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  • 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]