PIB A4.10 PIB A4.10 Securitisation
PIB A4.10.1 PIB A4.10.1
Authorised Firmwhich is an Originatoror a Sponsorof a Traditional Securitisationmay exclude securitised Exposuresfrom the calculation of Credit RWAamounts only if all of the following conditions have been complied with:(a) except as provided in (g), (i) and (k), significant Credit Riskassociated with the securitised Exposureshas been transferred from the Originatorto third parties;(b) the Authorised Firmdoes not maintain effective or indirect control over the underlying Exposures;(c) the assets are legally isolated from the Authorised Firmin order to ensure the assets are beyond the reach of the Authorised Firmin the event of bankruptcy or receivership;(d) the Securitiesissued are not the obligations of the Authorised Firm;(e) the Securitiesare 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 Callsmust 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 Firmsystematically to alter the underlying Exposuressuch that the pool's weighted average credit quality is improved unless this is achieved by selling Exposuresto independent and unaffiliated third parties which are not Connectedto the Authorised Firmor Related Personsof the Authorised Firmin accordance with PIB Rule 4.4.6 at market prices;(ii) allow for increases in a retained First Loss Positionor Credit Enhancementprovided by the Authorised Firmafter the securitisation's inception;(iii) other than step-up features incorporated in relation to the underlying Exposuresof 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 Exposuresin the pool; or(iv) other than Clean-Up Calls, oblige the Authorised Firmto 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 Firmmay 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 Exposuresor the transfer of risk through sub-participation does not contravene the terms and conditions of any underlying agreement in respect of the underlying Exposuresand 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 Exposuresare rescheduled or renegotiated, the SPE to which the Exposureshave been transferred and not the Authorised Firm, would be subject to the rescheduled or renegotiated terms;(j) the Authorised Firmreceives a fixed amount of consideration for the underlying Exposures;(k) the Authorised Firmholds not more than 20% of the aggregate original amount of all Securitiesissued by the SPE, except where such holdings comprise entirely of Securitiesthat have a Credit Quality Gradeof 1 as set out in Rulesin 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 Businessof an Authorised Firm, a written confirmation from the appointed Shari'a Supervisory Boardthat 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.
PIB A4.10.1 Guidance1. An
Authorised Firmis deemed to have effective control over the transferred Exposuresif :a. it is able to repurchase from the transferee the previously transferred Exposuresin order to realise their benefits; orb. it is obligated to retain the risk of the transferred Exposures.2. In this regard, an Authorised Firmacting as a Servicerin respect of the transferred Exposureswill 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 Securitiesin 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 Firmafter all claims connected with the Securitiesissued by the SPE have been paid out.
PIB A4.10.2 PIB A4.10.2
Authorised Firmwhich is an Originatoror a Sponsorof a Synthetic Securitisationmay recognise the credit protection obtained through the Synthetic Securitisationin its calculation of Credit RWAamounts only if all of the following conditions have been complied with:(a) significant Credit Riskassociated with the underlying Exposureshas been transferred from the Originatorto third parties;(b) the instrument used to transfer the underlying Credit Risksmust not contain terms or conditions that limit in any way the amount of Credit Risktransferred, including, but not limited to, clauses that:(i) materially limit the credit protection or Credit Risktransference (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 Firmto alter the underlying Exposuresto improve the weighted average credit quality of the pool;(iii) increase the cost of credit protection to the Authorised Firmin 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 Positionor Credit Enhancementprovided by the originating bank after the transaction's inception.(c) an Authorised Firmmust 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 Businessof an Authorised Firm, a written confirmation from the appointed Shari'a Supervisory Boardthat the securitisation complies with Shari'a;(e) where the securitisation includes a Clean-Up Callit must meet the requirements of PIB Rule A4.10.3;(f) in the case where the risks associated with the underlying Exposuresare transferred to an SPE:(i) the Securitiesissued 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 Firmholds not more than 20% of the aggregate original amount of all Securitiesissued by the SPE, except where such holdings consist entirely of Securitiesthat have a Credit Quality Gradeof 1 in accordance with Rulesin 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 Firmhas, 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 Firmis able to access performance information on the underlying Exposureson an on-going basis in a timely manner. Such information may include, as appropriate, Exposuretype, 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 Firmshould 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 Firmhas 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.
PIB A4.10.2 Guidancea. the
RWAamounts of the mezzanine securitisation positions held by the Originatorin the securitisation do not exceed 50% of the RWAamounts of all mezzanine securitisation positions existing in this securitisation; andb. where there are no mezzanine securitisation positions in a given securitisation and the Originatorcan demonstrate that the Exposurevalue of the securitisation positions that would be subject to deduction from Capital Resourcesor a 1250% risk weight exceeds a reasonable estimate of the expected loss on the Securitised Exposuresby a substantial margin, the Originatordoes not hold more than 20% of the Exposuresvalues of the securitisation positions that would be subject to deduction from Capital Resourcesor a 1250% risk weight.
Operational Requirements for the Treatment of Clean-Up Calls
Clean-Up Callis included within a securitisation, the Authorised Firmwhich has the ability to exercise the Clean-Up Callmust ensure that:(a) the exercise of the Clean-Up Callmust not be mandatory, in form or substance;(b) the Clean-Up Callmust 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 Callmust only be exercisable when 10% or less of the original underlying Exposuresor Securitiesissued in that securitisation remains, or in the case of a Synthetic Securitisation, when 10% or less of the original reference portfolio value remains.
Where the conditions listed in PIB Rule A4.10.3 are not met the
Authorised Firmmust hold capital against the Exposuresas follows:(a) for a Traditional Securitisationthe underlying Exposuresmust be treated as if they had not been securitised;(b) Authorised Firmsmust not include any gain-on-sale in any element or component of their Capital Resources;(c) for Synthetic Securitisations, the Authorised Firmmust hold capital against the entire amount of securitised Exposures; and(d) where a Synthetic Securitisationincorporates a call that is not a Clean-Up Call, the Authorised Firmmust treat the transaction in accordance with the relevant Credit Riskmitigation techniques in PIB section 4.13.