Entire Section

1. In cases where there is an undertaking to provide a commitment on another off-balance sheet Exposure, an Authorised Firm should apply the lower of the applicable CCFs. Examples of direct credit substitutes include general guarantees of indebtedness, standby letters of credit serving as financial guarantees for loans and Securities, and acceptances (including endorsements with the character of acceptances). Examples of transaction-related contingent items include performance bonds, bid bonds, warranties and standby letters of credit related to particular transactions.

2. Documentary credits collateralised by the underlying shipments are an example of short-term self-liquidating trade-related contingent items. In respect of item (f) in the table above, the terms of the agreement should be such that there is no substantial transfer of all risks and rewards of ownership to the Counterparty. Other commitments with certain drawdown would include forward purchase, forward deposits and partly paid Securities. Formal standby facilities and credit lines are examples of other commitments, referred to in item (h) of the table above.

3. In respect of item (h)(iii) in the table above, an Authorised Firm, if required to by the DFSA, should be able to demonstrate that it actively monitors the financial condition of the obligor, and that its internal control systems are such that it is able to cancel the facility upon evidence of a deterioration in the credit quality of the obligor.