PIB 4.14 PIB 4.14 Securitisation
This section applies to an
Authorised Firmwhich:(a) acts as an Originatorin a securitisation;(b) transfers Credit Riskon 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 Sponsorin a securitisation; or(d) provides Credit Enhancement, liquidity support, or Underwritingor dealing facilities relating to the items being transferred.
PIB 4.14.2 PIB 4.14.2
For the purposes of this chapter and PIB App4, "securitisation" includes Traditional
Securitisation, Synthetic Securitisationand Re-securitisation, as defined below:(a) A Traditional Securitisationis a structure where the cash flow from an underlying pool of Exposuresis 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 Securitisationwill generally assume the movement of assets off balance sheet.(b) A Synthetic Securitisationis a structure with at least two different stratified risk positions or tranches that reflect different degrees of Credit Riskwhere Credit Riskof an underlying pool of Exposuresis transferred, in whole or in part, through the use of funded (e.g. credit-linked notes) or unfunded (e.g. credit default swaps) Credit Derivativesor guarantees that serve to hedge the Credit Riskof the portfolio. Accordingly, the investors' potential risk is dependent upon the performance of the underlying pool. A Synthetic Securitisationmay or may not involve the removal of assets off balance sheet.(c) A Re-securitisation Exposureis a securitisation Exposurein which the associated underlying pool of Exposuresis tranched and at least one of the underlying Exposuresis a securitisation Exposure. In addition, an Exposureto one or more Re-securitisation Exposuresis a Re-securitisation Exposure.
PIB 4.14.3 Guidance
DFSAwould 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 Securitieswhich are secured on the assets and serviced from the cashflows which they yield as "securitisation".
Systems and Controls for the Use of Securitisations
Authorised Firmmust 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, Originatoror 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 Risksthat may arise under a securitisation; and(c) reputational risks that may arise as a result of its securitisation activities.
Authorised Firmmust 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 Firmmust 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.
PIB 4.14.5 PIB 4.14.5
Authorised Firmmust 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 Riskmitigation or for liquidity purposes.
PIB 4.14.5 Guidance1. 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
Exposuresin stressed market conditions and the implications for other sources of risk. Such stress tests should include both existing securitisation Exposuresand 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'ssecuritisation volumes and its off-balance sheet Exposures.3. An Authorised Firmshould 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.
PIB 4.14.6 PIB 4.14.6
In order to qualify for using the
Rulesspecified in this section, and particularly the risk weighting approach outlined below, an Authorised Firmmust 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 Exposureto the transaction, such as waterfall triggers, Credit Enhancements, liquidity enhancements, market value triggers and deal specific definitions of default.
PIB 4.14.6 Guidance1. An
Authorised Firmwhich is an investor, Originatoror Sponsorof a Securitisationshould fully understand the risks it has assumed in order to ensure that it can accurately determine the Capital Requirementsfor the Exposuresarising from the securitisation in accordance with the Rulesin 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 Firmsshould have information relating to not only the underlying securitisation transactions but also the characteristics and performance of the underlying pools of such transactions.
PIB 4.14.7 PIB 4.14.7
Authorised Firmis either an Originatoror a Sponsorof a Traditional Securitisationor a Synthetic Securitisation:(a) the Authorised Firmintending to conduct the securitisation must notify the DFSAat least 30 days in advance of the proposed execution of the securitisation;(b) the Authorised Firmconducting the securitisation must calculate its Credit RWAsfor all resultant Exposuresfrom that securitisation, in accordance with PIB section 4.8, provided the requirements of this section are met; and(c) the Authorised Firmconducting the securitisation must produce documentation reflecting the execution and economic substance of the transaction.
PIB 4.14.7 Guidance
The notification made to the
DFSAunder (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 Riskmitigation applied and implications on the capital and liquidity position on the Authorised Firm.
Calculation of Credit RWA Arising from Securitisations
PIB 4.14.8 PIB 4.14.8
Authorised Firmmust calculate the Credit RWAamounts for Exposuresarising from securitisations according to the requirements in this section.
