk weight for any SE Exposure in accordance with the tables below, to calculate the Credit RWA amounts for that Exposure.

        Risk Weights for Long-Term securitisation Exposures

        Long Term rating category
        Credit Quality Grade 1 2 3 4 5 and above including unrated
        Risk Weight to be applied to securitisation Exposures(excluding Re-securitisation Exposures) 20% 50% 100% 350% 1000% or Deduction from Capital Resources
        Risk weight applied to Re-securitisation Exposures 40% 100% 225% 650% 1000% or Deduction from Capital Resources

        Risk Weights for Short-Term securitisation Exposures

        Short-term rating category
        Credit Quality Grade I II III IV and above including unrated
        Risk Weight to be applied 20% 50% 100% 1000% or Deduction from Capital Resources
        Risk Weight applied to Re-securitisation Exposures 40% 100% 225% 1000% or deduction from Capital Resources
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 4.14.32

        (1) In respect of securitisation positions which are assigned a 1000% risk weighting pursuant to the tables in PIB Rule 4.14.31, an Authorised Firm may as an alternative to including the position in its calculation of Credit RWA amounts, deduct from its CET1 Capital the Exposure value of such positions.
        (2) For the purposes of this Rule, the calculation of the Exposure value may reflect eligible funded credit protection consistent with applicable Rules in this chapter.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 4.14.33

        For an Authorised Firm that is an Originator or Sponsor of a securitisation, the Credit RWA amounts calculated for its securitisation positions may be limited to the RWA amounts which would be calculated for the SE Exposures had they not been Securitised subject to the presumed application of a 150% risk weight to all past due items and items belonging to regulatory high risk categories.

        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 4.14.34

        [Not currently in use]

        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 4.14.35

        [Not currently in use]

        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

    • Exceptions to Deduction of Unrated Securitisation Exposures

      • PIB 4.14.36

        In accordance with the tables under PIB Rule 4.14.31, all unrated securitisation positions must be deducted or risk weighted at 1000% with the following exceptions:

        (a) most senior Exposure in a securitisation;
        (b) Exposures that are in a second loss position or better of an ABCP and meet the requirements of PIB Rule 4.14.41; and
        (c) eligible liquidity positions.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

    • Most Senior Exposure in a Securitisation

      • PIB 4.14.37

        (1) Where an Authorised Firm holds or guarantees unrated securitisation Exposure from the most senior tranche in a securitisation, the Authorised Firm may apply the "look through" treatment, provided the composition of the underlying pool of Exposures securitised is known at all times and the Authorised Firm is able to determine the applicable risk weights for the underlying Exposures.
        (2) An Authorised Firm applying the look-through treatment to an unrated securitisation Exposure, pursuant to (1), must apply to that securitisation Exposure the weighted average of the risk weights of the underlying Exposures determined in accordance with the Rules in this chapter, multiplied by a concentration factor.
        (3) For the purposes of (2), the concentration factor is calculated as the sum of the nominal amounts of all the tranches in that securitisation divided by the sum of the nominal amounts of the tranches junior to, or pari-passu with, the tranche in which the position is held, including that tranche itself. The resulting weighted average risk weight must not be higher than 1000% or lower than the risk weight applicable to a more senior tranche which is rated.
        (4) Where the Authorised Firm is unable to determine the risk weights for the underlying Exposures in accordance with this Rule, the unrated securitisation position will not be eligible for the relief and must be deducted from CET 1 Capital of the Authorised Firm.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 4.14.38

        An Authorised Firm wishing to apply the treatment referred to in PIB Rule 4.14.37 must notify the DFSA, in writing, at least 30 days in advance, of the intention to adopt this treatment. The notification should include the treatments being adopted and the weightings applied under the provision.

        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 4.14.39

        The resulting weighted average risk weight must not be higher than 1000% or lower than the risk weight applicable to a more senior tranche which is rated.

        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 4.14.40

        An Authorised Firm must have systems and controls in place to monitor effectively the composition of Exposures where the look-through provision has been applied on an ongoing basis.

