Entire Section

  • PIB 3.18.3 PIB 3.18.3

    For the purpose of determining the Exposure Measure, the value of exposures of an Authorised Firm must be calculated in accordance with the International Financial Reporting Standards (IFRS) subject to the following adjustments:

    (a) on-balance sheet, non-derivative exposures must be net of specific allowances and valuation adjustments (e.g. credit valuation adjustments);
    (b) physical or financial collateral, guarantees or credit risk mitigation purchased must not be used to reduce on-balance sheet exposures;
    (c) loans must not be netted with deposits;
    (d) collateral must not be netted against a derivative position, whether or not netting is allowed;
    (e) collateral posted against a derivative position must be added to the Exposure Measure if posting the collateral has resulted in a reduction in the Firm’s balance sheet;
    (f) if an Authorised Firm writes a credit derivative, it must include the notional value of the derivative in its Exposure Measure without allowing any offset;
    (g) if an Authorised Firm is a clearing member of a CCP and is contractually liable to reimburse its Clients or the CCP for losses, as a result of a change in the value of the trading transactions in the event of a default, it must:
    (i) treat each transaction as if it were a derivative exposure entered into directly with the Client, including with regard to the provision or receipt of variation margin; and
    (ii) include the transaction in its Exposure Measure; and
    (h) an item that has been deducted under PIB Section 3.13 from the Tier 1 Capital must also be deducted from the Exposure Measure, except where that item relates to a liability.
    [Added] DFSA RM148/2014 (Made 1st January 2015). [VER23/01-15]
    [Amended] DFSA RMI322/2021 (Made 1st January 2022). [VER41/01-22]

    • PIB 3.18.3 Guidance

      1. The following Guidance is intended to illustrate how an Authorised Firm should calculate its Leverage Ratio under this section.
      2. The Exposure Measure under PIB Rule 3.18.3 should be calculated as the sum of:
      a. on-balance sheet items; and
      b. off-balance sheet items.
      3. In relation to on-balance sheet items:
      a. for SFTs, the exposure value should be calculated in accordance with IFRS and the netting requirements referred to in PIB Rule 4.9.14;
      b. for Derivatives, including credit protection sold, the exposure value should be calculated as the sum of the on-balance sheet value in accordance with IFRS and an add-on for potential future exposure calculated in accordance with Rules PIB A4.6.14 to PIB A4.6.21 of App 4; and
      c. for other on-balance sheet items, the exposure value should be calculated based on their balance sheet values in accordance with PIB Rule 4.9.3.
      4. In relation to off-balance sheet items:
      a. for commitments that are unconditionally cancellable at any time by the Authorised Firm without prior notice, the exposure value should be the notional amount for the item multiplied by a CCF of 10%; and
      b. for other off-balance sheet items, including:
      i. direct credit substitutes;
      ii. certain transaction-related contingent items;
      iii. short-term self-liquidating trade-related contingent items and commitments to underwrite debt and equity securities;
      iv. note issuance facilities and revolving underwriting facilities;
      v. transactions, other than SFTs, involving the posting of securities held by the Authorised Firm as collateral;
      vi. asset sales with recourse, where the credit risk remains with the Authorised Firm;
      vii. other commitments with certain drawdown;
      viii. any other commitments; and
      ix. unsettled transactions,
      the exposure value should be the notional amount for each of the items multiplied by a CCF of 100%.
      5. For an Islamic Financial Institution, assets corresponding to Unrestricted PSIAs will fall within the Exposure Measure and, therefore, are considered for the purpose of the Leverage Ratio calculation.
      6. Further Guidance about the method for completing forms relating to Leverage Ratios can be found in PRU.
      [Added] DFSA RM148/2014 (Made 1st January 2015). [VER23/01-15]