PIB 4.14.8 Guidance1. An
Authorised Firmshould apply the securitisation framework set out in this section for determining the regulatory Capital Requirementson Exposuresarising from traditional and Synthetic Securitisationsor similar structures that contain features common to both.2. This section sets out the requirements for Originators, Authorised Firmswhich transfer Credit Riskfrom their balance sheets and Sponsorsin a securitisation transaction involving Non-Trading Book Exposures. This section also sets out the methodologies for calculation of RWAamounts for securitisation Exposures. The Rulessetting out the methodologies for calculation of Market Risk Capital Requirementamounts for securitisation Exposuresheld in the Trading Bookare specified in PIB chapter 5 and PIB App5 of this module.3. As securitisations may be structured in many different ways, an Authorised Firmengaging 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.
Authorised Firmis required, subject to PIB Rule 4.14.12, to include all securitisation Exposuresin its calculation of Credit RWAsrelating to securitisations, including the following:(a) those arising from the provision of Credit Riskmitigants 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.
Authorised Firmmust include in its calculation of Credit RWAall of its securitisation Exposuresheld in the Non-Trading Book, except for those securitisation Exposureswhich the Authorised Firmis required to include as deductions from T1 Capital and deductions from T2 Capital.
Repurchased securitisation transactions must be treated as retained securitisation
PIB 4.14.12(1) An
Authorised Firmmay deduct SE Exposureswhich 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.
PIB 4.14.13 PIB 4.14.13
Authorised Firmmust 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.
PIB 4.14.13 Guidance
Gain-on-sale arises when there has been an increase in equity of the
Authorised Firmassociated with recognising the discounted value of the expected future margin income as part of the regulatory capital.
Authorised Firmmust assign a securitisation Exposureto a Credit Quality Gradebased on the external credit assessment (where available) that is applicable to the securitisation Exposurein accordance with relevant Rulesin this chapter.
Originatoror a Sponsorof 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;
Originatorfails to comply with PIB Rule 4.14.15 in respect of a securitisation, it:(a) must include all the underlying Exposuresof the securitisation in its calculation of Credit RWAsas if those Exposureshad 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 Firmhas provided non contractual support and the regulatory capital impact of doing so.
Requirements in Order for a Traditional Securitisation to be Excluded from the Calculation of RWA
PIB 4.14.17(1) An
Authorised Firmwhich is an Originatoror a Sponsorof a Traditional Securitisationmay exclude Securitised Exposuresfrom the calculation of Credit RWAamounts only if all of the conditions detailed in PIB Rule A4.10.1 have been complied with.(2) An Authorised Firmmeeting the requirements specified in PIB Rule A4.10.1 must hold regulatory capital against any securitisation Exposuresit retains.
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 Firmwhich is an Originatoror a Sponsorof a Synthetic Securitisationmay recognise the effects of Credit Riskmitigation of the Synthetic Securitisationin 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 Riskmitigation are obtained through eligible credit protection, eligible financial Collateralor both; and(c) Credit Riskis transferred to third parties.(2) In relation to (b), the Credit Riskmitigation techniques used must meet the requirements of PIB section 4.13.
PIB 4.14.18 Guidance
In relation to (1)(c) the transferor is deemed to have effective control over the transferred
Credit Risk Exposuresif 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.
PIB 4.14.19(1) An
Authorised Firmmeeting the conditions in PIB Rule 4.14.18 must still hold regulatory capital against any securitisation Exposuresit retains.(2) The Authorised Firmmay recognise the effects of Credit Riskmitigation of eligible financial Collateralpledged by any SPE, but it may not recognise any SPE which is an Issuerof securitisation Exposuresas an eligible protection provider.
Operational Requirements for Use of External Credit Assessments
The external credit assessment used for determining the applicable risk weight for a
CR Exposuremust be determined by taking into account the entire amount of Credit Risk(principal and interest) an Authorised Firmis exposed to.
