Related provisions for BIPRU 4.6.55

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BIPRU 3.4.1RRP
Without prejudice to BIPRU 3.4.2 R to BIPRU 3.4.9 R, exposures to central governments and central banks must be assigned a 100% risk weight.[Note: BCD Annex VI Part 1 point 1]
BIPRU 3.4.2RRP
Subject to BIPRU 3.4.4 R, exposures to central governments and central banks for which a credit assessment by a nominated ECAI is available must be assigned a risk weight according to the table in BIPRU 3.4.3 R in accordance with the assignment by the appropriate regulator in accordance with the Capital Requirements Regulations 2006 of the credit assessments of eligible ECAIs to six steps in a credit quality assessment scale.[Note: BCD Annex VI Part 1 point 2]
BIPRU 3.4.3RRP
This table belongs to BIPRU 3.4.2 R.Credit quality step123456Risk weight0 %20 %50 %100 %100 %150 %
BIPRU 3.4.4RRP
Exposures to the European Central Bank must be assigned a 0% risk weight.[Note: BCD Annex VI Part 1 point 3]
BIPRU 3.4.5RRP
Exposures to EEA States' central governments and central banks denominated and funded in the domestic currency of that central government and central bank must be assigned a risk weight of 0%.[Note: BCD Annex VI Part 1 point 4]
BIPRU 3.4.6RRP
When the competent authorities of a third country which apply supervisory and regulatory arrangements at least equivalent to those applied in the EEA assign a risk weight which is lower than that indicated in BIPRU 3.4.1 R to BIPRU 3.4.3 R to exposures to their central government and central bank denominated and funded in the domestic currency, a firm may risk weight such exposures in the same manner.[Note: BCD Annex VI Part 1 point 5]
BIPRU 3.4.7RRP
An export credit agency credit assessment may be recognised by a firm for the purpose of determining the risk weight to be applied to an exposure under the standardised approach if either of the following conditions is met:(1) the credit assessment is a consensus risk score from export credit agencies participating in the OECD "Arrangement on Guidelines for Officially Supported Export Credits"; or(2) the export credit agency publishes its credit assessments, and the export credit
BIPRU 3.4.8RRP
Exposures for which a credit assessment by an export credit agency is recognised for risk weighting purposes must be assigned a risk weight according to the table in BIPRU 3.4.9 R.[Note: BCD Annex VI Part 1 point 7]
BIPRU 3.4.9RRP
This table belongs to BIPRU 3.4.8 R.MEIP01234567Risk weight0%0%20%50%100%100%100%150%
BIPRU 3.4.10RRP
Without prejudice to BIPRU 3.4.15 R to BIPRU 3.4.19 R:(1) a firm must risk weightexposures to regional governments and local authorities in accordance with BIPRU 3.4.11 R to BIPRU 3.4.14 R and BIPRU 3.4.19A R; and8(2) the preferential treatment for short-term exposures specified in BIPRU 3.4.37 R, BIPRU 3.4.39 R and BIPRU 3.4.44 R must not be applied.[Note: BCD Annex VI Part 1 point 8]
BIPRU 3.4.11RRP
(1) Exposures to regional governments and local authorities must be assigned a risk weight according to the credit quality step to which exposures to the central government of the jurisdiction in which the regional government or local authority is established are assigned in accordance with the table in BIPRU 3.4.12 R.(2) Exposures to an unrated regional government or local authority must not be assigned a risk weight lower than that applied to exposures to its central government.[Note:
BIPRU 3.4.12RRP
This table belongs to BIPRU 3.4.11 R.Credit quality step to which central government is assigned123456Risk weight of exposure20%50%100%100%100%150%
BIPRU 3.4.13RRP
For exposures to regional governments and local authorities established in countries where the central government is unrated, the risk weight must be not more than 100%.[Note: BCD Annex VI Part 1 point 27]
BIPRU 3.4.14RRP
For exposures to regional governments and local authorities with an original effective maturity of three months or less, the risk weight must be 20%.[Note: BCD Annex VI Part 1 point 28]
BIPRU 3.4.15RRP
A firm must treat an exposure to a regional government or local authority of the United Kingdom listed in BIPRU 3 Annex 2 R as an exposure to the central government of the United Kingdom.[Note: BCD Annex VI Part 1 point 9]
BIPRU 3.4.16GRP
The appropriate regulator will include a regional government or local authority in the list in BIPRU 3 Annex 2 R where there is no difference in risk between exposures to that body and exposures to the central government of the United Kingdom because of the specific revenue-raising powers of the regional government or local authority, and the existence of specific institutional arrangements the effect of which is to reduce the risk of default.[Note: BCD Annex VI Part 1 point
BIPRU 3.4.17RRP
A firm must treat an exposure to a regional government or local authority of an EEA State other than the United Kingdom as an exposure to the central government in whose jurisdiction that regional government or local authority is established if that regional government or local authority is included on the list of regional governments and local authorities drawn up by the competent authority in that EEA State under a CRD implementation measure with respect to point 9 of Part 1
BIPRU 3.4.18RRP
Exposures to churches or religious communities constituted in the form of a legal person under public law must, in so far as they raise taxes in accordance with legislation conferring on them the right to do so, be treated as exposures to regional governments and local authorities, except that BIPRU 3.4.15 R and BIPRU 3.4.17 R do not apply.[Note: BCD Annex VI Part 1 point 10]
BIPRU 3.4.19RRP
When competent authorities of a third country jurisdiction which apply supervisory and regulatory arrangements at least equivalent to those applied in the EEA treat exposures to regional governments and local authorities as exposures to their central government, a firm may risk weightexposures to such regional governments and local authorities in the same manner.[Note: BCD Annex VI Part 1 point 11]
BIPRU 3.4.19ARRP
8Without prejudice to BIPRU 3.4.17 R to BIPRU 3.4.19 R, an exposure to a regional government or local authority of an EEA State denominated and funded in the domestic currency of that regional government or local authority must be assigned a risk weight of 20%.[Note:BCD Annex VI Part 2(b)]
BIPRU 3.4.20RRP
BIPRU 3.4.21 R to BIPRU 3.4.26 R2 set out the provisions applying to exposures to administrative bodies and non-commercial undertakings.
BIPRU 3.4.21RRP
Without prejudice to BIPRU 3.4.22 R to BIPRU 3.4.26 R, exposures to administrative bodies and non-commercial undertakings must be assigned a 100% risk weight.[Note:BCD Annex VI Part 1 point 12]
BIPRU 3.4.22RRP
Without prejudice to BIPRU 3.4.23 R to BIPRU 3.4.26 R, exposures to public sector entities must be assigned a 100% risk weight.[Note: BCD Annex VI Part 1 point 13]
BIPRU 3.4.23RRP
A firm may treat an exposure to a public sector entity as an exposure to a regional government or local authority in accordance with BIPRU 3.4.11 R to BIPRU 3.4.14 R.[Note: BCD Annex VI Part 1 point 14]
BIPRU 3.4.24RRP
In exceptional circumstances a firm may treat an exposure to a public sector entity established in the United Kingdom as an exposure to the central government of the United Kingdom if there is no difference in risk between exposures to that body and exposures to the central government of the United Kingdom because of the existence of an appropriate guarantee by the central government.[Note: BCD Annex VI Part 1 point 15]
BIPRU 3.4.25RRP
Where a competent authority of another EEA State implements points 14 or 15 of Part 1 of Annex VI of the Banking Consolidation Directive by exercising the discretion to treat exposures to public sector entities as exposures to institutions or as exposures to the central government of the EEA State concerned, a firm may risk weightexposures to the relevant public sector entities in the same manner.[Note: BCD Annex VI Part 1 point 16]
BIPRU 3.4.26RRP
When competent authorities of a third country jurisdiction, which apply supervisory and regulatory arrangements at least equivalent to those applied in the EEA, treat exposures to public sector entities as exposures to institutions, a firm may risk weightexposures to the relevant public sector entities in the same manner.[Note: BCD Annex VI Part 1 point 17]
BIPRU 3.4.27RRP
Without prejudice to BIPRU 3.4.28 R to BIPRU 3.4.29 R:(1) a firm must treat exposures to multilateral development banks in the same manner as exposures to institutions in accordance with BIPRU 3.4.34 R to BIPRU 3.4.39 R (Exposures to institutions: credit assessment based method); and(2) the preferential treatment for short-term exposures specified in BIPRU 3.4.37 R, BIPRU 3.4.39 R and BIPRU 3.4.44 R must not be applied.[Note: BCD Annex VI Part 1 point 19]
BIPRU 3.4.28RRP
An exposure to a multilateral development bank listed in point (a)9 of the definition in the Glossary must be assigned a 0% risk weight.[Note: BCD Annex VI Part 1 point 20]9
BIPRU 3.4.30RRP
Exposures to the following international organisations must be assigned a 0% risk weight:(1) the EU;55(2) the International Monetary Fund; and(3) the Bank for International Settlements.[Note: BCD Annex VI Part 1 point 22]
BIPRU 3.4.31RRP
BIPRU 3.4.32 R to BIPRU 3.4.48 R set out the treatment to be accorded to exposures to institutions.
BIPRU 3.4.32RRP
Without prejudice to BIPRU 3.4.33 R to BIPRU 3.4.47 R, exposures to financial institutions authorised and supervised by the competent authorities responsible for the authorisation and supervision of credit institutions and subject to prudential requirements equivalent to those applied to credit institutions must be risk weighted as exposures to institutions.[Note: BCD Annex VI Part 1 point 24]
BIPRU 3.4.33RRP
Exposures to an unrated institution must not be assigned a risk weight lower than that applied to exposures to its central government.[Note: BCD Annex VI Part 1 point 25]
BIPRU 3.4.34RRP
Exposures to institutions with a residual maturity of more than three months 6for which a credit assessment by a nominated ECAI is available must be assigned a risk weight according to the table in BIPRU 3.4.35 R in accordance with the assignment by the appropriate regulator in accordance with the Capital Requirements Regulations 2006 of the credit assessments of eligible ECAIs to six steps in a credit quality assessment scale.[Note: BCD Annex VI Part 1 point 29]
BIPRU 3.4.35RRP
This table belongs to BIPRU 3.4.34 R.Credit quality step123456Risk weight20%50%50%100%100%150%
BIPRU 3.4.36RRP
Without prejudice to BIPRU 3.4.33 R, exposures to unrated institutions must be assigned a risk weight of 50%.[Note: BCD Annex VI Part 1 point 30]
BIPRU 3.4.37RRP
Exposures to an institution with a residual maturity of three months or less 6for which a credit assessment by a nominated ECAI is available must be assigned a risk weight according to the table in BIPRU 3.4.38 R in accordance with the assignment by the appropriate regulator in accordance with the Capital Requirements Regulations 2006 of the credit assessments of eligible ECAIs to six steps in a credit quality assessment scale.[Note: BCD Annex VI Part 1 point 31]
BIPRU 3.4.38RRP
This table belongs to BIPRU 3.4.37 R.Credit quality step123456Risk weight20%20%20%50%50%150%
BIPRU 3.4.39RRP
Without prejudice to BIPRU 3.4.33 R, exposures to unrated institutions having an original effective maturity of three months or less must be assigned a 20% risk weight[Note: BCD Annex VI Part 1 point 32]
BIPRU 3.4.40RRP
If there is no short-term credit assessment as set out in BIPRU 3.4.112 R, the general preferential treatment for short-term exposures as specified in BIPRU 3.4.37 R applies to all exposures to institutions of up to three months residual maturity.[Note: BCD Annex VI Part 1 point 34]
BIPRU 3.4.41RRP
If there is a short-term credit assessment as set out in BIPRU 3.4.112 R and such an assessment determines the application of a more favourable or identical risk weight than the use of the general preferential treatment for short-term exposures, as specified in BIPRU 3.4.37 R, then the short-term assessment and risk weighting specified in BIPRU 3.4.112 R must be used for that specific exposure only. Other short-term exposures must follow the general preferential treatment for
BIPRU 3.4.42RRP
If there is a short-term credit assessment as set out in BIPRU 3.4.112 R and such an assessment determines a less favourable risk weight than the use of the general preferential treatment for short-term exposures, as specified in BIPRU 3.4.37 R, then the general preferential treatment for short-term exposures must not be used and all unrated short-term claims must be assigned the same risk weight as that applied by the specific short-term assessment.[Note: BCD Annex VI Part 1
BIPRU 3.4.43GRP
2BIPRU 3 Annex 4 G2 contains a flow diagram guide to determining the risk weight to be applied to short-term exposures to institutions according to whether a short-term credit assessment is available.
