PIB 3.9A PIB 3.9A Countercyclical Capital Buffer (CCyB)
PIB 3.9A Guidance1. This section sets out when an
Authorised Firmmust maintain a Countercyclical Capital Buffer (CCyB) and how the buffer is calculated.2. A Countercyclical Capital Buffer is intended to take into account the macro-financial environment in which firms operate. If national authorities consider that excess credit growth has led to a build-up of system-wide risk, they can impose this measure to ensure the financial system has a buffer of capital to protect it against future potential losses.3. An Authorised Firmwill need to maintain a Countercyclical Capital Buffer only if it has a credit exposure in a jurisdiction where a CCyB Authority has imposed a CCyB Rate.4. The Countercyclical Capital Buffer is in addition to the capital required under the Risk Capital Requirement and the Capital Conservation Buffer Requirement.
This section applies to an
Authorised Firmif it:(a) is in Category 1, 2 or 5; and(b) has a Non-Financial Private Sector Credit Exposure in a jurisdiction for which a CCyB Rate applies.
Countercyclical Capital Buffer Requirement
PIB 3.9A.2 PIB 3.9A.2
Authorised Firmmust maintain a Countercyclical Capital Buffer of CET1 Capital that is calculated using the formula:
CCyB = CCyB Rate x RWA
where:(a) "CCyB" is the Countercyclical Capital Buffer that the
Authorised Firmmust maintain;(b) "CCyB Rate" is the weighted average of Countercyclical Capital Buffer Rates, calculated in accordance with Rule 3.9A.5, that apply in jurisdictions in which the Authorised Firmhas Non-Financial Private Sector Credit Exposures; and(c) "RWA" is the value of the Authorised Firm'sRisk Weighted Assets.
PIB 3.9A2 Guidance1. The CCyB Requirement applies to credit exposures of an
Authorised Firmthat are 'Non-Financial Private Sector Risk Exposures'. PIB Rule 1.2.1 defines that expression to exclude credit exposures to other banks or to sovereigns, government bodies or agencies, or multilateral development banks.2. An Authorised Firmwill need to follow the following steps to calculate its CCyB Requirement:a. identify the jurisdictions in which it has Non-Financial Private Sector Credit Exposures (Rule 3.9A.6 sets out how to determine the location of an exposure);b. identify if a CCyB Rate applies in that jurisdiction and, if so, the date on which it takes effect (see Rules 3.9A.7 to 3.9A.9);c. determine the weighted average of CCyB Rates applying to it (see Rule 3.9A.5); andd. multiply the weighted average by the value of its Risk Weighted Assets.
Authorised Firmmust not apply CET1 Capital that it maintains to meet the Countercyclical Capital Buffer Requirement towards meeting:(a) its Risk Capital Requirement;(b) its Capital Conservation Buffer Requirement;(c) an HLA Capital Buffer Requirement; or(d) an Individual Capital Requirement that the DFSAmay impose on it under PIB chapter 10.
The Countercyclical Capital Buffer Requirement applies on both a solo and a consolidated basis for
Authorised Firmsforming part of a Group.
Weighted Average of CCyB Rates
PIB 3.9A.5(1) The rate to be used to calculate an
Authorised Firm'sCountercyclical Capital Buffer is the weighted average of the CCyB Rates that apply in jurisdictions in which it has Non-Financial Private Sector Credit Exposures.(2) The weighting applied to the CCyB Rate in each jurisdiction is the riskweighted amount of an Authorised Firm'sNon-Financial Private Sector Credit Exposures in that jurisdiction, divided by the risk-weighted amount of its Non-Financial Private Sector Credit Exposures in all jurisdictions.
Determining the location of credit exposures
PIB 3.9A.6 PIB 3.9A.6(1) This
Rulespecifies how an Authorised Firmmust determine the jurisdiction in which it has a Non-Financial Private Sector Credit Exposure.(2) The jurisdiction in which an Authorised Firmhas an exposure is to be determined by allocating the exposure to the jurisdiction where, to the best of the Authorised Firm'sknowledge and information, the risk ultimately lies.(3) If it is not reasonably possible to determine the jurisdiction of an exposure under (2), then the jurisdiction in which the Authorised Firmhas the exposure is the jurisdiction where the exposure is booked.
