PIB A4.11.8 PIB A4.11.8
(1) Where an
Authorised Firmhas an Exposureto a transaction, scheme, Fund, or other Exposureto a pool of underlying Exposures, the Authorised Firmmust assess the Exposureto determine whether the Exposureis to a group of Closely Related Counterpartiesin its economic substance.
(2) Where the
Exposureis to a group and the Authorised Firmcan demonstrate that the Exposureamount to each underlying asset of the structure is less than 0.25% of its Tier 1 Capital, the Authorised Firmmay assign the Exposureamount to the structure itself.
(3) An Authorised Firm need not look through a structure for the purposes of (2) if the
Authorised Firmcan demonstrate that its Exposureto each asset in the structure is less than 0.25% of its Tier 1 Capital.
(4) Where the
Exposureis to a group and the Authorised Firmcan demonstrate that the Exposureamount to each underlying asset of the structure is equal to or exceeds 0.25% of its Tier 1 Capital, the Authorised Firmmust look through the structure and identify each underlying asset and add that Exposureto the other Exposures of the same counterparty.
(5) If an
Authorised Firmlooks through the structure to identify underlying assets and one or more underlying assets cannot be identified, the Authorised Firmmust aggregate and assign that Exposureto a single "unknown customer" to which the Large Exposurelimits apply.
(6) If the
Exposureto the underlying assets in a structure depends on the hierarchy of loss distribution to investors in the event of the winding up of the structure, an Authorised Firmmust treat its Exposure to the structure:(a) as the pro rata share of the firm’s Exposuremultiplied by the value of the underlying asset, where all investors rank equally; or(b) as the pro rata share of the firm’s investment in the structure multiplied by the lower of the tranche value or the nominal value of the underlying assets in the structure, where the seniority differs.
Authorised Firmmust aggregate its Exposures to any additional risks inherent in the structure itself, if that would result in Exposures to the same third party.
PIB A4.11.8 Guidance:1. When considering this
Rulethe Authorised Firmshould consider the following factors:a. the structure, independence and control of the transaction, including governance arrangements;b. the inter relatedness of the underlying Exposures;c. beneficial owners of the underlying Exposuresand whether they could be deemed Connectedor Closely Related; andd. whether the transactions are conducted on an arm's length basis.2. An Authorised Firmshould look through the structure to determine whether there are any Counterpartiesor Exposuresthat should be considered a Concentration Risk.Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]