BIPRU 3.4.44RRP
A firm may assign to an exposure to an institution formed under the law of the United Kingdom of a residual maturity of 3 months or less denominated and funded in pounds sterling a risk weight that is one category less favourable than the preferential risk weight, as described in BIPRU 3.4.5 R (Exposures in the national currency of the borrower), assigned to exposures to the central government of the United Kingdom.[Note: BCD Annex VI Part 1 point 37]
BIPRU 3.4.45RRP
(1) Where a competent authority of another EEA State implements point 37 of Part 1 of Annex VI of the Banking Consolidation Directive by exercising the discretion to allow the treatment in that point, a firm may assign to the relevant national currency exposures the risk weight permitted by that CRD implementation measure.(2) When the competent authority of a third country which applies supervisory and regulatory arrangements at least equivalent to those applied in the EEA assigns
BIPRU 3.4.46RRP
No exposures of a residual maturity of 3 months or less denominated and funded in the national currency of the borrower may be assigned a risk weight less than 20%.[Note: BCD Annex VI Part 1 point 38]
BIPRU 3.4.48RRP
Where an exposure to an institution is in the form of minimum reserves required by the European Central Bank or by the central bank of an EEA State to be held by the firm, a firm may assign the risk weight that would be assigned to exposures to the central bank of the EEA State in question provided:(1) the reserves are held in accordance with Regulation (EC) No. 1745/2003 of the European Central Bank of 12 September 2003 or a subsequent replacement regulation or in accordance
BIPRU 3.4.50RRP
Exposures for which a credit assessment by a nominated ECAI is available must be assigned a risk weight according to the table in BIPRU 3.4.51 R in accordance with the assignment by the appropriate regulator in accordance with the Capital Requirements Regulations 2006 of the credit assessments of eligible ECAIs to six steps in a credit quality assessment scale.[Note: BCD Annex VI Part 1 point 41]
BIPRU 3.4.52RRP
Unrated exposures must be assigned a 100% risk weight or the risk weight of its central government, whichever is the higher.[Note: BCD Annex VI Part 1 point 42]
BIPRU 3.4.53RRP
Exposures that comply with the criteria listed in BIPRU 3.2.10 R must be assigned a risk weight of 75%. However a firm may treat such an exposure under BIPRU 3.2.24 R (100% risk weight).[Note: BCD Annex VI Part 1 point 43]
BIPRU 3.4.54RRP
BIPRU 3.4.55 R to BIPRU 3.4.94 R set out the treatment to be accorded to exposures secured by real estate property.
BIPRU 3.4.55RRP
Without prejudice to BIPRU 3.4.56 R to BIPRU 3.4.94 R, exposures fully secured by real estate property must be assigned a risk weight of 100%.[Note: BCD Annex VI Part 1 point 44]
BIPRU 3.4.56RRP
Without prejudice to BIPRU 3.4.85 R, an exposure or any part of an exposure fully and completely secured, to the satisfaction of the firm, by mortgages on residential property which is or shall be occupied or let by the owner or the beneficial owner in the case of personal investment companies must be assigned a risk weight of 35%.[Note: BCD Annex VI Part 1 point 45]
BIPRU 3.4.56ARRP
(1) 4A firm must not treat a lifetime mortgage as an exposure fully and completely secured on residential property for the purposes of BIPRU 3.4.56 R unless the amount of the exposure is calculated according to the following formula:exposure amount =where:(a) P is the current outstanding balance on the lifetime mortgage;(b) i is the interest rate charged on the lifetime mortgage, which for the purposes of this calculation must not be lower than the discount rate referred to in
BIPRU 3.4.56BGRP
(1) 4This paragraph provides guidance on BIPRU 3.4.56A R.(2) For the purposes of BIPRU 3.4.56A R (2), a firm may use the FTSE UK gilt 10-year yield index which the Council of Mortgage Lenders makes available to its members.(3) If a firm offers a variable interest rate on a lifetime mortgage, it should calculate an average interest rate in a way which is consistent with the calculation of the discount rate.(4) To determine the projected number of years to maturity of the exposure,
BIPRU 3.4.57RRP
Exposures fully and completely secured, to the satisfaction of the firm, by shares in Finnish residential housing companies, operating in accordance with the Finnish Housing Company Act of 1991 or subsequent equivalent legislation, in respect of residential property which is or shall be occupied or let by the owner must be assigned a risk weight of 35%.[Note: BCD Annex VI Part 1 point 46]
BIPRU 3.4.58RRP
Without prejudice to BIPRU 3.4.85 R, an exposure or any part of an exposure to a tenant under a property leasing transaction concerning residential property under which the firm is the lessor and the tenant has an option to purchase, must be assigned a risk weight of 35% provided that the firm is satisfied that the exposure of the firm is fully and completely secured by its ownership of the property.[Note: BCD Annex VI Part 1 point 47]
BIPRU 3.4.59GRP
An Ijara mortgage is an example of an exposure described in BIPRU 3.4.58 R.
BIPRU 3.4.61RRP
BIPRU 3.4.60 R (3) does not apply to exposures fully and completely secured by mortgages on residential property which is situated within the United Kingdom.[Note: BCD Annex VI Part 1 point 49]
BIPRU 3.4.63RRP
If a CRD implementation measure of another EEA State exercises the discretion in point 49 of Part 1 of Annex VI of the Banking Consolidation Directive to dispense with the condition corresponding to BIPRU 3.4.60 R (3) (The risk of the borrower should not materially depend upon the performance of the underlying property or project) , a firm may apply a risk weight of 35% to such exposures fully and completely secured by mortgages on residential property situated in that EEA State.[Note:
BIPRU 3.4.69GRP
For the purposes of BIPRU 3.4.66 R (1)(d) and (e), the review of a property valuation is more in-depth than the normal monitoring process required by BIPRU 3.4.66 R (1)(a). This requirement is likely to include a review of the property value on an individual exposure basis. Where an exposure is secured by multiple properties, the review can be undertaken at the level of the exposure, rather than at the level of each individual property.
BIPRU 3.4.81RRP
A firm may not treat an exposure as fully and completely secured by residential property located in the United Kingdom for the purpose of BIPRU 3.4.56 R or BIPRU 3.4.58 R unless the amount of the exposure or of the secured part of the exposure referred to in BIPRU 3.4.56 R or BIPRU 3.4.58 R, as the case may be, is 80% or less of the value of the residential property on which it is secured.
BIPRU 3.4.82GRP
(1) The application of BIPRU 3.4.81 R may be illustrated by an example. If a firm has a mortgage exposure of £100,000 secured on residential property in the United Kingdom that satisfies the criteria listed in BIPRU 3.4.56 R to BIPRU 3.4.80 R and the value of that property is £100,000, then £80,000 of that exposure may be treated as fully and completely secured and risk weighted at 35%. The remaining £20,000 may be risk weighted at 75% provided the exposure meets the criteria
BIPRU 3.4.83RRP
A firm may only treat an exposure as fully and completely secured by residential property situated in another EEA State for the purposes of BIPRU 3.4.56 R or BIPRU 3.4.58 R if it would be treated as fully and completely secured by the relevant CRD implementation measures in that EEA State implementing points 45 and 47 of Part 1 of Annex VI of the Banking Consolidation Directive.
BIPRU 3.4.84RRP
For the purposes of BIPRU 3.4.56 R or BIPRU 3.4.58 R, a firm may only treat an exposure as fully and completely secured by residential property situated in the territory of a third-country competent authority that is listed as equivalent for credit risk in BIPRU 8 Annex 6 R3 if it would be treated as fully and completely secured under the applicable requirements of that third-country competent authority (including any applicable loan-to-value ceiling).3
BIPRU 3.4.85RRP
For the purposes of BIPRU 3.4.56 R or BIPRU 3.4.58 R, where the residential property in question is situated in the territory of a third-country competent authority that is not listed as equivalent for credit risk in BIPRU 8 Annex 3 R:(1) a firm must not treat an exposure as fully and completely secured by the residential property in question unless the value of the property exceeds the exposures by a substantial margin, which must be at least 20%;(2) the firm must apply a risk
BIPRU 3.4.86GRP
For the purposes of BIPRU 3.4.85 R (1) and in order to satisfy itself that an exposure is fully and completely secured by the relevant property, a firm should make its own assessment of the appropriate margin in each case, using its knowledge of the market in the relevant country and of its own portfolio.
BIPRU 3.4.87GRP
If a firm has more than one exposure secured on the same property they should be aggregated and treated as if they were a single exposure secured on the property for the purposes of BIPRU 3.4.56 R and BIPRU 3.4.58 R and BIPRU 3.4.81 R, BIPRU 3.4.83 R and BIPRU 3.4.84 R.
BIPRU 3.4.88GRP
If an exposure is secured on property that is used in part for residential purposes in accordance with BIPRU 3.4.56 R and partly for commercial purposes (such as a farm, public house, guest house or shop) it may be treated as secured by residential real estate if the firm can demonstrate that the property's main use is, or will be, residential and that the value of the property is not significantly affected by its commercial use.
