Entire Section
PIB A4.10 PIB A4.10 Securitisation
PIB A4.10.1 PIB A4.10.1
An
Authorised Firm which is anOriginator or aSponsor of a TraditionalSecuritisation may exclude securitisedExposures from the calculation ofCredit RWA amounts only if all of the following conditions have been complied with:(a) except as provided in (g), (i) and (k), significantCredit Risk associated with the securitisedExposures has been transferred from theOriginator to third parties;(b) theAuthorised Firm does not maintain effective or indirect control over the underlyingExposures ;(c) the assets are legally isolated from theAuthorised Firm in order to ensure the assets are beyond the reach of theAuthorised Firm in the event of bankruptcy or receivership;(d) theSecurities issued are not the obligations of theAuthorised Firm ;(e) theSecurities 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 aClean-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 theAuthorised Firm systematically to alter the underlyingExposures such that the pool's weighted average credit quality is improved unless this is achieved by sellingExposures to independent and unaffiliated third parties which are notConnected to theAuthorised Firm orRelated Persons of theAuthorised Firm in accordance with PIB Rule 4.4.6 at market prices;(ii) allow for increases in a retainedFirst Loss Position orCredit Enhancement provided by theAuthorised Firm after the securitisation's inception;(iii) other than step-up features incorporated in relation to the underlyingExposures of the securitisation, increase the yield payable to parties other than theAuthorised Firm , such as investors and third-party providers ofCredit Enhancements , in response to deterioration in the credit quality of the underlyingExposures in the pool; or(iv) other thanClean-Up Calls , oblige theAuthorised Firm to repurchase any of the underlyingExposures , at any time, except where that obligation arises from the exercise of a representation or warranty given by theAuthorised Firm . TheAuthorised Firm may give a representation or warranty solely in respect of the nature or existing state of facts of any underlyingExposure , that is capable of being verified, at the time of its transfer.(h) the transfer of the underlyingExposures or the transfer of risk through sub-participation does not contravene the terms and conditions of any underlying agreement in respect of the underlyingExposures 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 underlyingExposures are rescheduled or renegotiated, the SPE to which theExposures have been transferred and not theAuthorised Firm , would be subject to the rescheduled or renegotiated terms;(j) theAuthorised Firm receives a fixed amount of consideration for the underlyingExposures ;(k) theAuthorised Firm holds not more than 20% of the aggregate original amount of allSecurities issued by the SPE, except where such holdings comprise entirely ofSecurities that have aCredit Quality Grade of 1 as set out inRules 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 theIslamic Financial Business of anAuthorised Firm , a written confirmation from the appointedShari'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. AnAuthorised Firm is deemed to have effective control over the transferredExposures if :a. it is able to repurchase from the transferee the previously transferredExposures in order to realise their benefits; orb. it is obligated to retain the risk of the transferredExposures .2. In this regard, anAuthorised Firm acting as aServicer in respect of the transferredExposures will not necessarily constitute effective control of theExposures .3. In respect of PIB Rule A4.10.1(j), the amount of consideration received in the form of a fixed amount ofSecurities 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 theAuthorised Firm after all claims connected with theSecurities 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 anOriginator or aSponsor of aSynthetic Securitisation may recognise the credit protection obtained through theSynthetic Securitisation in its calculation ofCredit RWA amounts only if all of the following conditions have been complied with:(a) significantCredit Risk associated with the underlyingExposures has been transferred from theOriginator to third parties;(b) the instrument used to transfer the underlyingCredit Risks must not contain terms or conditions that limit in any way the amount ofCredit Risk transferred, including, but not limited to, clauses that:(i) materially limit the credit protection orCredit 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 underlyingExposures );(ii) require theAuthorised Firm to alter the underlyingExposures to improve the weighted average credit quality of the pool;(iii) increase the cost of credit protection to theAuthorised Firm in response to deterioration in the credit quality of the underlyingExposures ;(iv) increase the yield payable to parties other than theAuthorised Firm , such as investors and third-party providers ofCredit Enhancements , in response to a deterioration in the credit quality of the underlyingExposures ; or(v) provide for increases in a retainedFirst Loss Position orCredit Enhancement provided by the originating bank after the transaction's inception.(c) anAuthorised 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 theIslamic Financial Business of anAuthorised Firm , a written confirmation from the appointedShari'a Supervisory Board that the securitisation complies with Shari'a;(e) where the securitisation includes aClean-Up Call it must meet the requirements of PIB Rule A4.10.3;(f) in the case where the risks associated with the underlyingExposures are transferred to an SPE:(i) theSecurities issued by the SPE are not obligations of theAuthorised Firm ;(ii) the holders of the beneficial interests in that SPE have the right to pledge or exchange their interests without restriction; and(iii) theAuthorised Firm holds not more than 20% of the aggregate original amount of allSecurities issued by the SPE, except where such holdings consist entirely ofSecurities that have aCredit Quality Grade of 1 in accordance withRules 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) theAuthorised Firm has, on an on-going basis, a comprehensive understanding of the risk characteristics of its individual securitisationExposures , whether on- or off-balance sheet, as well as the risk characteristics of the pools underlying its securitisationExposures ;(h) theAuthorised Firm is able to access performance information on the underlyingExposures 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. ForRe-securitisations , theAuthorised Firm should have information not only on the underlying securitisation tranches, such as theIssuers' names and credit quality, but also on the characteristics and performance of the pools underlying the securitisation tranches; and(i) theAuthorised 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 theOriginator of a securitisation if:a. theRWA amounts of the mezzanine securitisation positions held by theOriginator in the securitisation do not exceed 50% of theRWA amounts of all mezzanine securitisation positions existing in this securitisation; andb. where there are no mezzanine securitisation positions in a given securitisation and theOriginator can demonstrate that theExposure value of the securitisation positions that would be subject to deduction fromCapital Resources or a 1250% risk weight exceeds a reasonable estimate of the expected loss on the SecuritisedExposures by a substantial margin, theOriginator does not hold more than 20% of theExposures values of the securitisation positions that would be subject to deduction fromCapital 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, theAuthorised Firm which has the ability to exercise theClean-Up Call must ensure that:(a) the exercise of theClean-Up Call must not be mandatory, in form or substance;(b) theClean-Up Call must not be structured to avoid allocating losses toCredit Enhancements , or positions held by investors or in any way structured to provideCredit Enhancement ; and(c) theClean-Up Call must only be exercisable when 10% or less of the original underlyingExposures orSecurities issued in that securitisation remains, or in the case of aSynthetic 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 theExposures as follows:(a) for a TraditionalSecuritisation the underlyingExposures 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 theirCapital Resources ;(c) forSynthetic Securitisations , theAuthorised Firm must hold capital against the entire amount of securitisedExposures ; and(d) where aSynthetic Securitisation incorporates a call that is not aClean-Up Call , theAuthorised Firm must treat the transaction in accordance with the relevantCredit 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 underlyingExposure being hedged and theCredit Risk mitigation obtained through theSynthetic Securitisation in accordance withRules in sections PIB 4.13 and PIB A4.3.Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]