        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

    • Exposures that are in a Second Loss Position or Better of an ABCP

      • PIB 4.14.41

        An Authorised Firm may apply a risk weight of 100% or the highest risk weight assigned to any of the underlying Exposures in the ABCP Programme, whichever is higher, to an unrated securitisation Exposure arising from the ABCP Programme, provided the securitisation position complies with the following conditions:

        (a) the subject securitisation Exposure must be in a tranche which is economically in a second loss position or better and the First Loss Position must provide meaningful credit protection to the second loss tranche;
        (b) the associated Credit Risk of the securitisation Exposure is the equivalent of a Credit Quality Grade of III or better in the short-term rating category; and
        (c) the Authorised Firm must not hold a position in the First Loss Position.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

    • Eligible Liquidity Positions

      • PIB 4.14.42

        An Authorised Firm providing an unrated eligible liquidity facility may assign to the resulting securitisation Exposure the highest risk weight that would be applied to any of the underlying Exposures covered by the facility.

        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 4.14.43

        (1) An off balance sheet SE Exposure will receive a 100% CCF unless:
        (a) the Exposure qualifies as an eligible liquidity facility, or
        (b) the Exposure is an eligible Servicer cash advance facility.
        (2) In relation to (1), an eligible Servicer cash advance facility is a facility provided to a securitisation in order to ensure uninterrupted flow of payments to investors. As long as the Servicer is entitled to full reimbursement and this right is senior to all other claims on cash flows from the underlying pool of Exposures, and where these facilities meet the requirements of PIB 4.14.44 and are unconditionally cancellable at any time, any undrawn commitments can then have a 0% CCF applied.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 4.14.44

        (1) For the purposes of PIB Rule 4.14.42, an Authorised Firm may treat an Exposure as an eligible liquidity facility provided the following requirements are met:
        (a) the liquidity facility documentation must clearly identify and limit the circumstances under which it may be drawn;
        (b) draws must be limited to the amount that is likely to be repaid from the liquidation of the underlying Exposures and any seller provided Credit Enhancements;
        (c) the facility must not provide credit support by covering for any losses incurred in the underlying pool of Exposures prior to drawdown;
        (d) the facility must not be structured to provide regular or permanent funding;
        (e) the facility must be subject to an asset quality test to preclude it being used to cover Credit Risk Exposures that are in default;
        (f) where the facility is used to fund externally rated Securities the facility can only be used to fund Securities that are externally rated Investment Grade at the time of funding;
        (g) the facility cannot be drawn after all Credit Enhancements from which the liquidity facility would benefit have been exhausted; and
        (h) repayment of draws of the facility cannot be subordinated to any interests of any note holder in the programme or be subject to deferral or waiver.
        (2) Where the Exposure meets the requirements as set out in (1), the following CCF will apply:
        (a) 50% to the eligible liquidity facility regardless of maturity; and
        (b) 100% if an external rating of the liquidity facility is used for the risk weighting.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 4.14.45

        (1) An Authorised Firm which provides credit protection for a basket of reference Exposures through an unrated first-to-default Credit Derivative may apply to the securitisation Exposure the aggregate of the risk weights that would be assigned to the reference Exposures, provided that the resulting Capital Requirement does not exceed the notional amount of the credit protection.
        (2) An Authorised Firm which provides credit protection for a basket of reference Exposures through an unrated second-to-default Credit Derivative may apply the treatment referred to in (1), except that in aggregating the risk weights, the reference Exposure with the lowest risk-weighted amount may be excluded.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

    • Overlapping Exposures

      • PIB 4.14.46 PIB 4.14.46

        (1) Where an Authorised Firm has two or more overlapping Exposures to a securitisation, the firm must, to the extent that the positions overlap, include in its calculation of Credit RWA amounts only the Exposure, or portion of the Exposure, producing the higher Credit RWA amounts.
        (2) For the purposes of (1), overlapping Exposures result where an Authorised Firm provides two or more facilities (whether they are liquidity facilities or Credit Enhancements) in relation to a securitisation that can be drawn under various conditions with different triggers, with the result that the Authorised Firm provides duplicate coverage to the underlying Exposures. The facilities provided by the Authorised Firm may overlap since a draw on one facility may preclude (in part) a draw on the other facility.
        (3) Where the overlapping Exposures are subject to different conversion factors the Authorised Firm must apply the higher of the conversion factors to the Exposure.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • PIB 4.14.46 Guidance

          The firm may also recognise such an overlap between capital charges for Specific Risk in relation to positions in the trading book and capital charges for positions in the Non-Trading Book, provided that the firm is able to calculate and compare the capital charges for the relevant positions.