BIPRU 3.4.89RRP
Exposures or any part of an exposure secured by mortgages on offices or other commercial premises which cannot properly be considered to fall within any other standardised credit risk exposure class or to qualify for a lower risk weight under BIPRU 3 must be assigned a risk weight of 100%.[Note: BCD Annex VI Part 1 point 51]
BIPRU 3.4.90RRP
Exposures fully and completely secured by shares in Finnish housing companies, operating in accordance with the Finnish Housing Company Act of 1991 or subsequent equivalent legislation, in respect of offices or other commercial premises may be assigned a risk weight of 50%.[Note: BCD Annex VI Part 1 point 52]
BIPRU 3.4.91RRP
If a CRD implementation measure in another EEA State implements the discretion in point 51 of Part 1 of Annex VI of the Banking Consolidation Directive, a firm may apply the same treatment as that CRD implementation measure to exposures falling within the scope of that CRD implementation measure which are fully and completely secured by mortgages on offices or other commercial premises situated in that EEA State.[Note: BCD Annex VI Part 1 points 51 and 57]
BIPRU 3.4.92RRP
If a CRD implementation measure in another EEA State implements the discretion in point 53 of Part 1 of Annex VI of the Banking Consolidation Directive, a firm may apply the same treatment as that CRD implementation measure to exposures related to property leasing transactions concerning offices or other commercial premises situated in that EEA State and governed by statutory provisions whereby the lessor retains full ownership of the rented assets until the tenant exercises his
BIPRU 3.4.94RRP
(1) If a CRD implementation measure in another EEA State implements the discretion in point 58 of Part 1 of Annex VI of the Banking Consolidation Directive to dispense with the condition in point 54(b) for exposures fully and completely secured by mortgages on commercial property situated in that EEA State, a firm may apply the same treatment as that CRD implementation measure to exposures fully and completely secured by mortgages on commercial property situated in that EEA State
BIPRU 3.4.96RRP
Without prejudice to the provisions contained in BIPRU 3.4.97 R to BIPRU 3.4.101 R, the unsecured part of any item that is past due for more than 90 days (irrespective of the amount of that item or of the unsecured portion of that item) must be assigned a risk weight of:(1) 150% if value adjustments are less than 20% of the unsecured part of the exposure gross of value adjustments; and(2) 100% if value adjustments are no less than 20% of the unsecured part of the exposure gross
BIPRU 3.4.98GRP
For the purposes of BIPRU 3.4.97 R, the secured portion of a past due item is dealt with under BIPRU 5 (Credit risk mitigation). A firm may treat the secured portion of an exposure covered by a mortgage indemnity product that meets the relevant CRM eligibility criteria as secured for the purposes of BIPRU 3.4.97 R. The risk weight to be applied to the secured portion is determined under BIPRU 5.7.21 R to BIPRU 5.7.24 R. The risk weight of the unsecured portion is determined in
BIPRU 3.4.99RRP
Exposures indicated in BIPRU 3.4.56 R to BIPRU 3.4.63 R (Exposures secured by mortgages on residential property) must be assigned a risk weight of 100% net of value adjustments if they are past due for more than 90 days. If value adjustments are no less than 20% of the exposure gross of value adjustments, the risk weight to be assigned to the remainder of the exposure is 50%.[Note: BCD Annex VI Part 1 point 64]
BIPRU 3.4.100GRP
The application of BIPRU 3.4.96 R and BIPRU 3.4.99 R may be illustrated on the basis of a £110,000 loan on a property valued at £100,000, where £80,000 of the loan is secured and £30,000 of the exposure is unsecured and provisions of £20,000 are taken:(1) Option 1 (application of BIPRU 3.4.96 R):(a) provision of £20,000 taken on £80,000 secured exposure;(b) provision exceeds 20%, so the firm should risk weight the remaining £60,000 secured exposure at 50%;(c) the risk weight to
BIPRU 3.4.101RRP
Exposures indicated in BIPRU 3.4.89 R to BIPRU 3.4.94 R (Exposures secured by mortgages on commercial real estate) must be assigned a risk weight of 100% if they are past due for more than 90 days.[Note: BCD Annex VI Part 1 point 65]
BIPRU 3.4.102RRP
Non past due items to be assigned a 150% risk weight under BIPRU 3.4 and for which value adjustments have been established may be assigned a risk weight of:(1) 100% if value adjustments are no less than 20% of the exposure value gross of value adjustments; and(2) 50%, if value adjustments are no less than 50% of the exposure value gross of value adjustments.[Note: BCD Annex VI Part 1 point 67]
BIPRU 3.4.104RRP
Exposures listed in BIPRU 3 Annex 3 R must be assigned a risk weight of 150%.[Note: BCD Annex VI Part 1 point 66]
BIPRU 3.4.105GRP
For the purposes of point 66 of Part 1 of Annex VI of the Banking Consolidation Directive, the exposures listed in BIPRU 3 Annex 3 R are in the view of the appropriate regulator associated with particularly high risk.
BIPRU 3.4.106RRP
BIPRU 3.4.107 R to BIPRU 3.4.110 R set out the treatment to be accorded to exposures in the form of covered bonds.
BIPRU 3.4.107RRP
(1) Covered bonds means covered bonds as defined in paragraph (1) of the definition in the glossary (Definition based on Article 22(4) of the UCITS Directive) and collateralised by any of the following eligible assets:(a) exposures to or guaranteed by central governments, central bank, public sector entities, regional governments and local authorities in the EEA;(b) (i) exposures to or guaranteed by non-EEA central governments, non-EEAcentral banks, multilateral development banks,
BIPRU 3.4.110RRP
Covered bonds must be assigned a risk weight on the basis of the risk weight assigned to senior unsecured exposures to the credit institution which issues them. The following correspondence between risk weights applies:(1) if the exposures to the institution are assigned a risk weight of 20%, the covered bond must be assigned a risk weight of 10%;(2) if the exposures to the institution are assigned a risk weight of 50%, the covered bond must be assigned a risk weight of 20%;(3)
BIPRU 3.4.111RRP
Risk weightedexposure amounts for securitisation positions must be determined in accordance with BIPRU 9.[Note: BCD Annex VI Part 1 point 72]
BIPRU 3.4.112RRP
Exposures to institutions where BIPRU 3.4.34 R to BIPRU 3.4.39 R apply, and exposures to corporates6 for which a short-term credit assessment by a nominated ECAI is available must be assigned a risk weight according to the table in BIPRU 3.4.113 R in accordance with the mapping by the appropriate regulator in accordance with the Capital Requirements Regulations 2006 of the credit assessments of eligible ECAIs to six steps in a credit quality assessment scale.[Note: BCD Annex VI
BIPRU 3.4.113RRP
This table belongs to BIPRU 3.4.112 R.6Credit quality step123456Risk weight20%50%100%150%150%150%
BIPRU 3.4.114RRP
BIPRU 3.4.115 R to BIPRU 3.4.125 R set out the treatment to be accorded to exposures in the form of CIUs.
BIPRU 3.4.115RRP
Without prejudice to BIPRU 3.4.116 R to BIPRU 3.4.125 R, exposures in CIUs must be assigned a risk weight of 100%.[Note: BCD Annex VI Part 1 point 74]
BIPRU 3.4.116RRP
Exposures in the form of CIUs for which a credit assessment by a nominated ECAI is available must be assigned a risk weight according to the table in BIPRU 3.4.117 R in accordance with the assignment by the appropriate regulator in accordance with the Capital Requirements Regulations 2006 of the credit assessments of eligible ECAIs to six steps in a credit quality assessment scale.[Note: BCD Annex VI Part 1 point 75]
BIPRU 3.4.117RRP
Table: Exposures in the form of CIUs for which a credit assessment by a nominated ECAI is availableThis table belongs to BIPRU 3.4.116 R.Credit quality step123456Risk weight20%50%100%100%150%150%
BIPRU 3.4.123RRP
Where a firm is aware of the underlying exposures of a CIU, it may look through to those underlying exposures in order to calculate an average risk weight for the CIU in accordance with the standardised approach.[Note: BCD Annex VI Part 1 point 79]
BIPRU 3.4.124RRP
Where a firm is not aware of the underlying exposures of a CIU, it may calculate an average risk weight for the CIU in accordance with the standardised approach subject to the following rules: it will be assumed that the CIU first invests, to the maximum extent allowed under its mandate, in the standardised credit risk exposure classes attracting the highest capital requirement, and then continues making investments in descending order until the maximum total investment limit
BIPRU 3.4.133RRP
Where a firm provides credit protection for a number of exposures under terms that the nth default among the exposures triggers payment and that this credit event terminates the contract, and where the product has an external credit assessment from an eligible ECAI the risk weights prescribed in BIPRU 9 must be assigned. If the product is not rated by an eligible ECAI, the risk weights of the exposures included in the basket must be aggregated, excluding n-1 exposures, up to a
BIPRU 3.4.134RRP
The exposure value for leases must be the discounted minimum lease payments. Minimum lease payments are the payments over the lease term that the lessee is or can be required to make and any bargain option (i.e. an option the exercise of which is reasonably certain). Any guaranteed residual value fulfilling the set of conditions in BIPRU 5.7.1 R (Eligibility), regarding the eligibility of protection providers as well as the minimum requirements for recognising other types of guarantees
BIPRU 4.3.1RRP
This section applies to all exposures treated under the IRB approach.
BIPRU 4.3.2RRP
Each exposure must be assigned to one of the following exposure classes:(1) claims or contingent claims on central governments and central banks;(2) claims or contingent claims on institutions;(3) claims or contingent claims on corporates;(4) retail claims or contingent retail claims;(5) equity claims;(6) securitisation positions; and(7) non credit-obligation assets.[Note: BCD Article 86(1)]
BIPRU 4.3.3RRP
The methodology used by a firm for assigning exposures to different IRB exposure classes must be appropriate and consistent over time.[Note: BCD Article 86(9)]
BIPRU 4.3.4RRP
The risk weighted exposure amounts for credit risk for exposures belonging to one of the exposure classes referred to in (1) to (4) must, unless deducted from capital resources, be calculated in accordance with the following provisions:(1) for exposures in the sovereign, institution and corporate IRB exposure class, BIPRU 4.4.57 R to BIPRU 4.4.60 R, BIPRU 4.4.79 R, BIPRU 4.5.8 R to BIPRU 4.5.10 R (for specialised lending exposures), BIPRU 4.9.3 R and BIPRU 4.8.16 R to BIPRU 4.8.17
BIPRU 4.3.5RRP
The calculation of risk weighted exposure amounts for credit risk and dilution risk must be based on the relevant parameters associated with the exposure in question. These include probability of default (PD), loss given default (LGD), maturity (M) and the exposure value of the exposure. PD and LGD may be considered separately or jointly, in accordance with the provisions relating to PD and LGD in BIPRU 4.4, BIPRU 4.6, BIPRU 4.7 and BIPRU 4.8 at:(1) for exposures in the sovereign,
BIPRU 4.3.6RRP
The expected loss amounts for exposures belonging to one of the IRB exposure classes referred to in (1) to (3) must be calculated in accordance with the methods set out in the following provisions:(1) for exposures in the sovereign, institution and corporate IRB exposure class, BIPRU 4.4.61 R to BIPRU 4.4.62 R and (for specialised lending exposures) BIPRU 4.5.13 R to BIPRU 4.5.15R;(2) for exposures in the retail exposure class, BIPRU 4.6.47 R to BIPRU 4.6.48 R;(3) for exposures
BIPRU 4.3.7RRP
The calculation of expected loss amounts in accordance with BIPRU 4.3.6 R must be based on the same input figures of PD, LGD and the exposure value for each exposure as being used for the calculation of risk weighted exposure amounts in accordance with BIPRU 4. For defaultedexposures,where a firm uses its own estimate of LGDs, EL must be the firm's best estimate of expected loss (ELBE), for the defaultedexposure in accordance with BIPRU 4.3.122 R.[Note:BCD Article 88(2)]
BIPRU 4.3.8RRP
The expected loss amounts calculated in accordance with BIPRU 4.3.6 R (1), BIPRU 4.3.6 R (2) and BIPRU 4.3.6 R (4) must be subtracted from the sum of value adjustments and provisions related to these exposures. Discounts on balance sheet exposures purchased when in default according to BIPRU 4.4.71 R must be treated in the same manner as value adjustments. Expected loss amounts for securitised exposures and value adjustments and provisions related to these exposures must not be
BIPRU 4.3.15RRP
The credit risk control unit must be independent from the personnel and management functions responsible for originating or renewing exposures and report directly to senior management. The unit must be responsible for the design or selection, implementation, oversight and performance of the rating systems. It must regularly produce and analyse reports on the output of the rating systems.[Note:BCD Annex VII Part 4 point 128]
BIPRU 4.3.19RRP
A firm must document the design and operational details of its rating systems. The documentation must evidence compliance with the minimum IRB standards and the firm'sIRB permission, and address topics including portfolio differentiation, rating criteria, responsibilities of parties that rate obligors and exposures, frequency of assignment reviews, and management oversight of the rating process.[Note:BCD Annex VII Part 4 point 31]
BIPRU 4.3.24RRP
Where a firm employs statistical models in the rating process, the firm must document its methodologies. This material must:(1) provide a detailed outline of the theory, assumptions and/or mathematical and empirical basis of the assignment of estimates to grades, individual obligors, exposures, or pools, and the data source(s) used to estimate the model;(2) establish a rigorous statistical process (including out-of-time and out-of-sample performance tests) for validating the model;
BIPRU 4.3.25RRP
A rating system comprises all of the methods, processes, controls, data collection and IT systems that support the assessment of credit risk, the assignment of exposures to grades or pools (rating), and the quantification of default and loss estimates for a certain type of exposure.[Note:BCD Annex VII Part 4 point 1]
BIPRU 4.3.32GRP
The approach to validation may vary with the significance of the exposures covered by a rating system.