PIB 3.9A.6 Guidance1. The location of an
Authorised Firm'scredit exposure is determined according to the concept of 'ultimate risk', i.e. the location where the risk ultimately lies. This is usually the location of the counterparties, irrespective of the Authorised Firm'sown physical location or place of incorporation.2. The following examples illustrate how the concept of ultimate risk applies:a. if a firm has an exposure to a borrower in country A, and the risk mitigant (e.g. a guarantor) is in country B, then the ultimate risk is in country B;b. if, in the example in a, the exposure is only partly mitigated, then the ultimate risk would be split between the uncovered portion in country A and a covered portion in country B;c. if a firm has an exposure to a borrower that is a Branchin country A, and the head office of the Branch is in country B, then the ultimate risk is in country B; andd. if a firm has an exposure to a borrower in country A, and the exposure is to finance a project in country B, then the ultimate risk is in country B.
The CCyB Rate that applies in a jurisdiction
PIB 3.9A.7(1) The Countercyclical Capital Buffer Rate for an exposure:(a) in the DIFC or elsewhere in the
State, is the rate set by the Central Bank; and(b) outside the State, is the rate set by the CCyB Authority for that jurisdiction, unless the DFSAhas specified a rate under PIB Rule 3.9A.8, in which case that specified rate applies.(2) If the rate specified by a CCyB Authority is more than 2.5% then it is taken to be equal to 2.5%, unless the DFSAspecifies otherwise.
PIB 3.9A.8(1) If the DFSA considers that the
CCyB Ratein a jurisdiction outside the Stateis not sufficient to protect Authorised Firmsfrom the risks of excessive credit growth in that jurisdiction, it may, for credit exposures in that jurisdiction:(a) specify a CCyB Rateeven though no rate is imposed by the CCyB Authorityfor that jurisdiction; or(b) specify a CCyB Ratethat is higher than the rate imposed by the CCyB Authorityfor that jurisdiction.(2) If the DFSAspecifies a rate under this Rule, then that rate applies for Non- Financial Private Sector Credit Exposuresin the jurisdiction.(3) The DFSAmay vary or cancel a specified rate under this Rule.(4) The DFSA must notify affected Authorised Firmsif it specifies a rate, or if it varies or cancels a rate, under this Rule.
Effective date of CCyB Rates
PIB 3.9A.9 PIB 3.9A.9(1) This
Rulespecifies when a CCyB Rate takes effect for the purposes of calculating a CCyB Buffer under this section.(2) A CCyB Rate for a jurisdiction takes effect from whichever is the later of:(a) 12 months after the CCyB Authority announces the rate or the DFSA notifies the rate under PIB Rule 3.9A.8 (as the case may be); or(b) 1 July 2018.(3) In exceptional circumstances, the DFSAmay specify that a CCyB Rate is to take effect from a date earlier or later than that specified in (2).
PIB 3.9A.9 Guidance1. CCyB Rates are usually specified to apply after an advance announcement period i.e. a period between when it is announced and when it takes effect, which gives
Authorised Firmssufficient time to adopt the new capital buffer. The effect of PIB Rule 3.9A.9(2)(a) is that Authorised Firmswill usually have 12 months from the announcement to adopt a buffer.2. As a transitional measure, PIB Rule 3.9A.9(2)(b) has the effect that Authorised Firmswill have at least 6 months from the day on which this section commences (1 January 2018) to adopt a buffer, even if the relevant rate was announced 12 months before the day the section commences.
For example: If a CCyB Authority announced on 1 February 2017 a CCyB Rate of 1% that would apply to credit exposures in its jurisdiction, this would usually take effect on 1 February 2018. However, under PIB Rule 3.9A.9(2)(b), instead an
Authorised Firmhas until 1 July 2018 (6 months after the commencement of this Rule) to adopt the buffer.