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PRU-EPRS 1.20 Instructional Guidelines

1. An Authorised Firm is required to identify and manage its Exposures in accordance with PIB Rule 4.15.
2. An Exposure, whether in an Authorised Firm's Non-Trading Book or Trading Book, or both, to a Counterparty or Group of Closely Related Counterparties connected to the Authorised Firm which in the aggregate equals or exceeds 10% of the Authorised Firm's Capital Resources should be reported on this form.
3. The 20 largest Exposures should be listed and, if requested, any other Exposure that exceeds 10% of the Authorised Firm's Capital Resources. Only Exposures that are non-exempt are required to be reported in the first two tables. Any exemptions or Exposures excluded should be reported in the third table.
Item Instructional Guidelines
Capital Resources The Capital Resources used as the basis for monitoring and controlling large Exposures should be calculated in the same way as those used for capital adequacy monitoring in Form B60.

The values in this section are calculated by EPRS based on the values in form B60- Capital Adequacy Calculation.
Column Instructional Guidelines
Twenty Largest Exposures Include in this table the twenty largest Exposures to all types of Counterparty except those that are considered to be exempt (which are reported in table 3 below).

Exposures to individual, or groups of Closely Related, Counterparties should be reported in descending order by size. Exposures to individual Counterparties which constitute a group of Closely Related Counterparties should be reported as one aggregate Exposure.
Counterparty The identity of a Counterparty, as defined in the Glossary, in this context will generally be one of the categories as set out in PIB Rule A4.11.4.
Connected, Unconnected — Bank, Unconnected — Other, Government The Authorised Firm should clarify here into what category an Exposure falls. These are set out in detail in Rules PIB A4.11.4 to PIB A4.11.28 but for the purposes of this form, an Authorised Firm should state whether an Exposure is to:
i. a Connected Counterparty;
ii. an unconnected Counterparty or group of Closely Related Counterparties that are predominantly comprised of non-financial businesses;
iii. an unconnected Counterparty or group of Closely Related Counterparties that are predominantly comprised of financial businesses; or
iv. Central governments and central banks.
Amount of non-exempt Exposure For Exposures arising in the Non-Trading Book the amount at risk should, with certain exceptions detailed below, be reported as the book value of the Authorised Firm's actual or potential claims, contingent liabilities or assets.

Exposures should be calculated in accordance with IFRS or AAOFI standards.

For Exposures arising in the Trading Book, all positions should be marked-to-market daily. Where a market determined price is not readily available, the Authorised Firm may generate its own mark-to-market valuation. Positions should be valued in accordance with the procedures outlined in the Authorised Firm's trading book policy statement.

This is set out in more detail in Rules 2.4 and A4.11.10 to 4.11.28.
Specific bad debt provision Include here the amount of specific bad debt provision that may have been made against a particular Exposure.
Reduction by netting, collateral etc. As set out in PIB Rule 4.15.3(f) the value of an Exposure can be reduced through Credit Risk Mitigation as set out in section 4.13.
Exposure at reporting date after eligible set-offs Amounts in column "Amount at risk at reporting date" less the amounts in Columns "Specific bad debt provision" and "Reduction by netting collateral and other off-sets".
Amount of this Exposure financed by own assets or Unrestricted PSIAs For Exposures arising out of Islamic business, this column should be used to quantify the amount of the Exposure that is financed by the Authorised Firm's own assets or by Unrestricted PSIA assets.
Amount of this Exposure financed by restricted PSIAs. For Exposures arising out of Islamic business, this column should be used to quantify the amount of the Exposure that is financed by restricted PSIA assets.
Table 2
Exposures to Connected Counterparties This section comprises the disaggregated detail of all connected lending and Exposures should be split into different Counterparties within the connected group.
Financial or Non-financial company An Authorised Firm should indicate here if the Exposure is to a bank or non-bank within its own Group.
Table 3
Ten Largest Exempt Exposures An Authorised Firm is required to identify its exempt Exposures as per PIB Rules A4.11.1. Firms should also include Exposures subject to the institutional exemption as set out in PIB 4.15.10.
Reason for exemption The Authorised Firm should specify here under what section of A4.11.1 — the Exposure is captured.

Additional detail for Form B70A1 — Appendix 1 — Largest 25 Exposures arising from Islamic Contracts

Content

The form is intended to capture information regarding the Authorised Firms largest 25 Exposures arising from Islamic Contracts.

Structure of the form in EPRS

In EPRS the form is split into five linked forms namely, Part I — Musharaka, Part II — Mudaraba, Part III — Istisna'a and Salam Contracts, Part IV — Ijarah and Part V — Murabaha Receivables. These are explained further in the following table.

Instructional Guidelines

Item No. Contract type Instructional Guidelines
Part I Musharaka Report all Musharaka contracts currently outstanding that exceed 10% of the Authorised Firm's Capital Resources. Details regarding the following should be included:
•  Whether the capital has been self-financed or provided by PSIA accounts;
•  The amount of capital redeemed during the period such as in the case of a diminishing Musharaka; and
•  Any income or loss declared, any provisions being made to the value of the Musharaka and the net value of the investment.
Part II Mudaraba Report all Mudaraba financing contracts that would qualify as a Large Exposure. Identify the basis on which the Authorised Firm has provided the financing i.e. whether on a self-financed or on a PSIA funds basis. Refer to FAS 3.
Part III Istisna'a/ Parallel Istisna'a Report all Istisna'a contracts that would qualify as a Large Exposure. Identify the value of the Parallel Istisna'a and indicate what proportion of the value has been financed by Authorised Firm's own capital and the funds of PSIA account holders. Refer to FAS 10.
Part III Salam/ Parallel Salam Report all Salam contracts and Parallel Salam amounts that would qualify as a Large Exposure. The data is to be split into values financed by Authorised Firm's own capital and the restricted and Unrestricted PSIA account holders. Refer to FAS 7.
Part IV Ijarah / Ijarah Muntahia Bittamleek Report all Ijarah assets on the valuation basis set out in FAS 8. Report also, all assets transferred to the lessee for consideration or gift including the value of impairment before transfer of a legal asset. State total depreciation / amortisation charge and the net book value. This information is required to be provided for self-financed and both forms of PSIAs. The data is to be split by the industrial sectors identified in the reporting statement. Refer to FAS 8.
Part V Murabaha Report here all Murabaha Exposures that would qualify as a Large Exposure. Divide Exposures into self-financed, PSIAR and PSIA unfunded Exposures. Refer to FAS 2.
Derived from GM5/2007 (Made 16th December 2007). [VER1/12-07]
[Amended] [VER2/04-13]