BIPRU 4.3.39RRP
A firm must have in place sound stress testing processes for use in the assessment of its capital adequacy. Stress testing must involve identifying possible events or future changes in economic conditions that could have unfavourable effects on the firm's credit exposures and assessment of the firm's ability to withstand such changes.[Note:BCD Annex VII Part 4 point 40]
BIPRU 4.3.40RRP
(1) A firm must regularly perform a credit risk stress test to assess the effect of certain specific conditions on its total capital requirements for credit risk. The test to be employed must be one chosen by the firm. The test to be employed must be meaningful and reasonably conservative. Stressed portfolios must contain the vast majority of a firm's total exposures covered by the IRB approach.(2) The stress test must be designed to assess the firm's ability to meet its capital
BIPRU 4.3.43RRP
A firm must have specific definitions, processes and criteria for assigning exposures to grades or pools within a rating system.[Note:BCD Annex VII Part 4 point 17 (part)]
BIPRU 4.3.46RRP
The documentation of the rating process must allow third parties to understand the assignments of exposures to grades or pools, to replicate grade and pool assignments and to evaluate the appropriateness of the assignments to a grade or a pool.[Note:BCD Annex VII Part 4 point 17 (part)]
BIPRU 4.3.48RRP
A firm must take all relevant information into account in assigning obligors and facilities to grades or pools. Information must be current and must enable the firm to forecast the future performance of the exposure. The less information a firm has, the more conservative must be its assignments of exposures to obligor and facility grades or pools. If a firm uses an external rating as a primary factor determining an internal rating assignment, the firm must ensure that it considers
BIPRU 4.3.49GRP
(1) This paragraph contains guidance on BIPRU 4.3.43 R and more general guidance about the governance of rating systems.(2) In determining the assignment referred to in BIPRU 4.3.43 R, a firm should have regard to the sensitivity of the rating to movements in fundamental risk drivers.(3) A firm should, for any rating system, be able to demonstrate that it acts appropriately or has an appropriate policy, as applicable, with respect to:(a) any deficiencies caused by its not being
BIPRU 4.3.50RRP
For grade and pool assignments a firm must document the situations in which human judgement may override the inputs or outputs of the assignment process and the personnel responsible for approving these overrides. A firm must document these overrides and the personnel responsible. A firm must analyse the performance of the exposures whose assignments have been overridden. This analysis must include assessment of the performance of exposures whose rating has been overridden by
BIPRU 4.3.51RRP
(1) This paragraph applies to the use of statistical models and/or other mechanical methods to assign exposures to obligor grades, obligor pools, facility grades or facility pools.(2) A firm must be able to demonstrate to the appropriate regulator that the model has good predictive power and that capital requirements are not distorted as a result of its use.(3) The input variables to the model must form a reasonable and effective basis for the resulting predictions. The model
BIPRU 4.3.52GRP
(1) This paragraph contains guidance on BIPRU 4.3.51 R (7).(2) BIPRU 4.3.51 R (7) does not require that each individual assignment of an exposure to a pool or grade should be the subject of an open-ended review by reference to factors not covered by the model if:(a) that is not necessary in order to meet the requirements of BIPRU 4 about the ability of the rating system to predict and to discriminate (as referred to in BIPRU 4.3.29 R to BIPRU 4.3.30 R (Validation of internal estimates));
BIPRU 4.3.53GRP
(1) This paragraph contains guidance on BIPRU 4.3.51 R for the use of external models.(2) BIPRU 4.3.51 R (2) - BIPRU 4.3.51 R (8) also apply to mechanical methods to assign exposures or obligors to facility grades or pools and to a combination of models and mechanical methods.(3) The standards which a firm applies to an external model should not be lower than those for internal models. (4) The appropriate regulator will not accredit any individual model or vendor. The burden is
BIPRU 4.3.57RRP
The following provisions also apply with respect to the definition of default:(1) for overdrafts, days past due commence once an obligor has breached an advised limit, has been advised a limit smaller than current outstandings, or has drawn credit without authorisation and the underlying amount is material;(2) an advised limit means a limit which has been brought to the knowledge of the obligor;(3) days past due for credit cards commence on the minimum payment due date;(4) in
BIPRU 4.3.58RRP
Where a firm applies the definition of default at facility level in accordance with BIPRU 4.6.21 R, it should define materiality for the purposes of BIPRU 4.3.57 R (5) by reference to the facility amount only, disregarding other exposures of the obligor.
BIPRU 4.3.60GRP
(1) This paragraph contains guidance on the definition of default.(2) If:(a) a firm ordinarily assigns exposures in the sovereign, institution and corporate IRB exposure class to a member of a group substantially on the basis of membership of that group and a common group rating; and(b) the firm does so in the case of a particular group;(3) the firm should consider whether members of that group should be treated as a single obligor for the purpose of the definition of default.(4)
BIPRU 4.3.63RRP
(1) Elements to be taken as indications of unlikeliness to pay must include the items set out in this rule.(2) The firm putting the credit obligation on non-accrued status must be taken as an indication of unlikeliness to pay.(3) The firm making a value adjustment resulting from a significant perceived decline in credit quality subsequent to the firm taking on the exposure must be taken as an indication of unlikeliness to pay.(4) The firm selling the credit obligation at a material
BIPRU 4.3.67GRP
(1) The realisation or forfeiture of collateral may be taken as an indication of unlikeliness to pay for the purposes of the definition of default.(2) However, the realisation or forfeiture of collateral may not indicate unlikeliness to pay:(a) in the case of an exposure in a market (such as one that involves retail exposures involving margin lending) in which it is established practice for collateral to be sold if its value falls below a certain percentage of the exposure and
BIPRU 4.3.68GRP
(1) If an obligor approach is being taken with respect to retail exposures (that is, the application of the definition of default at an obligor level rather than at a facility level as set out in BIPRU 4.6.21 R,) a firm should ensure that the PD associated with unsecured exposures is not understated as a result of the presence of any collateralised exposures. A firm should be able to explain to the appropriate regulator, if asked, how it has ensured that its estimate of PD is
BIPRU 4.3.71RRP
If a firm considers that a previously defaultedexposure is such that no trigger of default continues to apply, the firm must rate the obligor or facility as it would for a non-defaultedexposure. Should the definition of default subsequently be triggered, another default must be deemed to have occurred.[Note:BCD Annex VII Part 4 point 47]
BIPRU 4.3.72GRP
A firm should have a clear and documented policy for determining whether an exposure that has been in default should subsequently be returned to performing status.
BIPRU 4.3.82GRP
If a firm uses a rating model to assign exposures to the borrower or facility grades, it may reflect the data on main drivers of risk parameters by its inclusion in the model as a risk driver or as part of a subsequent process that adjusts the output of that model to calculate the risk parameters PD, LGD, conversion factor and EL.
BIPRU 4.3.85RRP
The population of exposures represented in the data used for estimation, the lending standards used when the data was generated and other relevant characteristics must be comparable with those of a firm'sexposures and standards. A firm must also be able to demonstrate to the appropriate regulator that the economic or market conditions that underlie the data are relevant to current and foreseeable conditions. The number of exposures in the sample and the data period used for quantification
BIPRU 4.3.87GRP
A firm should be able to demonstrate to the appropriate regulator:(1) how, with respect to each rating system, both assignment of ratings and estimates of PD, LGD and conversion factors are affected by:(a) movements in the economic cycle; and(b) other cyclical effects which are material to levels of default, loss or the amount of exposures at default for the exposures covered by the rating system; and(2) the level of conservatism inherent in its ratings, as provided for by BI
BIPRU 4.3.95RRP
(1) If:(a) a firm's internal experience of exposures of a type covered by a model or other rating system is 20 defaults or fewer; and(b) in the firm's view, reliable estimates of PD cannot be derived from external sources of default data, including the use of market price related data, for all the exposures covered by the rating system;the firm must estimate PD for exposures covered by that rating system in accordance with this rule.(2) A firm must use a statistical technique
BIPRU 4.3.96GRP
A firm may if appropriate also choose to use the approach in BIPRU 4.3.91 G if the internal experience on exposures covered by a rating system is greater than 20 defaults.
BIPRU 4.3.97GRP
If a firm excludes defaultedexposures that have been cured (as referred to in BIPRU 4.3.71 R) or restructured (as referred to in BIPRU 4.3.63 R (5)) from estimates of LGD in accordance with BIPRU 4.3.110 G, it may also exclude cures from estimates of PD for these exposures1.
BIPRU 4.3.100RRP
A firm must calculate the default weighted average on the basis of the number of defaults included in the calculations made under the historical average rules so far as they relate to the calculation of PDs and must not be weighted by the size of exposures.
BIPRU 4.3.101RRP
(1) A firm's estimates of LGDs must take into account:(a) data in respect of relevant incomplete workouts; and(b) the possibility that the proportion of defaultedexposures which are cured (as referred to in BIPRU 4.3.71 R) or restructured (as referred to in BIPRU 4.3.63 R (5)) or the length of the period over which a firm makes recoveries under a defaultedexposure may be different from the firm's observed historic experience.(2) An incomplete workout as referred to in (1)(a) means
BIPRU 4.3.105GRP
A firm may derive the LGD in accordance with BIPRU 4.3.104 R (2)(c) either by directly assigning to the facility grade or pool an estimate of LGD appropriate for downturn conditions, or alternatively by estimating a default weighted average LGD in accordance with BIPRU 4.3.99 R and BIPRU 4.3.76 R and converting it into an LGD appropriate for downturn conditions by the use of a formula. It should be able to demonstrate that that formula produces well-founded estimates of LGDs consistent
BIPRU 4.3.110GRP
Where a firm is able to demonstrate that the effect is immaterial in accordance with BIPRU 4.1.25 R (Compliance), it may exclude defaultedexposures that have been cured (as referred to in BIPRU 4.3.67 G (1)) or restructured (as referred to in BIPRU 4.3.63 R (5)) from the data about default and loss experience on which LGDs are calculated provided it can demonstrate that its calculation of capital requirements (including capital requirements resulting from the application of capital
BIPRU 4.3.113RRP
The methods that a firm uses for discounting cash flows for the purposes of estimating LGDs must take account of the uncertainties associated with the receipt of recoveries with respect to a defaulted exposure. If a firm intends to use a discount rate that does not take full account of the uncertainty in recoveries, it must be able to explain by what other process it has taken into account that uncertainty for the purposes of calculating LGDs.
BIPRU 4.3.115GRP
A firm may exclude from its calculation of loss indirect costs that it incurs for the purpose of making recoveries with respect to a defaulted exposure if it would also have incurred those costs if there had not been a default.
BIPRU 4.3.122RRP
For the specific case of exposures already in default, a firm must use the sum of its best estimate of expected loss for each exposure given current economic circumstances and exposure status and the possibility of additional unexpected losses during the recovery period.[Note:BCD Annex VII Part 4 point 80]
BIPRU 4.3.123RRP
To the extent that unpaid late fees have been capitalised in a firm's income statement, they must be added to the firm's measure of exposure and loss.[Note:BCD Annex VII Part 4 point 81]
BIPRU 4.3.126GRP
(1) A firm using own estimates of conversion factors should take into account all facility types that may result in an exposure when an obligor defaults, including uncommitted facilities.(2) A firm should treat a facility as an exposure from the earliest date at which a customer is able to make drawings under it.(3) To the extent that a firm makes available multiple facilities, it should be able to demonstrate:(a) how it deals with the fact that exposures on one may become exposures
BIPRU 4.3.131RRP
If a firm uses different estimates of conversion factors for the calculation of risk weighted exposure amounts and internal purposes it must be documented. The firm must be able to demonstrate their reasonableness to the appropriate regulator.[Note:BCD Annex VII Part 4 point 92]
BIPRU 4.3.132GRP
(1) This paragraph contains guidance about the interpretation of the requirements relating to comparability in BIPRU 4.3.85 R. It is also relevant to the requirement for representative data in BIPRU 4.3.51 R (5), to the references to comparability in the additional guidance in BIPRU 4.3.53 G (7)(b) and to the requirements for similarity in BIPRU 4.3.92 R.(2) In general, comparability should be based on analyses of the population of exposures represented in the data, the lending
MIPRU 4.2F.1RRP
1This section applies to a firm carrying on any home financing connected to regulated mortgage contracts or home financing and home financing administration connected to regulated mortgage contracts (see MIPRU 4.2.23 R).
