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BIPRU 9.6 Implicit support

BIPRU 9.6.1R

An originator which, in respect of a securitisation in the non-trading book,1 has made use of BIPRU 9.3.1 R in the calculation of risk weighted exposure amounts, or a sponsor, must not, with a view to reducing potential or actual losses to investors, provide support to the securitisation beyond its contractual obligations.

[Note: BCD Article 101(1)]

BIPRU 9.6.1AR

1An originator which has sold instruments in its trading book to an SSPE and no longer holds market risk capital requirements for these instruments, or a sponsor, must not, with a view to reducing potential or actual losses to investors, provide support to the securitisation beyond its contractual obligations.

[Note: BCD Article 101(1)]

BIPRU 9.6.2R

If an originator or sponsor fails to comply with BIPRU 9.6.1 R or BIPRU 9.6.1A R1 in respect of a securitisation, it must:

  1. (1)

    hold capital against all of the securitised exposures associated with the securitisation transaction as if they had not been securitised; and

  2. (2)

    disclose publicly:

    1. (a)

      that it has provided non-contractual support;1 and

    2. (b)

      the regulatory capital impact of doing so.

      [Note: BCD Article 101(2)]

BIPRU 9.6.3G

  1. (1)

    Securitisation documentation should make clear, where applicable, that any repurchase of securitised exposures or securitisation positions by the originator or sponsor beyond its contractual obligations is not mandatory and may only be made at fair market value. In general, any such repurchase should be subject to a firm's credit review and approval process, which should be adequate to ensure that the repurchase complies with BIPRU 9.6.1 R.

  2. (2)

    If an originator or sponsor repurchases securitised exposures or securitisation positions, it should be able to satisfy the appropriate regulator that it has adequately considered the following:

    1. (a)

      the price of the repurchase;

    2. (b)

      the firm's capital and liquidity position before and after repurchase;

    3. (c)

      the performance of the securitised exposures; and

    4. (d)

      the performance of the issued securities;

    and has concluded that, taking into account those factors and any other relevant factors, the repurchase is not structured to provide support.

  3. (3)

    A firm should keep adequate records of the matters in (1) and (2).

BIPRU 9.6.4G

If a firm is found to have provided implicit support to a securitisation, that fact increases the expectation that the firm will provide future support to its securitisations thus failing to achieve a significant transfer of risk. The appropriate regulator will consider taking appropriate measures to reflect this increased expectation after an instance of implicit support is found.

BIPRU 9.6.5G

A firm may need to consider three main situations to determine whether there is a breach of the prohibition against implicit support in BIPRU 9.6.1 R:

  1. (1)

    support given under a contractual obligation;

  2. (2)

    support given under the contractual documentation for the securitisation which the firm is entitled, but not obliged, to give; and

  3. (3)

    support which is not provided for under the contractual documentation for the securitisation.

BIPRU 9.6.6G

  1. (1)

    The support described in BIPRU 9.6.5 G (1) is permitted by BIPRU 9.6.1 R.

  2. (2)

    The support described in BIPRU 9.6.5 G (3) is not permitted by BIPRU 9.6.1 R.

  3. (3)

    The support described in BIPRU 9.6.5 G (2) may be permitted by BIPRU 9.6.1 R under the following conditions:

    1. (a)

      the fact that the firm may give it is expressly set out in the contractual and marketing documents for the securitisation;

    2. (b)

      the nature of the support that the firm may give is precisely described in the documentation;

    3. (c)

      the maximum degree of support that can be given can be ascertained at the time of the securitisation both by the firm and by a person whose only information comes from the marketing documents for the securitisation;

    4. (d)

      the assessment of whether there has been significant risk transfer and the amount of that transfer is made on the basis that the firm will provide support to the maximum degree possible; and

    5. (e)

      the firm's capital resources and capital resources requirement are adjusted at the time of the securitisation on the basis that the firm has provided support to the maximum degree possible, whether by an immediate deduction from capital or appropriate risk weighting.

BIPRU 9.6.7G

A waiver of the right to future margin income may not breach the prohibition against implicit support:

  1. (1)

    the degree of support that can be given can be defined precisely by reference to the securitisation contractual documentation , albeit the amount of support may not be ascertainable in absolute monetary terms; and

  2. (2)

    no adjustment to the firm's capital resources or capital resources requirement is required, as a firm should not in any case reflect future margin income in its income or capital resources.

BIPRU 9.6.8G

For the purposes of BIPRU 9.6.2 R (2), firms will be expected to include disclosure of implicit support in accordance with the general and technical requirements on public disclosure, as outlined in BIPRU 11 (Disclosure).