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 Firmsmust apply external credit rating agency ratings consistently to all tranches of securitisations;(d) where an Exposurehas two ratings from external credit rating agencies the less favourable rating must be used; and(e) where an Exposurehas 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).
Credit Riskmitigation 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.
Authorised Firmmust treat any securitisation Exposureas an unrated Exposurewhere:(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 Firmitself (e.g. if an Authorised Firmbuys ABCP) where it provides an unfunded securitisation Exposureextended to the ABCP Programme, such as a liquidity facility or Credit Enhancement, and that Exposureplays a role in determining the credit assessment on the ABCP, the Authorised Firmmust treat the ABCPas if it were not rated and continue to hold capital against the other securitisation Exposuresit provides);(c) the Credit Riskmitigant 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 Riskmitigation does not meet the eligibility criteria for mitigation specified in PIB section 4.13.
Credit Riskmitigation is applied to a specific Exposurewithin a securitisation the Authorised Firmmust treat the Exposureas unrated, and then use the mitigation as set out in PIB section 4.13 should the Rulescontained in that section apply.
Authorised Firmmust 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 Firmitself.
The treatment outlined in PIB Rule 4.14.24 also applies to
Exposuresin the Authorised Firm's Trading Book. An Authorised Firm's Capital Requirementfor such Exposuresheld in the Trading Bookcan be no less than the amount required under the Non-Trading Book.
Calculation of RWA Amounts for Securitisation Exposures
PIB 4.14.27(1) In order to calculate the
RWAamount for a securitisation position, the relevant risk weight must be assigned to the Exposurevalue 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.
In cases where there are
Exposuresto different tranches in a securitisation, the Exposureto each tranche must be considered a separate securitisation position.
Exposurevalue 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.
Assigning Risk Weights
Authorised Firmmust assign a risk weight for any SE Exposurein accordance with the tables below, to calculate the Credit RWAamounts for that Exposure. Risk Weightsfor Long-Term securitisation Exposures Long Term rating category Credit Quality Grade 1 2 3 4 5 and above including unrated Risk Weightto 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 Weightsfor Short-Term securitisation Exposures Short-term rating category Credit Quality Grade I II III IV and above including unrated Risk Weightto be applied 20% 50% 100% 1000% or Deduction from Capital Resources Risk Weightapplied to Re-securitisation Exposures 40% 100% 225% 1000% or deduction from Capital Resources
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 Firmmay as an alternative to including the position in its calculation of Credit RWAamounts, deduct from its CET1 Capital the Exposurevalue of such positions.(2) For the purposes of this Rule, the calculation of the Exposurevalue may reflect eligible funded credit protection consistent with applicable Rulesin this chapter.
Authorised Firmthat is an Originatoror Sponsorof a securitisation, the Credit RWAamounts calculated for its securitisation positions may be limited to the RWAamounts which would be calculated for the SE Exposureshad 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.
[Not currently in use]
[Not currently in use]
Exceptions to Deduction of Unrated Securitisation Exposures
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
Exposurein a securitisation;(b) Exposuresthat are in a second loss position or better of an ABCPand meet the requirements of PIB Rule 4.14.41; and(c) eligible liquidity positions.
Most Senior Exposure in a Securitisation
PIB 4.14.37(1) Where an
Authorised Firmholds or guarantees unrated securitisation Exposurefrom the most senior tranche in a securitisation, the Authorised Firmmay apply the "look through" treatment, provided the composition of the underlying pool of Exposuressecuritised is known at all times and the Authorised Firmis able to determine the applicable risk weights for the underlying Exposures.(2) An Authorised Firmapplying the look-through treatment to an unrated securitisation Exposure, pursuant to (1), must apply to that securitisation Exposurethe weighted average of the risk weights of the underlying Exposuresdetermined in accordance with the Rulesin 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 Firmis unable to determine the risk weights for the underlying Exposuresin 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.
Authorised Firmwishing 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.
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.
