Entire Section

  • PIB 3.9A PIB 3.9A Countercyclical Capital Buffer (CCyB)

    • PIB 3.9A Guidance

      1. This section sets out when an Authorised Firm must 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 Firm will 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.
      Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]
      [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

    • PIB 3.9A.1

      This section applies to an Authorised Firm if 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.
      Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

    • Countercyclical Capital Buffer Requirement

      • PIB 3.9A.2 PIB 3.9A.2

        An Authorised Firm must 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 Firm must 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 Firm has Non-Financial Private Sector Credit Exposures; and
        (c) "RWA" is the value of the Authorised Firm's Risk Weighted Assets.
        Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

        • PIB 3.9A2 Guidance

          1. The CCyB Requirement applies to credit exposures of an Authorised Firm that 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 Firm will 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); and
          d. multiply the weighted average by the value of its Risk Weighted Assets.
          Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

      • PIB 3.9A.3

        An Authorised Firm must 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 DFSA may impose on it under PIB chapter 10.
        Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

      • PIB 3.9A.4

        The Countercyclical Capital Buffer Requirement applies on both a solo and a consolidated basis for Authorised Firms forming part of a Group.

        Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

    • Weighted Average of CCyB Rates

      • PIB 3.9A.5

        (1) The rate to be used to calculate an Authorised Firm's Countercyclical 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's Non-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.
        Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

    • Determining the location of credit exposures

      • PIB 3.9A.6 PIB 3.9A.6

        (1) This Rule specifies how an Authorised Firm must determine the jurisdiction in which it has a Non-Financial Private Sector Credit Exposure.
        (2) The jurisdiction in which an Authorised Firm has an exposure is to be determined by allocating the exposure to the jurisdiction where, to the best of the Authorised Firm's knowledge 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 Firm has the exposure is the jurisdiction where the exposure is booked.
        Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

        • PIB 3.9A.6 Guidance

          1. The location of an Authorised Firm's credit 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's own 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 Branch in country A, and the head office of the Branch is in country B, then the ultimate risk is in country B; and
          d. 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.
          Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

    • 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 DFSA has 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 DFSA specifies otherwise.
        Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

      • PIB 3.9A.8

        (1) If the DFSA considers that the CCyB Rate in a jurisdiction outside the State is not sufficient to protect Authorised Firms from the risks of excessive credit growth in that jurisdiction, it may, for credit exposures in that jurisdiction:
        (a) specify a CCyB Rate even though no rate is imposed by the CCyB Authority for that jurisdiction; or
        (b) specify a CCyB Rate that is higher than the rate imposed by the CCyB Authority for that jurisdiction.
        (2) If the DFSA specifies a rate under this Rule, then that rate applies for Non- Financial Private Sector Credit Exposures in the jurisdiction.
        (3) The DFSA may vary or cancel a specified rate under this Rule.
        (4) The DFSA must notify affected Authorised Firms if it specifies a rate, or if it varies or cancels a rate, under this Rule.
        Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

    • Effective date of CCyB Rates

      • PIB 3.9A.9 PIB 3.9A.9

        (1) This Rule specifies 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 DFSA may specify that a CCyB Rate is to take effect from a date earlier or later than that specified in (2).
        Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

        • PIB 3.9A.9 Guidance

          1. 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 Firms sufficient time to adopt the new capital buffer. The effect of PIB Rule 3.9A.9(2)(a) is that Authorised Firms will 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 Firms will 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 Firm has until 1 July 2018 (6 months after the commencement of this Rule) to adopt the buffer.
          Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]