Entire Section
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 ofCredit Risk (principal and interest) anAuthorised 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 anExposure has two ratings from external credit rating agencies the less favourable rating must be used; and(e) where anExposure 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 securitisationExposure as an unratedExposure 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 theAuthorised Firm itself (e.g. if anAuthorised Firm buysABCP ) where it provides an unfunded securitisationExposure extended to theABCP Programme , such as a liquidity facility orCredit Enhancement , and thatExposure plays a role in determining the credit assessment on theABCP , theAuthorised Firm must treat theABCP as if it were not rated and continue to hold capital against the other securitisationExposures it provides);(c) theCredit Risk mitigant is not obtained by the SPE but is separately obtained and applied to a specific securitisationExposure (e.g. a particular tranche); or(d) theCredit 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 specificExposure within a securitisation theAuthorised Firm must treat theExposure as unrated, and then use the mitigation as set out in PIB section 4.13 should theRules 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 theAuthorised 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 theAuthorised Firm's Trading Book . AnAuthorised Firm's Capital Requirement for suchExposures held in theTrading Book can be no less than the amount required under theNon-Trading Book .Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]