Authorised Firmmust have systems and controls in place to monitor effectively the composition of Exposureswhere the look-through provision has been applied on an ongoing basis.
Exposures that are in a Second Loss Position or Better of an ABCP
Authorised Firmmay apply a risk weight of 100% or the highest risk weight assigned to any of the underlying Exposuresin the ABCP Programme, whichever is higher, to an unrated securitisation Exposurearising from the ABCP Programme, provided the securitisation position complies with the following conditions:(a) the subject securitisation Exposuremust be in a tranche which is economically in a second loss position or better and the First Loss Positionmust provide meaningful credit protection to the second loss tranche;(b) the associated Credit Riskof the securitisation Exposureis the equivalent of a Credit Quality Gradeof III or better in the short-term rating category; and(c) the Authorised Firmmust not hold a position in the First Loss Position.
Eligible Liquidity Positions
Authorised Firmproviding an unrated eligible liquidity facility may assign to the resulting securitisation Exposurethe highest risk weight that would be applied to any of the underlying Exposurescovered by the facility.
PIB 4.14.43(1) An off balance sheet SE
Exposurewill receive a 100% CCF unless:(a) the Exposurequalifies as an eligible liquidity facility, or(b) the Exposureis an eligible Servicercash advance facility.(2) In relation to (1), an eligible Servicercash advance facility is a facility provided to a securitisation in order to ensure uninterrupted flow of payments to investors. As long as the Serviceris 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.
PIB 4.14.44(1) For the purposes of PIB Rule 4.14.42, an
Authorised Firmmay treat an Exposureas 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 Exposuresand any seller provided Credit Enhancements;(c) the facility must not provide credit support by covering for any losses incurred in the underlying pool of Exposuresprior 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 Exposuresthat are in default;(f) where the facility is used to fund externally rated Securitiesthe facility can only be used to fund Securitiesthat are externally rated Investment Gradeat the time of funding;(g) the facility cannot be drawn after all Credit Enhancementsfrom 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 Exposuremeets 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.
PIB 4.14.45(1) An
Authorised Firmwhich provides credit protection for a basket of reference Exposuresthrough an unrated first-to-default Credit Derivativemay apply to the securitisation Exposurethe aggregate of the risk weights that would be assigned to the reference Exposures, provided that the resulting Capital Requirementdoes not exceed the notional amount of the credit protection.(2) An Authorised Firmwhich provides credit protection for a basket of reference Exposuresthrough an unrated second-to-default Credit Derivativemay apply the treatment referred to in (1), except that in aggregating the risk weights, the reference Exposurewith the lowest risk-weighted amount may be excluded.
PIB 4.14.46 PIB 4.14.46(1) Where an
Authorised Firmhas two or more overlapping Exposuresto a securitisation, the firm must, to the extent that the positions overlap, include in its calculation of Credit RWAamounts only the Exposure, or portion of the Exposure, producing the higher Credit RWAamounts.(2) For the purposes of (1), overlapping Exposuresresult where an Authorised Firmprovides 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 Firmprovides duplicate coverage to the underlying Exposures. The facilities provided by the Authorised Firmmay overlap since a draw on one facility may preclude (in part) a draw on the other facility.(3) Where the overlapping Exposuresare subject to different conversion factors the Authorised Firmmust apply the higher of the conversion factors to the Exposure.
PIB 4.14.46 Guidance
The firm may also recognise such an overlap between capital charges for
Specific Riskin 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 Firmmust calculate Capital Requirementfor the maximum amount of its Exposure.
Credit Risk Mitigation
Authorised Firmobtains credit protection on a securitisation Exposure, the calculation of Credit RWAamounts must be in accordance with the Rulesin Credit Riskmitigation in PIB section 4.13.
Authorised Firmprovides credit protection to a securitisation Exposureit must calculate a Capital Requirementas if it were an investor in the securitisation in line with PIB section 4.13.
Authorised Firmmust not recognise any SPE which is an Issuerof securitisation Exposures, as an eligible credit protection provider. Guarantees provided must meet the requirements of PIB section 4.13.
