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  • PIB A4.10 PIB A4.10 Securitisation

    • PIB A4.10.1 PIB A4.10.1

      An Authorised Firm which is an Originator or a Sponsor of a Traditional Securitisation may exclude securitised Exposures from the calculation of Credit RWA amounts only if all of the following conditions have been complied with:

      (a) except as provided in (g), (i) and (k), significant Credit Risk associated with the securitised Exposures has been transferred from the Originator to third parties;
      (b) the Authorised Firm does not maintain effective or indirect control over the underlying Exposures;
      (c) the assets are legally isolated from the Authorised Firm in order to ensure the assets are beyond the reach of the Authorised Firm in the event of bankruptcy or receivership;
      (d) the Securities issued are not the obligations of the Authorised Firm;
      (e) the Securities are issued pursuant to the securitisation by an SPE and the holders of the beneficial interests in that entity have the right to pledge or exchange them without restriction;
      (f) where a securitisation includes a Clean-Up Call, Clean-Up Calls must satisfy the conditions set out in PIB Rule A4.10.3.
      (g) the documentation of the securitisation does not contain any clauses that:
      (i) require the Authorised Firm systematically to alter the underlying Exposures such that the pool's weighted average credit quality is improved unless this is achieved by selling Exposures to independent and unaffiliated third parties which are not Connected to the Authorised Firm or Related Persons of the Authorised Firm in accordance with PIB Rule 4.4.6 at market prices;
      (ii) allow for increases in a retained First Loss Position or Credit Enhancement provided by the Authorised Firm after the securitisation's inception;
      (iii) other than step-up features incorporated in relation to the underlying Exposures of the securitisation, increase the yield payable to parties other than the Authorised Firm, such as investors and third-party providers of Credit Enhancements, in response to deterioration in the credit quality of the underlying Exposures in the pool; or
      (iv) other than Clean-Up Calls, oblige the Authorised Firm to repurchase any of the underlying Exposures, at any time, except where that obligation arises from the exercise of a representation or warranty given by the Authorised Firm. The Authorised Firm may give a representation or warranty solely in respect of the nature or existing state of facts of any underlying Exposure, that is capable of being verified, at the time of its transfer.
      (h) the transfer of the underlying Exposures or the transfer of risk through sub-participation does not contravene the terms and conditions of any underlying agreement in respect of the underlying Exposures and where applicable, all the necessary consents for the transfer or sub-participation have been obtained;
      (i) the documentation of the securitisation specifies that, if cash flows relating to the underlying Exposures are rescheduled or renegotiated, the SPE to which the Exposures have been transferred and not the Authorised Firm, would be subject to the rescheduled or renegotiated terms;
      (j) the Authorised Firm receives a fixed amount of consideration for the underlying Exposures;
      (k) the Authorised Firm holds not more than 20% of the aggregate original amount of all Securities issued by the SPE, except where such holdings comprise entirely of Securities that have a Credit Quality Grade of 1 as set out in Rules in sections PIB 4.11 and PIB 4.12, and all transactions with the SPE are conducted at arm's length and on market terms and conditions;
      (l) where the assets relate to the Islamic Financial Business of an Authorised Firm, a written confirmation from the appointed Shari'a Supervisory Board that the securitisation complies with Shari'a; and
      (m) each of the points (a) to (l) must be evidenced and confirmed by a legal opinion from a qualified legal counsel.
      Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB A4.10.1 Guidance

        1. An Authorised Firm is deemed to have effective control over the transferred Exposures if :
        a. it is able to repurchase from the transferee the previously transferred Exposures in order to realise their benefits; or
        b. it is obligated to retain the risk of the transferred Exposures.
        2. In this regard, an Authorised Firm acting as a Servicer in respect of the transferred Exposures will not necessarily constitute effective control of the Exposures.
        3. In respect of PIB Rule A4.10.1(j), the amount of consideration received in the form of a fixed amount of Securities in the SPE would generally be regarded as meeting this requirement if the transaction is conducted at arm's length and on market terms and conditions. Also, this requirement does not preclude excess cash from being channelled to the Authorised Firm after all claims connected with the Securities issued by the SPE have been paid out.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

    • PIB A4.10.2 PIB A4.10.2

      An Authorised Firm which is an Originator or a Sponsor of a Synthetic Securitisation may recognise the credit protection obtained through the Synthetic Securitisation in its calculation of Credit RWA amounts only if all of the following conditions have been complied with:

      (a) significant Credit Risk associated with the underlying Exposures has been transferred from the Originator to third parties;
      (b) the instrument used to transfer the underlying Credit Risks must not contain terms or conditions that limit in any way the amount of Credit Risk transferred, including, but not limited to, clauses that:
      (i) materially limit the credit protection or Credit Risk transference (e.g. significant materiality thresholds below which credit protection is deemed not to be triggered even if a credit event occurs or those that allow for the termination of the protection due to deterioration in the credit quality of the underlying Exposures);
      (ii) require the Authorised Firm to alter the underlying Exposures to improve the weighted average credit quality of the pool;
      (iii) increase the cost of credit protection to the Authorised Firm in response to deterioration in the credit quality of the underlying Exposures;
      (iv) increase the yield payable to parties other than the Authorised Firm, such as investors and third-party providers of Credit Enhancements, in response to a deterioration in the credit quality of the underlying Exposures; or
      (v) provide for increases in a retained First Loss Position or Credit Enhancement provided by the originating bank after the transaction's inception.
      (c) an Authorised Firm must provide an external legal opinion from a qualified legal counsel that confirms each of the points (i-v) and the enforceability of the contracts in all relevant jurisdictions;
      (d) where the assets relate to the Islamic Financial Business of an Authorised Firm, a written confirmation from the appointed Shari'a Supervisory Board that the securitisation complies with Shari'a;
      (e) where the securitisation includes a Clean-Up Call it must meet the requirements of PIB Rule A4.10.3;
      (f) in the case where the risks associated with the underlying Exposures are transferred to an SPE:
      (i) the Securities issued by the SPE are not obligations of the Authorised Firm;
      (ii) the holders of the beneficial interests in that SPE have the right to pledge or exchange their interests without restriction; and
      (iii) the Authorised Firm holds not more than 20% of the aggregate original amount of all Securities issued by the SPE, except where such holdings consist entirely of Securities that have a Credit Quality Grade of 1 in accordance with Rules in sections PIB 4.11 and PIB 4.12, and all transactions with the SPE are conducted at arm's length and on market terms and conditions;
      (g) the Authorised Firm has, on an on-going basis, a comprehensive understanding of the risk characteristics of its individual securitisation Exposures, whether on- or off-balance sheet, as well as the risk characteristics of the pools underlying its securitisation Exposures;
      (h) the Authorised Firm is able to access performance information on the underlying Exposures on an on-going basis in a timely manner. Such information may include, as appropriate, Exposure type, percentage of loans 30, 60 and 90 days past due, default rates, prepayment rates, loans in foreclosure, property type, occupancy, average credit score or other measures of creditworthiness, average loan-to-value ratio, and industry and geographic diversification. For Re-securitisations, the Authorised Firm should have information not only on the underlying securitisation tranches, such as the Issuers' names and credit quality, but also on the characteristics and performance of the pools underlying the securitisation tranches; and
      (i) the Authorised Firm has a thorough understanding of all structural features of a securitisation transaction that would materially impact the performance of the transaction, such as the contractual waterfall and waterfall-related triggers, Credit Enhancements, liquidity enhancements, market value triggers, and deal-specific definitions of default.
      Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB A4.10.2 Guidance

        In relation to Rules PIB A4.10.1 and PIB A4.10.2, significant Credit Risk will be considered to have been transferred by the Originator of a securitisation if:

        a. the RWA amounts of the mezzanine securitisation positions held by the Originator in the securitisation do not exceed 50% of the RWA amounts of all mezzanine securitisation positions existing in this securitisation; and
        b. where there are no mezzanine securitisation positions in a given securitisation and the Originator can demonstrate that the Exposure value of the securitisation positions that would be subject to deduction from Capital Resources or a 1250% risk weight exceeds a reasonable estimate of the expected loss on the Securitised Exposures by a substantial margin, the Originator does not hold more than 20% of the Exposures values of the securitisation positions that would be subject to deduction from Capital Resources or a 1250% risk weight.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

    • Operational Requirements for the Treatment of Clean-Up Calls

      • PIB A4.10.3

        Where a Clean-Up Call is included within a securitisation, the Authorised Firm which has the ability to exercise the Clean-Up Call must ensure that:

        (a) the exercise of the Clean-Up Call must not be mandatory, in form or substance;
        (b) the Clean-Up Call must not be structured to avoid allocating losses to Credit Enhancements, or positions held by investors or in any way structured to provide Credit Enhancement; and
        (c) the Clean-Up Call must only be exercisable when 10% or less of the original underlying Exposures or Securities issued in that securitisation remains, or in the case of a Synthetic Securitisation, when 10% or less of the original reference portfolio value remains.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB A4.10.4

        Where the conditions listed in PIB Rule A4.10.3 are not met the Authorised Firm must hold capital against the Exposures as follows:

        (a) for a Traditional Securitisation the underlying Exposures must be treated as if they had not been securitised;
        (b) Authorised Firms must not include any gain-on-sale in any element or component of their Capital Resources;
        (c) for Synthetic Securitisations, the Authorised Firm must hold capital against the entire amount of securitised Exposures; and
        (d) where a Synthetic Securitisation incorporates a call that is not a Clean-Up Call, the Authorised Firm must treat the transaction in accordance with the relevant Credit Risk mitigation techniques in PIB section 4.13.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB A4.10.5

        An Authorised Firm must treat a currency mismatch or a maturity mismatch between the underlying Exposure being hedged and the Credit Risk mitigation obtained through the Synthetic Securitisation in accordance with Rules in sections PIB 4.13 and PIB A4.3.

        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]