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.