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.