For the purpose of setting regulatory capital against a maturity mismatch, the
Capital Requirementmust be determined in accordance with PIB section 4.13. When Exposuresbeing hedged have different maturities, the longest maturity must be used. Maturity of credit protection must be calculated in accordance with PIB section 4.13.
Capital Requirements for Securitisations with Early Amortisation Provisions
PIB 4.14.51 PIB 4.14.51
Authorised Firmwhich is the Originatoror Sponsorof a securitisation involving revolving Exposuresas well as an Early Amortisationprovision, must calculate an additional RWAamount in accordance with PIB Rule 4.14.57 to address the possibility that its Credit Risk Exposurelevels may increase following the operation of the Early Amortisationprovision.
PIB 4.14.51 Guidance1. This section sets out the methodology for calculation of the
Credit RWAamount by an Originator, when it sells revolving Exposuresinto a securitisation that contains an Early Amortisationprovision.2. Early Amortisationof the Securitiesdescribes 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.
PIB 4.14.52(1) An
Authorised Firmwhich is the Originatoror Sponsorof a securitisation involving revolving Exposures, must calculate Credit RWAamounts in respect of the total Exposurerelated to a securitisation (both drawn and undrawn balances) when:(a) the Authorised Firmsells Exposuresinto a structure that contains an Early Amortisationfeature; and(b) the Exposuresare of a revolving nature.(2) Where the underlying pool of a securitisation comprises revolving and term Exposures, an Authorised Firmmust apply the amortisation treatment outlined below for determining applicable regulatory capital only to that portion of the underlying pool containing revolving Exposures.
PIB 4.14.53 PIB 4.14.53
Authorised Firmwhich is the Originatorof a Revolving Securitisationthat includes economic triggers for Early Amortisationmay regard the Exposuresas 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'srisk management system provides warning indicators when economic or non-economic triggers may be activated.
PIB 4.14.53 Guidance
Examples of such triggers include tax events, legal changes resulting in an
Authorised Firm'snon-performance in its role as a servicing agent, and triggers relating to the insolvency of the Originator.
Authorised Firmis not required to calculate a Capital Requirementfor Early Amortisationin the following situations:(a) replenishment structures where the underlying Exposuresdo not revolve and the Early Amortisationends the ability of the Authorised Firmto 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 Firmsecuritises 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 Originatoreven after an Early Amortisationevent has occurred; or(d) where the Early Amortisationclause 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.
Authorised Firmsubject to the Capital Requirementreferred to in PIB Rule 4.14.51, the maximum Credit RWAcalculated under that Rulemust not exceed the greater of the following:(a) the RWAamounts calculated in respect of its positions in the investors' interest; or(b) the RWAamounts that would be calculated in respect of the Securitised Exposures, if those had not been securitised.
Authorised Firmmust deduct from its CET1 Capital any gain-on-sale and Credit-Enhancing Interest-Only Stripsarising from any securitisation subject to the provisions of the Rulesabove.
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 Amortisationclause, the Credit RWAamounts for an Authorised Firmacting as the Originatorare 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 Exposuretype.
PIB 4.14.57 Guidance
In relation to PIB Rule 4.14.57(c), the
Authorised Firmshould 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 Exposuresare committed retail credit lines or credit lines (such as revolving credit facilities).
PIB 4.14.58(1) An
Early Amortisationprovision that does not satisfy the conditions for a Controlled Early Amortisationprovision will be treated as a non- Controlled Early Amortisationprovision.(2) For the purpose of (1), the conditions for a Controlled Early Amortisationprovision are as follows:(a) the Authorised Firmmust 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 Amortisationperiod 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).
For uncommitted retail credit lines in securitisations containing
Controlled Early Amortisationwhich is triggered by the Excess Spreadlevel falling to a specified level, an Authorised Firmmust compare the three month average Excess Spreadlevel with the Excess Spreadlevels at which the Excess Spreadis required to be trapped.