MIPRU 4.2F.2RRP
MIPRU 4.2F sets out the risk weights that a firm should apply to exposures in the form of loans secured on real estate property, other loans, exposures in the form of funds, and past due items, when calculating risk weighted exposure amounts for calculating the credit risk capital requirement under MIPRU 4.2.23 R.
MIPRU 4.2F.3GRP
This section is broadly organised according to the type of exposure class.(1) Exposures secured by mortgages on residential property (MIPRU 4.2F.4 R to MIPRU 4.2F.36 R)(2) Exposures secured by mortgages on commercial property (MIPRU 4.2F.37 R)(3) Exposures to other loans (MIPRU 4.2F.38 R)(4) Exposures to funds (MIPRU 4.2F.39 R to MIPRU 4.2F.49 R)(5) Exposures to past due items (MIPRU 4.2F.50 R to MIPRU 4.2F.56 G)
MIPRU 4.2F.4RRP
Without prejudice to MIPRU 4.2F.36 R, an exposure or any part of an exposure must be assigned a risk weight of 35% where: (1) the exposure is fully and completely secured, to the satisfaction of the firm, by mortgages on residential property; and(2) the residential property is, or will be, occupied or let by the owner or the beneficial owner in the case of personal investment companies.
MIPRU 4.2F.5RRP
Without prejudice to MIPRU 4.2F.36 R, an exposure, or any part of an exposure, must be assigned a risk weight of 75% where: (1) the exposure arises from a mortgage on residential property up to a limit of 100% of the value of the property which is not fully and completely secured, to the satisfaction of the firm, by that mortgage; and(2) the residential property is, or will be, occupied or let by the owner or the beneficial owner in the case of personal investment companies.
MIPRU 4.2F.6RRP
An exposure or any part of an exposure must be assigned a risk weight of 100% where the exposure arises from a mortgage on residential property that exceeds the value of the available collateral, as assessed in accordance with MIPRU 4.2F.29 R.
MIPRU 4.2F.7RRP
(1) A firm must not treat a lifetime mortgage as an exposure fully and completely secured on residential property for the purposes of MIPRU 4.2F.4 R unless the amount of the exposure is calculated according to the following formula:where:(a) P is the current outstanding balance on the lifetime mortgage;(b) i is the interest rate charged on the lifetime mortgage, which for the purposes of this calculation must not be lower than the discount rate referred to in (c);(c) d is the
MIPRU 4.2F.8GRP
(1) For the purposes of MIPRU 4.2F.7R (2), a firm may use the FTSE UK gilt 10-year yield index which the Council of Mortgage Lenders makes available to its members. (2) If a firm offers a variable interest rate on a lifetime mortgage, it should calculate an average interest rate in a way which is consistent with the calculation of the discount rate.(3) To determine the projected number of years to maturity of the exposure, a firm may use the standard mortality tables published
MIPRU 4.2F.9RRP
Without prejudice to MIPRU 4.2F.36 R, an exposure, or any part of an exposure, to a tenant under a property leasing transaction must be assigned a risk weight of 35% where: (1) the transaction concerns residential property; (2) under the transaction, the firm is the lessor and the tenant has an option to purchase; and(3) the firm is satisfied that the exposure is fully and completely secured by its ownership of the property.
MIPRU 4.2F.10GRP
An Ijara mortgage is an example of an exposure described in MIPRU 4.2F.9 R.
MIPRU 4.2F.11RRP
(1) In exercising its judgment under MIPRU 4.2F.4 R to MIPRU 4.2F.9 R, a firm may be satisfied only if the conditions in (2) to (6) are met.(2) (a) The value of the property does not materially depend upon the credit quality of the borrower. (b) The condition in (a) does not preclude situations where purely macroeconomic factors affect both the value of the property and the performance of the borrower.(3) The minimum requirements about: (a) legal certainty in MIPRU 4.2F.12 R;
MIPRU 4.2F.17GRP
For MIPRU 4.2F.14R (1)(d) and MIPRU 4.2F.14R (1)(e), the review of a property valuation is more in-depth than the normal monitoring process required by MIPRU 4.2F.14R (1)(a). This requirement is likely to include a review of the property value on an individual exposure basis. Where an exposure is secured by multiple properties, the review can be undertaken at the level of the exposure, rather than at the level of each individual property.
MIPRU 4.2F.30RRP
A firm may not treat an exposure as fully and completely secured by residential property located in the United Kingdom for MIPRU 4.2F.4 R (residential mortgages) or MIPRU 4.2F.9 R (property leasing transactions) unless either of the following is 80% or less of the value of the residential property on which it is secured:(1) the amount of the exposure; (2) the secured part of the exposure in MIPRU 4.2F.4 R or MIPRU 4.2F.9 R.
MIPRU 4.2F.31GRP
(1) The application of MIPRU 4.2F.30 R may be illustrated by an example. If a firm has a mortgage exposure of £100,000 secured on residential property in the United Kingdom that satisfies the criteria listed in MIPRU 4.2F.4 R to MIPRU 4.2F.9 R and the value of that property is £100,000, then £80,000 of that exposure may be treated as fully and completely secured and risk weighted at 35%. The remaining £20,000 should be risk weighted at 75%. A diagrammatic illustration of this
MIPRU 4.2F.32GRP
If a firm has more than one exposure secured on the same property they should be aggregated and treated as if they were a single exposure secured on the property for the purposes of MIPRU 4.2F.4 R, MIPRU 4.2F.9 R and MIPRU 4.2F.30 R.
MIPRU 4.2F.33RRP
If a firm has an exposure arising through a second-charge mortgage secured on the same property as a first-charge loan from a different firm, the exposure, taking into account the first-charge mortgage, must be split into the following components and risk weighted as follows, after taking into account the seniority of the first-charge loan:(1) the amount of the exposure or any part of the exposure, up to a limit of 80% of the value of the residential property, must be assigned
MIPRU 4.2F.34GRP
(1) The application of MIPRU 4.2F.33 R may be illustrated by an example. Where a first-charge mortgage exposure of £50,000 from another lender is secured on residential property in the United Kingdom that satisfies the criteria in MIPRU 4.2F.4 R to MIPRU 4.2F.29 R and the value of that property is £100,000, then a firm with a second-charge mortgage of £60,000 on the same property may treat £30,000 of that exposure as fully and completely secured and risk weight it at 35%, treat
MIPRU 4.2F.35GRP
If an exposure is secured on property that is used partly for residential purposes under MIPRU 4.2F.4 R and partly for commercial purposes (such as a farm, public house, guest house or shop) it may be treated as secured by residential real estate if the firm can demonstrate that: (1) the property's main use is, or will be, residential; and(2) the value of the property is not significantly affected by its commercial use.
MIPRU 4.2F.36RRP
Exposures to residential property situated in an EEA State or a third-country must be assigned a risk weight of 75% up to a limit of 100% of the value of the property.
MIPRU 4.2F.37RRP
Exposures, or any part of an exposure, secured by mortgages on offices or other commercial premises must be assigned a risk weight of 100% where the exposure:(1) cannot properly be considered to fall within any other standardised credit risk exposure class specified in MIPRU 4.2A.6A R (Exposure classes); or (2) does not qualify for a lower risk weight under this section.
MIPRU 4.2F.38RRP
Exposures to other loans must be assigned a risk weight of 100%.
MIPRU 4.2F.39RRP
Except where a different risk weight is assigned to exposures in the form of funds by MIPRU 4.2F.40 R, MIPRU 4.2F.42 R or MIPRU 4.2F.45 R, these exposures must be assigned a risk weight of 100%.
MIPRU 4.2F.40RRP
Exposures in the form of funds for which a credit assessment by a nominated ECAI is available must be assigned a risk weight using:(1) the table in MIPRU 4.2E.14 R to determine the credit quality step associated with that credit assessment; and(2) the table in MIPRU 4.2F.41 R to determine the risk weight to be applied to the rated position, based on the associated credit quality step.
MIPRU 4.2F.41RRP
Table: Exposures in the form of funds for which a credit assessment by a nominated ECAI is availableThis table belongs to MIPRU 4.2F.40 R. Credit quality step123456Risk weight20%50%100%100%150%150%
MIPRU 4.2F.44GRP
Other examples of high-risk funds are:(1) those in which a substantial element of the fund's property is made up of items that would attract a risk weight of over 100%; and(2) those whose mandate (as referred to in MIPRU 4.2F.46 R would permit it to invest in a substantial amount of items that would attract a risk weight of over 100%.
MIPRU 4.2F.45RRP
If the eligibility criteria in MIPRU 4.2F.46 R are met, a firm must decide whether to: (1) assign a 100% risk weight to its exposures in funds, as required by MIPRU 4.2F.39 R; or(2) determine the risk weight for an exposure in funds, as set out in MIPRU 4.2F.47 R to MIPRU 4.2F.48 R.
MIPRU 4.2F.47RRP
Where a firm is not aware of the underlying exposures of a fund, it may calculate an average risk weight for the fund in the following manner: (1) it will be assumed that the fund first invests, to the maximum extent allowed under its mandate, in the exposure classes attracting the highest capital resources requirement; and(2) then continues making investments in descending order until the maximum total investment limit is reached.
MIPRU 4.2F.48RRP
A firm may rely on a third party to calculate and report, in accordance with the method in MIPRU 4.2F.47 R, a risk weight for the fund, provided that the correctness of the calculation and report is adequately ensured.
MIPRU 4.2F.49RRP
Exposures in the form of funds that are not past due items, that have been assigned a risk weight of 150% or greater, and for which value adjustments have been established, may be assigned a risk weight of: (1) 100% if value adjustments are no less than 20% of the exposure value gross of value adjustments; or(2) 50%, if value adjustments are no less than 50% of the exposure value gross of value adjustments
MIPRU 4.2F.50RRP
Exposures must be treated as past due in their entirety where any payment due is past its contractual date by more than 90 days.
MIPRU 4.2F.51RRP
Where value adjustments are taken against the secured part of an exposure secured by a mortgage on residential property and that is past due, the secured part net of value adjustments must be assigned a risk weight of: (1) 100% if value adjustments are less than 20% of the secured part of the exposure gross of value adjustments; or(2) 50% if value adjustments are no less than 20% of the secured part of the exposure gross of value adjustments.
MIPRU 4.2F.52GRP
A firm may treat the secured part of an exposure covered by a mortgage indemnity product that meets the relevant eligibility criteria for credit risk mitigation as secured for the purposes of MIPRU 4.2F.51 R.
MIPRU 4.2F.53RRP
For the purpose of defining the secured part of a past due item other than exposures secured on residential property, credit protection must be eligible for credit risk mitigation purposes under MIPRU 4.2C (Credit risk mitigation).
MIPRU 4.2F.55RRP
The unsecured part of any past due item, net of any value adjustments taken against the unsecured part, must be assigned a risk weight of: (1) 150% if value adjustments are less than 20% of the unsecured part of the exposure gross of value adjustments; or(2) 100% if value adjustments are no less than 20% of the unsecured part of the exposure gross of value adjustments.
MIPRU 4.2F.56GRP
The application of value adjustments to either the secured or the unsecured component of an exposure secured on residential property may be illustrated on the basis of a £110,000 loan on a property valued at £100,000, where £80,000 of the loan is secured, £30,000 of the exposure is unsecured and a value adjustment of £20,000 is taken.(1) Value adjustment applied to unsecured component:(a) Value adjustment of £20,000 taken on £30,000 unsecured exposure.(b) Value adjustment exceeds
BIPRU 4.10.1GRP
BIPRU 4.10 applies to all exposures treated under the IRB approach.
