Entire Section
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]