          However, if overlapping facilities are provided by different Authorised Firms, each Authorised Firm must calculate Capital Requirement for the maximum amount of its Exposure.

          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

    • Credit Risk Mitigation

      • PIB 4.14.47

        Where an Authorised Firm obtains credit protection on a securitisation Exposure, the calculation of Credit RWA amounts must be in accordance with the Rules in Credit Risk mitigation in PIB section 4.13.

        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 4.14.48

        Where an Authorised Firm provides credit protection to a securitisation Exposure it must calculate a Capital Requirement as if it were an investor in the securitisation in line with PIB section 4.13.

        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 4.14.49

        An Authorised Firm must not recognise any SPE which is an Issuer of securitisation Exposures, as an eligible credit protection provider. Guarantees provided must meet the requirements of PIB section 4.13.

        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 4.14.50

        For the purpose of setting regulatory capital against a maturity mismatch, the Capital Requirement must be determined in accordance with PIB section 4.13. When Exposures being hedged have different maturities, the longest maturity must be used. Maturity of credit protection must be calculated in accordance with PIB section 4.13.

        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

    • Capital Requirements for Securitisations with Early Amortisation Provisions

      • PIB 4.14.51 PIB 4.14.51

        An Authorised Firm which is the Originator or Sponsor of a securitisation involving revolving Exposures as well as an Early Amortisation provision, must calculate an additional RWA amount in accordance with PIB Rule 4.14.57 to address the possibility that its Credit Risk Exposure levels may increase following the operation of the Early Amortisation provision.

        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • PIB 4.14.51 Guidance

          1. This section sets out the methodology for calculation of the Credit RWA amount by an Originator, when it sells revolving Exposures into a securitisation that contains an Early Amortisation provision.
          2. Early Amortisation of the Securities describes the process whereby the repayment of the investors' interest is brought forward upon the occurrence of specified events. Events that are economic in nature by reference to the financial performance of the transferred assets are known as economic triggers.
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 4.14.52

        (1) An Authorised Firm which is the Originator or Sponsor of a securitisation involving revolving Exposures, must calculate Credit RWA amounts in respect of the total Exposure related to a securitisation (both drawn and undrawn balances) when:
        (a) the Authorised Firm sells Exposures into a structure that contains an Early Amortisation feature; and
        (b) the Exposures are of a revolving nature.
        (2) Where the underlying pool of a securitisation comprises revolving and term Exposures, an Authorised Firm must apply the amortisation treatment outlined below for determining applicable regulatory capital only to that portion of the underlying pool containing revolving Exposures.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 4.14.53 PIB 4.14.53

        An Authorised Firm which is the Originator of a Revolving Securitisation that includes economic triggers for Early Amortisation may regard the Exposures as transferred for the period up to the point of repayment, provided that:

        (a) during the amortisation period there is full sharing of interest, principal, expenses, losses and recoveries; and
        (b) the Authorised Firm's risk management system provides warning indicators when economic or non-economic triggers may be activated.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • PIB 4.14.53 Guidance

          Examples of such triggers include tax events, legal changes resulting in an Authorised Firm's non-performance in its role as a servicing agent, and triggers relating to the insolvency of the Originator.