BIPRU 4.10.2GRP
BIPRU 4.10 sets out modifications to BIPRU 5 (Credit risk mitigation) for those exposures for which the IRB approach is being used.
BIPRU 4.10.4RRP
(1) Where the requirements of BIPRU 5.2.2 R - BIPRU 5.2.8 R are met the calculation of risk weighted exposure amounts, and, as relevant, expected loss amounts, may be modified in accordance with BIPRU 5 as modified by BIPRU 4.10.(2) No exposure in respect of which credit risk mitigation is obtained must produce a higher risk weighted exposure amount or expected loss amount than an otherwise identical exposure in respect of which there is no credit risk mitigation.(3) Where the
BIPRU 4.10.7RRP
The condition in BIPRU 4.10.6 R (3) does not apply to exposures secured by residential real estate property situated within the United Kingdom.[Note: BCD Annex VIII Part 1 point 16 (part)]
BIPRU 4.10.9RRP
(1) The condition in BIPRU 4.10.6 R (3) does not apply for exposures secured by residential real estate property situated within the territory of another EEA State.(2) However (1) only applies if and to the extent that the CRD implementation measures for that EEA State in relation to the IRB approach implement the option set out in paragraph 16 of Part 1 of Annex VIII of the Banking Consolidation Directive (waiver for residential real estate property) with respect to residential
BIPRU 4.10.15RRP
(1) For the recognition of receivables as collateral the requirements in this paragraph must be met.(2) The legal mechanism by which the collateral is provided must be robust and effective and ensure that the lender has clear rights over the proceeds.(3) A firm must take all steps necessary to fulfil local requirements in respect of the enforceability of security interests. There must be a framework which allows the lender to have a first priority claim over the collateral subject
BIPRU 4.10.18RRP
(1) If a type of other physical collateral referred to in BIPRU 4.10.16 R is potentially eligible under a firm'sIRB permission a firm must only recognise it as eligible if the minimum requirements in (2) to (10) are met.(2) The collateral arrangement must be legally effective and enforceable in all relevant jurisdictions and must enable the firm to realise the value of the property within a reasonable timeframe.(3) With the sole exception of permissible prior claims referred to
BIPRU 4.10.19RRP
(1) Where the requirements set out in this paragraph are met, exposures arising from transactions whereby a firm leases property to a third party must be treated the same as loans collateralised by the type of property leased.(2) For the exposures arising from leasing transactions to be treated as collateralised by the type of property leased, the following conditions must be met:(a) the conditions set out or referred to in BIPRU 4.10.13 R or BIPRU 4.10.18 R as appropriate for
BIPRU 4.10.23RRP
BIPRU 4.10.24 R - BIPRU 4.10.29 R apply to collateral in the form of real estate collateral, receivables, other physical collateral and leasing permitted by BIPRU 4.10 and exposures secured by such collateral.
BIPRU 4.10.24RRP
LGD* (the effective loss given default) calculated as set out in BIPRU 4.10.25 R - BIPRU 4.10.28 R must be taken as the LGD.[Note: BCD Annex VIII Part 3 point 68]
BIPRU 4.10.25RRP
Where the ratio of the value of the collateral (C) to the exposure value (E) is below a threshold level of C* (the required minimum collateralisation level for the exposure) as laid down in BIPRU 4.10.28 R, LGD* must be the LGD laid down in the other sections of BIPRU 4 for uncollateralised exposures to the counterparty. For this purpose, the exposure value of items listed in BIPRU 4.4.37 R to BIPRU 4.4.39 R and BIPRU 4.8.29 R must be calculated using a conversion factor or percentage
BIPRU 4.10.26RRP
Where the ratio of the value of the collateral to the exposure value exceeds a second, higher threshold level of C** (i.e. the required level of collateralisation to receive full LGD recognition) as laid down in BIPRU 4.10.28 R, LGD* must be that prescribed in that table.[Note: BCD Annex VIII Part 3 point 70]
BIPRU 4.10.27RRP
Where the required level of collateralisation C** is not achieved in respect of the exposure as a whole, the exposure must be considered to be two exposures - that part in respect of which the required level of collateralisation C** is achieved and the remainder.[Note: BCD Annex VIII Part 3 point 71]
BIPRU 4.10.28RRP
Table: Minimum LGD for secured portion of exposuresThis table belongs to BIPRU 4.10.24 R - BIPRU 4.10.27 RLGD* for senior claims or contingent claimsLGD* for subordinated claims or contingent claimsRequired minimum collateralisation level of the exposure (C*)Required minimum collateralisation level of the exposure (C**)Receivables35%65%0%125%Residential real estate/commercial real estate35%65%30%140%Other collateral40%70%30%140%[Note: BCD Annex VIII Part 3 point 72 (part)]
BIPRU 4.10.29RRP
(1) A firm may apply the treatment in paragraph 74 of Part 3 of Annex VIII of the Banking Consolidation Directive (50% risk weight for exposures secured by real estate) in respect of exposures collateralised by:(a) residential real estate property; or(b) commercial real estate property;located in the territory of another EEA State.(2) However (1)(a) or (1)(b) only applies if the CRD implementing measures for that EEA State with respect to the IRB approach have implemented the
BIPRU 4.10.30RRP
(1) Where:(a) risk weighted exposure amounts and expected loss amounts are calculated under the IRB approach; and(b) an exposure is collateralised by both financial collateral and other eligible collateral;LGD* to be taken as the LGD for the purposes of the IRB approach must be calculated in accordance with this rule.(2) A firm must subdivide the volatility-adjusted value of the exposure (i.e. the value after the application of the volatility adjustment as set out in BIPRU 5.4.28
BIPRU 4.10.32RRP
(1) This rule sets out how the calculations under BIPRU 5.6.11 R (Using the supervisory volatility adjustments or the own estimates volatility adjustments approaches to master netting agreements covering repurchase transactions and/or securities or commodities lending or borrowing transactions and/or other capital market driven transactions) must be modified under the IRB approach.(2) Where risk weighted exposure amounts and expected loss amounts are calculated under the IRB approach,
BIPRU 4.10.33RRP
(1) This rule sets out how the calculations under BIPRU 5.6.24 R (Using the internal models approach to master netting agreements covering repurchase transactions and/or securities or commodities lending or borrowing transactions and/or other capital market driven transactions) must be modified under the IRB approach.(2) Where risk weighted exposure amounts and expected loss amounts are calculated under the IRB approach E is the exposure value for each separate exposure under
BIPRU 4.10.34RRP
(1) This rule sets out how the calculations under BIPRU 5.6.29 R (Calculating risk-weighted exposure amounts and expected loss amounts for master netting agreements covering repurchase transactions and/or securities or commodities lending or borrowing transactions and/or other capital market driven transactions) must be modified under the IRB approach.(2) E* must be taken as the exposure value of the exposure to the counterparty arising from the transactions subject to the master
BIPRU 4.10.35RRP
(1) This rule sets out how the calculations under BIPRU 5.4.28 R (Calculating adjusted values under the financial collateral comprehensive method) must be modified under the IRB approach.(2) E as referred to in the provisions listed in (1) is the exposure value as would be determined under the IRB approach if the exposure was not collateralised. For this purpose, where a firm calculates risk weighted exposure amounts under the IRB approach, the exposure value of the items listed
BIPRU 4.10.36RRP
(1) This rule sets out the calculation of risk weighted exposure amounts2 and expected loss2 amounts under the financial collateral comprehensive method2 for a firm using the IRB approach.222(2) LGD* (the effective loss given default) calculated as set out in this paragraph must be taken as the LGD for the purposes of BIPRU 4.(3) LGD* = LGD x (E*/E) where:(a) LGD is the loss given default that would apply to the exposure under the IRB approach if the exposure was not collateralised;(b)
BIPRU 4.10.37RRP
(1) In the case of a firm using the IRB approach to calculate risk weighted exposure amounts and expected loss amounts, the persons in (2) are added to the list in BIPRU 5.4.64 R (Definition of core market participant).(2) The persons referred to in (1) are other financial companies (including insurance companies) exposures to which do not have a credit assessment by an eligible ECAI and are internally rated as having a probability of default equivalent to that associated with
BIPRU 4.10.38RRP
(1) In the case of a firm using the IRB approach in calculating risk weighted exposure amounts and expected loss amounts, the persons in (2) are added to the list in BIPRU 5.7.1 R (List of eligible providers of unfunded credit protection).(2) The persons referred to in (1) are other corporate entities, including parent undertakings, subsidiary undertakings and affiliate corporate entities of the firm, that do not have a credit assessment by an eligible ECAI and are internally
BIPRU 4.10.39RRP
Where risk weighted exposure amounts and expected loss amounts are calculated under the IRB approach, to be eligible a guarantor must be internally rated by a firm in accordance with the provisions of the minimum IRB standards.[Note: BCD Annex VIII Part 1 point 27]
BIPRU 4.10.40RRP
BIPRU 4.10.41 R to BIPRU 4.10.48 R set out the minimum requirements:(1) assessing the effect of guarantees and credit derivatives for:(a) exposures in the sovereign, institution and corporate IRB exposure class2 where the advanced IRB approach is being used to calculate LGDs; and(b) retail exposures; and(2) additionally, in the case of retail exposure guarantees, to the assignment of exposures to grades or pools, and the estimation of PD.[Note: BCD Annex VII Part 4 point 97]
BIPRU 4.10.41RRP
The requirements in BIPRU 4.10.40 R (2) and BIPRU 4.10.42 R - BIPRU 4.10.48 R do not apply to3 guarantees provided by institutions, central governments, central banks and other corporate entities which meet the requirements in BIPRU 5.7.1 R (7)31 if the firm has received approval under BIPRU 4.2 to apply the standardised approach for exposures to such entities. In this case the requirements of BIPRU 5 (credit risk mitigation) apply.[Note: BCD Annex VII Part 4 point 96]33
BIPRU 4.10.43RRP
For recognised guarantors the same requirements as for obligors as set out in BIPRU 4.3.43 R - BIPRU 4.3.48 R (Assignment to grades and pools), BIPRU 4.4.11 R - BIPRU 4.4.18 R and BIPRU 4.4.51 R (Assignment of exposures and rating systems), BIPRU 4.5.6 R (Assignment of exposures) and BIPRU 4.6.11 R and BIPRU 4.6.14 R (Assignment of exposures and rating systems) apply.[Note: BCD Annex VII Part 4 point 99]
BIPRU 4.10.45RRP
A firm must have clearly specified criteria for adjusting grades, pools or LGD estimates, and in the case of retail exposures and eligible purchased receivables, the process of allocating exposures to grades or pools, to reflect the impact of guarantees for the calculation of risk weighted exposure amounts. These criteria must comply with the minimum requirements referred to in BIPRU 4.10.43 R.[Note: BCD Annex VII Part 4 point 101]
BIPRU 4.10.47RRP
The minimum requirements for guarantees set out in BIPRU 4.10 also apply for single name credit derivatives. In relation to a mismatch between the underlying obligation and the reference obligation of the credit derivative or the obligation used for determining whether a credit event has occurred the requirements set out under BIPRU 5.7.14 R (Mismatches and credit derivatives) apply. For retail exposures and eligible purchased receivables, this paragraph applies to the process
BIPRU 4.10.49RRP
(1) This rule relates to the calculation of risk-weighted exposure amounts and expected loss amounts in the case of unfunded credit protection.(2) BIPRU 5.7.21 R (Tranching) applies for the purpose in (1).(3) The provisions in (4) replace those in BIPRU 5.7.22 R to BIPRU 5.7.25 R (Calculating risk weighted exposure amounts under the standardised approach in the case of unfunded credit protection).(4) For the covered portion of the exposure value E3 (based on the adjusted value
BIPRU 4.10.50RRP
In addition to BIPRU 5.8.2 R, where there is a maturity mismatch the credit protection must not be recognised where the exposure is a short term exposure specified in the firm'sIRB permission as being subject to a one-day floor rather than a one-year floor in respect of the maturity value (M) under BIPRU 4.4.68 R.[Note: BCD Annex VIII Part 4 point 2(b)]
BIPRU 4.10.51RRP
GA as calculated under BIPRU 5.8.11 R is then taken as the value of the protection for the purposes of calculating the effects of unfunded credit protection under the IRB approach.[Note: BCD Annex VIII Part 4 point 8 (part)]
BIPRU 13.6.6RRP
A firm may determine the exposure value for:(1) financial derivative instruments;(2) repurchase transactions;(3) securities or commodities lending or borrowing transactions;(4) margin lending transactions; and(5) long settlement transactionsusing the CCR internal model method.[Note: BCD Annex III Part 2 point 2]
BIPRU 13.6.15GRP
In principle, the use of different measures of exposure within the CCR internal model method is possible within the same product category, including on a permanent basis. The appropriate regulator may allow a firm, through the CCR internal model method permission, to use a more conservative measure of exposure that is less risk sensitive (for instance a measure based on conservative haircuts) for certain parts of the business if justified on a cost-benefit basis. However, a firm
BIPRU 13.6.16GRP
The appropriate regulator may, through the CCR internal model method permission, require a firm to apply a multiplier to the measures of exposures coming out of a less risk-sensitive approach to calculating exposures as referred to in BIPRU 13.6.15 G where the appropriate regulator considers this to be appropriate due to the complexity of the business or the nature of the risks involved.