Where the securitisation does not require
Excess Spreadto be trapped, the trapping point is deemed to be 4.5 percentage points greater than the Excess Spreadlevel at which Early Amortisationis triggered.
Authorised Firmmust divide the Excess Spreadlevel by the transaction's Excess Spreadtrapping point to determine the appropriate segments and apply corresponding conversion factors as set out in the following table: Controlled Early Amortisationfeatures Uncommitted Committed Retail Credit Lines 3 Month average Excess SpreadCCF 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%
Non-Controlled Early Amortisation
In regard to non-
Controlled Early Amortisation, an Authorised Firmmust 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 Amortisationfeatures Uncommitted Committed Retail Credit Lines 3 Month average Excess SpreadCCF 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%
Transfers to Special Purpose Entities (SPEs)
Authorised Firmneed not include in its calculation of Capital Resourcesor Credit RWAamounts, assets transferred to:(a) an SPE; or(b) any Person, if the transfer is in connection with a securitisation under which the Issuerof the Securitiesis an SPE;
provided that:(c) the
Authorised Firmdoes not own any share or proprietary interest in the SPE;(d) no more than one member of the Governing Bodyof the SPE is an officer, partner, or Employeeof the Authorised Firm;(e) the SPE does not have a name that implies any connection with the Authorised Firmor any other member of the Authorised Firm's Group;(f) the Authorised Firmdoes not fund the SPE except where permitted under the requirements for Credit Enhancementbelow;(g) the Authorised Firmdoes 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 Firmdoes not bear any of the recurring expenses of the SPE; and(i) any agreements between the Authorised Firmand the SPE are at market rates and at arm's length.
Originatoracts as Underwriter for the Securitiesissued, the underlying items will not be regarded as being transferred until 90% of the total issuance has been sold to third parties.
Originatordealing in Securitieswhich would attract a Credit Quality Gradeof 4 or better and issued by an SPE must deduct any holdings in such Securitiesfrom its CET1 Capital unless the holding is subject to:(a) an ongoing limit of 3% of the Securitiesissued; and(b) a limit of 10% of the Securitiesissued for a period of five business days:(i) immediately following close of the transaction; or(ii) in the case of Revolving Securitisationsonly, at the beginning of the scheduled amortisation period.
Authorised Firmacting as the Originatorand 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.
Authorised Firmacting as the Originatormust not deal in the Securitiesduring the amortisation period.
Authorised Firmacting as the Sponsordealing in the Securitiesissued by the SPE must include these Securitiesin the calculation of its Credit RWAs.
Authorised Firminvolved in Synthetic Securitisationsmust seek individual guidance on a case-by-case basis from the DFSAregarding the regulatory treatment of such transactions.
Recognition of Eligible Financial Collateral under FCSA Approach
PIB 4.14.70 PIB 4.14.70
Authorised Firmwhich has taken eligible financial Collateralfor an SE Exposureand is using the FCSA may recognise the effect of the eligible financial Collateralas follows:(a) break down the SE Exposureinto:(i) a collateralised portion with E equal to the latest fair market value of the eligible financial Collateral; and(ii) an uncollateralised portion whose Exposurevalue equals the E of the SE Exposureless the latest fair market value of the eligible financial Collateral; and(b) apply the CRW that is applicable to the eligible financial Collateralto the collateralised portion calculated in accordance with (a)(i) to calculate the Credit RWAamount of the collateralised portion as though the Authorised Firmhad a direct Exposureto the eligible financial Collateral; and(c) either:(i) apply the CRW that is applicable to the SE Exposureto the uncollateralised portion calculated in accordance with (a)(ii) to calculate the Credit RWAamount of the uncollateralised portion; or(ii) include the uncollateralised portion as a deduction from CET1 Capital.
PIB 4.14.70 Guidance
Collateralin the context of a SE Exposurerefers to assets used to hedge the Credit Riskof a securitisation Exposurerather than the underlying Exposuresof the securitisation, including Collateralpledged by an SPE.