          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 4.14.54

        An Authorised Firm is not required to calculate a Capital Requirement for Early Amortisation in the following situations:

        (a) replenishment structures where the underlying Exposures do not revolve and the Early Amortisation ends the ability of the Authorised Firm to add new Exposures;
        (b) where the risk associated with revolving assets containing amortisation features that mimic term structures, where the risk does not return to the Authorised Firm;
        (c) structures where the Authorised Firm securitises one or more credit lines and where investors remain fully exposed to future draws by borrowers so that the risk on the underlying facilities does not return to the Originator even after an Early Amortisation event has occurred; or
        (d) where the Early Amortisation clause is solely triggered by events not related to the performance of the Securitised assets or the Authorised Firm, such as material changes in tax laws or regulations.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 4.14.55

        For an Authorised Firm subject to the Capital Requirement referred to in PIB Rule 4.14.51, the maximum Credit RWA calculated under that Rule must not exceed the greater of the following:

        (a) the RWA amounts calculated in respect of its positions in the investors' interest; or
        (b) the RWA amounts that would be calculated in respect of the Securitised Exposures, if those had not been securitised.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 4.14.56

        An Authorised Firm must deduct from its CET1 Capital any gain-on-sale and Credit-Enhancing Interest-Only Strips arising from any securitisation subject to the provisions of the Rules above.

        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

    • Calculation of Credit RWA Amounts for Securitisation Positions Subject to Early Amortisation Clause

      • PIB 4.14.57 PIB 4.14.57

        In regard to securitisation positions subject to an Early Amortisation clause, the Credit RWA amounts for an Authorised Firm acting as the Originator are calculated as the product of the following:

        (a) the investors' interest
        (b) the appropriate CCF (in accordance with the table in PIB Rule 4.14.61); and
        (c) the appropriate risk weight for the underlying Exposure type.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • PIB 4.14.57 Guidance

          In relation to PIB Rule 4.14.57(c), the Authorised Firm should also consider whether a line, or facility, is committed or uncommitted. A line is considered to be uncommitted if it is unconditionally cancellable without prior notice by the Authorised Firm. They also differ according to whether the Securitised Exposures are committed retail credit lines or credit lines (such as revolving credit facilities).

          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 4.14.58

        (1) An Early Amortisation provision that does not satisfy the conditions for a Controlled Early Amortisation provision will be treated as a non-Controlled Early Amortisation provision.
        (2) For the purpose of (1), the conditions for a Controlled Early Amortisation provision are as follows:
        (a) the Authorised Firm must have an appropriate capital/liquidity plan in place to ensure that it has sufficient capital and liquidity available in the event of an Early Amortisation;
        (b) throughout the duration of the transaction, including the amortisation period, there is the same pro rata sharing of interest, principal, expenses, losses and recoveries based on the firm's and investors' relative shares of the receivables outstanding at the beginning of each month;
        (c) the firm must set a period for amortisation that would be sufficient for at least 90% of the total debt outstanding at the beginning of the Early Amortisation period to have been repaid or recognised as in default; and
        (d) the pace of repayment should not be any more rapid than would be allowed by straight-line amortisation over the period set out in (c).
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 4.14.59

        For uncommitted retail credit lines in securitisations containing Controlled Early Amortisation which is triggered by the Excess Spread level falling to a specified level, an Authorised Firm must compare the three month average Excess Spread level with the Excess Spread levels at which the Excess Spread is required to be trapped.

        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 4.14.60

        Where the securitisation does not require Excess Spread to be trapped, the trapping point is deemed to be 4.5 percentage points greater than the Excess Spread level at which Early Amortisation is triggered.

        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 4.14.61

        An Authorised Firm must divide the Excess Spread level by the transaction's Excess Spread trapping point to determine the appropriate segments and apply corresponding conversion factors as set out in the following table:

        Controlled Early Amortisation features
          Uncommitted Committed
        Retail Credit Lines 3 Month average Excess Spread CCF 90%
        133.33% of trapping point or more 0%
        <133.33% to 100% of trapping point 1%
        <100% to 75% of trapping point 2%
        <75% to 50% trapping point 10%
        <50% to 25% of trapping point 20%
        <25% 40%
        Non-retail credit lines 90% 90%
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

    • Non-Controlled Early Amortisation

      • PIB 4.14.62

        In regard to non-Controlled Early Amortisation, an Authorised Firm must apply the same steps as set out at Rules PIB 4.14.59 to PIB 4.14.61 and determine appropriate segments and apply the corresponding conversion factors as set out in the following table:

        Non-Controlled Early Amortisation features
          Uncommitted Committed
        Retail Credit Lines 3 Month average Excess Spread CCF 100%
        133.33% of trapping point or more 0%
        <133.33% to 100% of trapping point 5%
        <100% to 75% of trapping point 15%
        <75% to 50% trapping point 50%
        <50% of trapping point 100%
        Non-retail credit lines 100% 100%
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

    • Transfers to Special Purpose Entities (SPEs)

      • PIB 4.14.63

        An Authorised Firm need not include in its calculation of Capital Resources or Credit RWA amounts, assets transferred to:

        (a) an SPE; or
        (b) any Person, if the transfer is in connection with a securitisation under which the Issuer of the Securities is an SPE;

        provided that:

        (c) the Authorised Firm does not own any share or proprietary interest in the SPE;
        (d) no more than one member of the Governing Body of the SPE is an officer, partner, or Employee of the Authorised Firm;
        (e) the SPE does not have a name that implies any connection with the Authorised Firm or any other member of the Authorised Firm's Group;
        (f) the Authorised Firm does not fund the SPE except where permitted under the requirements for Credit Enhancement below;
        (g) the Authorised Firm does not provide temporary finance to the SPE to cover cash shortfalls arising from delayed payments or non-performance of loans transferred except where it meets the requirements for liquidity support below;
        (h) the Authorised Firm does not bear any of the recurring expenses of the SPE; and
        (i) any agreements between the Authorised Firm and the SPE are at market rates and at arm's length.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 4.14.64

        Where an Originator acts as Underwriter for the Securities issued, the underlying items will not be regarded as being transferred until 90% of the total issuance has been sold to third parties.

        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

    • Dealing

      • PIB 4.14.65

        An Originator dealing in Securities which would attract a Credit Quality Grade of 4 or better and issued by an SPE must deduct any holdings in such Securities from its CET1 Capital unless the holding is subject to:

        (a) an ongoing limit of 3% of the Securities issued; and
        (b) a limit of 10% of the Securities issued for a period of five business days:
        (i) immediately following close of the transaction; or
        (ii) in the case of Revolving Securitisations only, at the beginning of the scheduled amortisation period.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 4.14.66

        An Authorised Firm acting as the Originator and holding in excess of the dealing limits in PIB Rule 4.14.65 must either:

        (a) where the holding is less than 10%, deduct from its CET1 Capital the excess over the dealing limit; or
        (b) where the holding is greater than 10%, regard the transferred risks associated with the items as being back on its balance sheet.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 4.14.67

        An Authorised Firm acting as the Originator must not deal in the Securities during the amortisation period.

        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 4.14.68

        An Authorised Firm acting as the Sponsor dealing in the Securities issued by the SPE must include these Securities in the calculation of its Credit RWAs.

        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 4.14.69

        An Authorised Firm involved in Synthetic Securitisations must seek individual guidance on a case-by-case basis from the DFSA regarding the regulatory treatment of such transactions.

        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

    • Recognition of Eligible Financial Collateral under FCSA Approach

      • PIB 4.14.70 PIB 4.14.70

        An Authorised Firm which has taken eligible financial Collateral for an SE Exposure and is using the FCSA may recognise the effect of the eligible financial Collateral as follows:

        (a) break down the SE Exposure into:
        (i) a collateralised portion with E equal to the latest fair market value of the eligible financial Collateral; and
        (ii) an uncollateralised portion whose Exposure value equals the E of the SE Exposure less the latest fair market value of the eligible financial Collateral; and
        (b) apply the CRW that is applicable to the eligible financial Collateral to the collateralised portion calculated in accordance with (a)(i) to calculate the Credit RWA amount of the collateralised portion as though the Authorised Firm had a direct Exposure to the eligible financial Collateral; and
        (c) either:
        (i) apply the CRW that is applicable to the SE Exposure to the uncollateralised portion calculated in accordance with (a)(ii) to calculate the Credit RWA amount of the uncollateralised portion; or
        (ii) include the uncollateralised portion as a deduction from CET1 Capital.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • PIB 4.14.70 Guidance

          Collateral in the context of a SE Exposure refers to assets used to hedge the Credit Risk of a securitisation Exposure rather than the underlying Exposures of the securitisation, including Collateral pledged by an SPE.

          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]