BIPRU 13.6.22RRP
(1) A firm must measure the exposure value at the level of the netting set.(2) The model must specify the forecasting distribution for changes in the market value of the netting set attributable to changes in market variables, such as interest rates, foreign exchange rates.(3) The model must then compute the exposure value for the netting set at each future date given the changes in the market variables.(4) For margined counterparties, the model may also capture future collateral
BIPRU 13.6.24RRP
A firm must calculate the exposure value as the product of alpha (), as set out in BIPRU 13.6.31 R, times effective EPE:Exposure value = effective EPE[Note: BCD Annex III Part 6 point 7 first part]
BIPRU 13.6.25RRP
A firm must compute effective EPE by estimating expected exposure (EEt) as the average exposure at future date t, where the average is taken across possible future values of relevant market risk factors. The model estimates EE at a series of future dates t1, t2, t3, etc.[Note: BCD Annex III Part 6 point 7 third part]
BIPRU 13.6.26RRP
A firm must compute effective EE recursively as:Effective EEtk = max(effective EEtk-1; EEtk)where:the current date is denoted as t0 and Effective EEt0 equals current exposure.[Note: BCD Annex III Part 6 point 8]
BIPRU 13.6.27RRP
For the purposes of 2BIPRU 13.6.25 R2 :2(1) effective EPE is the average effective EE during the first year of future exposure;(2) if all contracts in the netting set mature within less than one year, effective EPE2 is the average of effective EE2 until all contracts in the netting set mature.22[Note: BCD Annex III Part 6 point 9, first part]
BIPRU 13.6.28RRP
A firm must compute effective EPE as a weighted average of effective EE:Effective EPE = (k=1min(1 year;maturity))((Effective EEtk)*(tk))where:the weights ?tk = tk tk-1 allow for the case when future exposure is calculated at dates that are not equally spaced over time.[Note: BCD Annex III Part 6 point 9, second part]
BIPRU 13.6.33RRP
If a firm'sCCR internal model method permission permits it, the firm may use its own estimates of , subject to a floor of 1.2, where must equal the ratio of internal capital from a full simulation of CCRexposure across counterparties (numerator) and internal capital based on EPE (denominator).[Note: BCD Annex III Part 6 point 12 (part)]
BIPRU 13.6.34RRP
For the purposes of BIPRU 13.6.33 R:(1) in the denominator, EPE must be used as if it were a fixed outstanding amount;(2) a firm must be able to demonstrate that its internal estimates of capture in the numerator material sources of stochastic dependency of distribution of market values of transactions or of portfolios of transactions across counterparties;(3) internal estimates of must take account of the granularity of portfolios.[Note: BCD Annex III Part 6 point 12 (part
BIPRU 13.6.37GRP
A firm using the IRB approach for risk weighting of exposures arising from a CCR internal model method should also apply a different maturity adjustment as set out in BIPRU 4.4.67 RBIPRU 4.4.70 R.
BIPRU 13.6.38RRP
If the netting set is subject to a margin agreement, a firm must use one of the following EPE measures:(1) effective EPE without taking into account the margin agreement;(2) the margin threshold, if positive, under the margin agreement plus an add-on that reflects the potential increase in exposure over the margin period of risk:(a) the add-on is computed as the expected increase in the netting set'sexposure beginning from a current exposure of zero over the margin period of risk;(b)
BIPRU 13.6.40RRP
A firm'sEPE model must meet the operational requirements set out in BIPRU 13.6.41 R to BIPRU 13.6.66 R.[Note: BCD Annex III Part 6 point 16]
BIPRU 13.6.41RRP
(1) The firm must have a control unit that is responsible for the design and implementation of its CCR management system, including the initial and on-going validation of the model.(2) This unit must control input data integrity and produce and analyse reports on the output of the firm's risk measurement model, including an evaluation of the relationship between measures of risk exposure and credit and trading limits.(3) This unit must be:(a) independent from units responsible
BIPRU 13.6.43RRP
(1) A firm's risk management policies must take account of market risk, liquidity risk, and legal and operational risk that can be associated with CCR.(2) The firm must not undertake business with a counterparty without assessing its creditworthiness and must take due account of settlement and pre-settlement credit risk.(3) These risks must be managed as comprehensively as practicable at the counterparty level (aggregating CCRexposures with other credit exposures) and at the firm-wide
BIPRU 13.6.45RRP
A firm must ensure that the daily reports prepared on its exposures to CCR are reviewed by a level of management with sufficient seniority and authority to enforce both reductions of positions taken by individual credit managers or traders and reductions in the firm's overall CCRexposure.[Note: BCD Annex III Part 6 point 21]
BIPRU 13.6.47RRP
(1) A firm's measurement of CCR must include measuring daily and intra-day usage of credit lines.(2) The firm must measure current exposure gross and net of collateral.(3) At portfolio and counterparty level, the firm must calculate and monitor peak exposure or potential future exposure (PFE) at the confidence interval chosen by the firm.(4) The firm must take account of large or concentrated positions, including by groups of related counterparties, by industry, by market, etc.[Note:
BIPRU 13.6.51RRP
The distribution of exposures1 generated by the model used to calculate effective EPE must be closely integrated into the day-to-day CCR management process of the firm. The model's output must accordingly play an essential role in the credit approval, CCR management, internal capital allocation, and corporate governance of the firm.[Note: BCD Annex III Part 6 point 27]
BIPRU 13.6.52RRP
A firm must have a track record in the use of models that generate a distribution of exposures1 to CCR. Thus, the firm must be able to demonstrate that it has been using a model to calculate the distribution of exposures1 upon which the EPE calculation is based that meets, broadly, the minimum requirements set out in BIPRU 13.6 for at least one year prior to the date of its CCR internal model method permission.[Note: BCD Annex III Part 6 point 28]
BIPRU 13.6.53RRP
(1) A firm must ensure that the model used to generate a distribution of exposures1 to CCR is part of a CCR management framework that includes the identification, measurement, management, approval and internal reporting of CCR. This framework must include the measurement of usage of credit lines (aggregating CCRexposures with other credit exposures) and internal capital allocation.(2) In addition to EPE, a firm must measure and manage current exposures.(3) Where appropriate, the
BIPRU 13.6.54RRP
A firm must have the systems capability to estimate EE daily if necessary, unless it is able to demonstrate to the appropriate regulator that its exposures to CCR warrant less frequent calculation. The firm must compute EE along a time profile of forecasting horizons that adequately reflects the time structure of future cash flows and maturity of the contracts and in a manner that is consistent with the materiality and composition of the exposures.[Note: BCD Annex III Part 6 point
BIPRU 13.6.55RRP
(1) Exposure must be measured, monitored and controlled over the life of all contracts in the netting set (not just to the one year horizon).(2) A firm must have procedures in place to identify and control the risks for counterparties where the exposure rises beyond the one-year horizon.(3) A firm must input the forecast increase in exposure into the firm's internal capital model.[Note: BCD Annex III Part 6 point 31]
BIPRU 13.6.56RRP
(1) A firm must have in place sound stress testing processes for use in the assessment of capital adequacy for CCR.(2) These stress measures must be compared with the measure of EPE and considered by the firm as part of the process set out in GENPRU 1.2.42 R.(3) Stress testing must also involve identifying possible events or future changes in economic conditions that could have unfavourable effects on a firm's credit exposures and an assessment of the firm's ability to withstand
BIPRU 13.6.57RRP
(1) A firm must stress test its CCRexposures, including jointly stressing market risk and credit risk factors.(2) In its stress tests of CCR, a firm must consider concentration risk (to a single counterparty or groups of counterparties), correlation risk across market risk and credit risk, and the risk that liquidating the counterparty's positions could move the market.(3) In its stress tests a firm must also consider the impact on its own positions of such market moves and integrate
BIPRU 13.6.58RRP
A firm must give due consideration to exposures that give rise to a significant degree of general wrong-way risk.[Note: BCD Annex III Part 6 point 34]
BIPRU 13.6.60RRP
A firm must ensure that:(1) the model reflects transaction terms and specifications in a timely, complete, and conservative fashion;(2) such terms include at least:(a) contract notional amounts;(b) maturity;(c) reference assets;(d) margining arrangements; and(e) netting arrangements;(3) the terms and specifications are maintained in a database that is subject to formal and periodic audit;(4) the process for recognising netting arrangements requires:(a) signoff by legal staff
BIPRU 13.6.61RRP
A firm must ensure that:(1) the model employs current market data to compute current exposures;(2) when using historical data to estimate volatility and correlations, at least three years of historical data are used and updated quarterly or more frequently if market conditions warrant;(3) the data covers a full range of economic conditions, such as a full business cycle;(4) a unit independent from the business unit validates the price supplied by the business unit;(5) the data
BIPRU 13.6.63RRP
A firm must ensure that the model is subject to a validation process which:(1) is clearly articulated in firms' policies and procedures;(2) specifies the kind of testing needed to ensure model integrity(3) identifies conditions under which assumptions are violated and may result in an understatement of EPE; and(4) includes a review of the comprehensiveness of the model.[Note: BCD Annex III Part 6 point 38]
BIPRU 13.6.64RRP
A firm must monitor the appropriate risks and have processes in place to adjust its estimation of EPE when those risks become significant. This includes the following:(1) the firm must identify and manage its exposures to specific wrong-way risk;(2) for exposures with a rising risk profile after one year, the firm must compare on a regular basis the estimate of EPE over one year with EPE over the life of the exposure; and(3) for exposures with a residual maturity below one year,
BIPRU 13.6.67RRP
(1) A firm'sCCR internal model method model must meet the validation requirements in (2) to (8).(2) The qualitative validation requirements set out in BIPRU 7.10 must be met.(3) Interest rates, foreign currency rates, equity prices, commodities, and other market risk factors must be forecast over long time horizons for measuring CCRexposure. The performance of the forecasting model for market risk factors must be validated over a long time horizon.(4) The pricing models used to
BIPRU 4.4.1RRP
(1) This section applies with respect to the sovereign, institution and corporate IRB exposure class.(2) The sovereign, institution and corporate IRB exposure class includes specialised lending exposures.(3) Both BIPRU 4.4 and BIPRU 4.5 (Specialised lending exposures) apply to specialised lending exposures. A firm may calculate risk weighted exposure amounts for a specialised lending exposure either:(a) (if it is able to do so) in accordance with BIPRU 4.4; or(b) in accordance
BIPRU 4.4.2RRP
The following exposures must be treated as exposures to central governments and central banks:(1) exposures to regional governments, local authorities or public sector entities which are treated as exposures to central governments under the standardised approach; and(2) exposures to multilateral development banks and international organisations which attract a risk weight of 0% under the standardised approach.[Note:BCD Article 86(2)]
BIPRU 4.4.3RRP
The following exposures must be treated as exposures to institutions:(1) exposures to regional governments and local authorities which are not treated as exposures to central governments under the standardised approach;(2) exposures to public sector entities which are treated as exposures to institutions under the standardised approach;(3) exposures to multilateral development banks which do not attract a 0% risk weight under the standardised approach; and(4) without prejudice
BIPRU 4.4.4RRP
Any credit obligation not assigned to the IRB exposure classes referred to in BIPRU 4.3.2 R (1) (Sovereigns), BIPRU 4.3.2 R (2) (Institutions) and BIPRU 4.3.2 R (4) - BIPRU 4.3.2 R (6) (Retail, equity and securitisations) must be assigned to the corporate exposure class.[Note:BCD Article 86(7)]
BIPRU 4.4.8RRP
An obligor grade means for the purpose of BIPRU 4 as it applies to the sovereign, institution and corporate IRB exposure class a risk category within a rating system's obligor rating scale, to which obligors are assigned on the basis of a specified and distinct set of rating criteria, from which estimates of PD are derived. A firm must document both the relationship between obligor grades in terms of the level of default risk each grade implies and the criteria used to distinguish
BIPRU 4.4.13RRP
Separate exposures to the same obligor must be assigned to the same obligor grade, irrespective of any differences in the nature of each specific transaction. Exceptions, where separate exposures are allowed to result in multiple grades for the same obligor are:(1) country transfer risk, this being dependent on whether the exposures are denominated in local or foreign currency;(2) where the treatment of associated guarantees to an exposure may be reflected in an adjusted assignment
BIPRU 4.4.16RRP
A firm must update assignments at least annually. High risk obligors and problem exposures must be subject to more frequent review. A firm must undertake a new assignment if material information on the obligor or exposure becomes available.[Note:BCD Annex VII Part 4 point 27]
BIPRU 4.4.17GRP
Although it will not usually be the case that facility ratings and conversion factors will have to be updated more frequently than annually, LGDs and exposure values are subject to more frequent recalculation due to their connection to drawn balances, which can vary on a daily basis.
