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BIPRU 9.1 Application and purpose

Application

BIPRU 9.1.1R

1BIPRU 9.1 applies to a BIPRU firm.3

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Purpose

BIPRU 9.1.2G

Pursuant to the third paragraph of article 95(2) of the EU CRR, the5 purpose of BIPRU 9 is to implement:

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  1. (1)

    Articles 94 to 96, paragraphs (1) and (5) of Article 97 , Article 99, Article 100(1) and Article 101;

  2. (2)

    Points 8 and 9 of Annex V; and

  3. (3)

    Parts 2, 3 (in part) and 4 of Annex IX;

of the Banking Consolidation Directive.

General obligations: Risk-weighted exposures

BIPRU 9.1.3R

A firm must calculate the risk weighted exposure amount for securitisation positions in accordance with BIPRU 9.

BIPRU 9.1.4G

A firm should apply the securitisation framework set out in this chapter for determining regulatory capital requirements on exposures arising from traditional securitisations and from synthetic securitisations and from structures that contain features of both.

BIPRU 9.1.5G

Since transactions may be structured in many different ways, the capital treatment of a position should be determined on the basis of its economic substance rather than merely its legal form. A firm should look to the economic substance of a transaction to determine whether the securitisation framework is applicable for purposes of determining regulatory capital. A firm should consult the appropriate regulator when there is uncertainty about whether a given transaction should be considered a securitisation.

General obligations: Systems

BIPRU 9.1.6R

The risks arising from securitisation transactions in relation to which a firm is investor,3 originator or sponsor, including reputational risks,3 must be evaluated and addressed through appropriate policies and procedures, to ensure in particular that the economic substance of the transaction is fully reflected in risk assessment and management decisions.

[Note: BCD Annex V point 8]

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BIPRU 9.1.7G

A firm that is a party to a securitisation should fully understand the risks it has assumed or retained. In particular it should do so in order that it can correctly determine in accordance with BIPRU 9 the capital effects of the securitisation.

BIPRU 9.1.8G

The appropriate regulator expects an originator to continue to monitor any risks that it may be subject to when it has excluded the securitised exposures from its calculation of risk weighted exposure amounts. The originator should consider capital planning implications where risks may return and the impact that securitisation has on the quality of the remaining exposures held by the originator.

BIPRU 9.1.8AG
  1. (1)

    The appropriate regulator expects firms to conduct regular stress testing in relation to their securitisation activities and off-balance sheet exposures. The stress tests should consider the firm-wide impact of those activities and exposures in stressed market conditions and the implications for other sources of risk, for example, credit risk, concentration risk, counterparty risk, market risk, liquidity risk and reputational risk. Stress testing of securitisation activities should take into account both existing securitisations and pipeline transactions, as there is a risk that these would not be completed in a stressed market scenario.2

  2. (2)

    The frequency and extent of the stress testing should be determined by the materiality of the firm's securitisation activities and off-balance sheet exposures.2

  3. (3)

    A firm should have procedures in place to assess and respond to the results produced from the stress testing and these should be taken into account under the overall Pillar 2 rule.2

Trading book and non-trading book

BIPRU 9.1.9G

BIPRU 9 deals with:

  1. (1)

    requirements for investors,3 originators and sponsors of securitisations of non-trading book exposures;

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  2. (2)

    the calculation of risk weighted exposure amount for securitisation positions for the purposes of calculating either the credit risk capital component or the counterparty risk capital component; and3

  3. (3)

    the requirements that investors, originators and sponsors of securitisations in the trading book will have to meet (BIPRU 9.3.1AR, BIPRU 9.3.15R to BIPRU 9.3.20R and6 BIPRU 9.6.1A R46).3

BIPRU 9.1.10G

BIPRU 7 sets out the calculation of the market risk capital requirement for securitisation positions held in the trading book.