BIPRU 4.4.21RRP
In addition to complying with the material in BIPRU 4.3.54 R (Data maintenance) a firm must collect and store:(1) complete rating histories on obligors and recognised guarantors;(2) the dates the ratings were assigned;(3) the key data and methodology used to derive the rating;(4) the person responsible for the rating assignment;(5) the identity of obligors and exposures that defaulted;(6) the date and circumstances of such defaults;(7) data on the PDs and realised default rates
BIPRU 4.4.22RRP
(1) This rule, in accordance with BIPRU 4.3.57 R (4) (Definition of default), sets the exact number of days past due that a firm should abide by in the case of exposures to PSEs.(2) For counterparts that are PSEs situated within the United Kingdom the number of days past due is 180.(3) For counterparts that are PSEs situated in another EEA State the number of days past due is the lower of:(a) 180; and(b) the number of days past due fixed under the CRD implementation measure with
BIPRU 4.4.34RRP
A firm must use the following LGD values:(1) senior exposures without eligible collateral, 45%;(2) subordinated exposures without eligible collateral, 75%;(3) a firm may recognise funded and unfunded credit protection in the LGD in accordance with BIPRU 5 (Credit risk mitigation), as modified by BIPRU 4.10;(4) covered bonds may be assigned an LGD value of 11.257%; and7(5) for certain senior corporate exposure purchased receivables, for certain subordinated corporate exposure purchased
BIPRU 4.4.37RRP
(1) The exposure value for the items set out in this rule must be calculated as the committed but undrawn amount multiplied by the applicable conversion factor set out in this rule.(2) For credit lines which are uncommitted, that are unconditionally cancellable at any time by the firm without prior notice, or that effectively provide for automatic cancellation due to deterioration in a borrower's credit worthiness, a conversion factor of 0 % applies. To apply a conversion factor
BIPRU 4.4.39RRP
For all off-balance sheet items other than mentioned in BIPRU 4.4.37 R, BIPRU 4.4.45 R, BIPRU 4.4.71 R - BIPRU 4.4.78 R, BIPRU 4.6.44 R, BIPRU 4.8.28 R and BIPRU 4.8.29 R, the exposure value must be the following percentage of its value:(1) 100% if it is a full risk item;(2) 50% if it is a medium risk item;(3) 20% if it is a medium/low risk item; and(4) 0% if it is a low risk item.For the purposes of this rule the off-balance sheet items must be assigned to risk categories as
BIPRU 4.4.43RRP
1Notwithstanding BIPRU 4.4.34 R and BIPRU 4.8.25 R, if a firm'sIRB permission permits it to use own LGD estimates under the advanced IRB approach for exposures to which BIPRU 4 applies and permits it to use the approach in this rule, unfunded credit protection may be recognised by adjusting PD and/or LGD estimates subject to the minimum IRB standards. A firm must not assign guaranteed exposures an adjusted PD or LGD such that the adjusted risk weight would be lower than that of
BIPRU 4.4.45RRP
1If a firm uses its own estimates of conversion factors under the advanced IRB approach it must calculate the exposure value of off-balance sheet exposures calculated with the use of conversion factors by using its own estimates of conversion factors across different product types as mentioned in BIPRU 4.4.37 R and BIPRU 4.4.39 R (2) to BIPRU 4.4.39 R (4).[Note:BCD Annex VII Part 3 point 9 (part)]
BIPRU 4.4.46GRP
1Under BIPRU 4.4.45 R, a firm may calculate exposure values by calculating the amount expected to be claimed, instead of the maximum possible amount of the potential claim. The figure for the amount expected to be claimed should not be less than the current outstandings from time to time.
BIPRU 4.4.49RRP
1A facility grade means for the purpose of the advanced IRB approach a risk category within a rating system's facility scale to which exposures are assigned on the basis of a specified and distinct set of rating criteria from which own estimates of LGDs are derived. The grade definition must include both a description of how exposures are assigned to the grade and of the criteria used to distinguish the level of risk across grades.[Note:BCD Annex VII Part 4 point 10]
BIPRU 4.4.50RRP
1Significant concentrations within a single facility grade must be supported by convincing empirical evidence that the facility grade covers a reasonably narrow LGD band, respectively, and that the risk posed by all exposures in the grade falls within that band.[Note:BCD Annex VII Part 4 point 11]
BIPRU 4.4.51RRP
1For a firm permitted to use own estimates of LGDs or conversion factors under the advanced IRB approach, each exposure must be assigned to a facility grade as part of the credit approval process. This is in addition to the requirements in BIPRU 4.4.11 R - BIPRU 4.4.13 R.[Note:BCD Annex VII Part 4 point 20]
BIPRU 4.4.53RRP
1As well as complying with BIPRU 4.3.54 R and BIPRU 4.4.21 R (Data maintenance), a firm using own estimates of LGDs and/or conversion factors under the advanced IRB approach must collect and store:(1) complete histories of data on the facility ratings and LGD and conversion factor estimates associated with each rating scale3;(2) the dates the ratings were assigned and the estimates were done;(3) the key data and methodology used to derive the facility ratings and LGD and conversion
BIPRU 4.4.57RRP
Subject to BIPRU 4.4.59 R to BIPRU 4.4.60 R, BIPRU 4.5.6 R, BIPRU 4.5.8 R - BIPRU 4.5.10 R (Risk weights for specialised lending), BIPRU 4.8.16 R, BIPRU 4.8.17 R (Risk weights for corporate exposure purchased receivables) and BIPRU 4.9.3 R (Securitisation: provision of credit protection), risk weighted exposure amounts must be calculated according to the formulae in the table in BIPRU 4.4.58 R and the adjustment formula in BIPRU 4.4.79 R (Double default).[Note:BCD Annex VII Part
BIPRU 4.4.58RRP
Table: Formulae for the calculation of risk weighted exposure amountsThis table belongs to BIPRU 4.4.57 RCorrelation (R)0.12 × (1 - EXP(-50*PD))/(1-EXP(-50)) + 0.24*[1-(1-EXP(-50*PD))/(1-EXP(-50))]Maturity factor (b)(0.11852-0.05478*1n(PD))2(LGD*N[(1-R)-0.5*G(PD)+(R/(1-R))0.5 *G(0.999)]-PD*LGD)*(1-1.5*b)-1*(1+(M-2.5)*b)*12.5*1.06N(x)denotes the cumulative distribution function for a standard normal random variable (i.e. the probability that a normal random variable with mean zero
BIPRU 4.4.59RRP
For exposures to companies where the total annual sales for the consolidated group of which the firm is a part is less than EUR 50 million a firm may use the following correlation formula for the calculation of risk weights for corporate exposures. In this formula S is expressed as total annual sales in millions of Euros with EUR 5 million < = S < = EUR 50 million. Reported sales of less than EUR 5 million must be treated as if they were equivalent to EUR 5 million. In accordance
BIPRU 4.4.62RRP
3Table: Formulae for the calculation of expected loss amountsThis table belongs to BIPRU 4.4.61 RExpected loss (EL)equals PD×LGDExpected loss amountequals EL×exposure valueFor defaultedexposures (PD = 1) where a firm uses its own estimates of LGDs, EL must be ELBE, the firm's best estimate of expected loss for the defaultedexposure according to BIPRU 4.3.122 R.For exposures subject to the treatment set out in BIPRU 4.4.79 R (Double default) EL must be 0.[Note:BCD Annex VII Part
BIPRU 4.4.64RRP
The PD of a corporate exposure or an exposure in the IRB exposure class referred to in BIPRU 4.3.2 R (2) (Institutions) must be at least 0.03%.[Note:BCD Annex VII Part 2 point 2]
BIPRU 4.4.67RRP
(1) A firm must calculate maturity (M) for each of the exposures referred to in this rule in accordance with this rule and subject to BIPRU 4.4.68 R to BIPRU 4.4.70 R. In all cases, M must be no greater than 5 years.(2) For an instrument subject to a cash flow schedule M must be calculated according to the following formula:where CFt denotes the cash flows (principal, interest payments and fees) contractually payable by the obligor in period t.(3) For derivatives subject to a
BIPRU 4.4.69GRP
The last paragraph of paragraph 14 of Part 2 of Annex VII of the Banking Consolidation Directive says: "In addition, for other short-term exposures specified by the competent authorities which are not part of the credit institution's ongoing financing of the obligor, M shall be at least one-day. A careful review of the particular circumstances shall be made in each case." BIPRU 4.4.67R (10) is currently the only instance where the appropriate regulator has specified any such short-term
BIPRU 4.4.71RRP
Unless provided otherwise in BIPRU 4 the exposure value of on-balance sheet exposures must be measured gross of value adjustments. This also applies to assets purchased at a price different than the amount owed. For purchased assets, the difference between the amount owed and the net value recorded on the balance-sheet of the firm is denoted discount if the amount owed is larger, and premium if it is smaller.[Note:BCD Annex VII Part 3 point 1]
BIPRU 4.4.72RRP
A firm must not treat the exposure value of a facility as being less than current drawings under it. Interest accrued to date on an exposure under a facility must be included in current drawings or an allowance for it must be built into the conversion factor.
BIPRU 4.4.74RRP
For on-balance sheet netting of loans and deposits a firm must apply for the calculation of the exposure value the methods set out in BIPRU 5 (Credit risk mitigation), as modified by BIPRU 4.10.[Note:BCD Annex VII Part 3 point 3]
BIPRU 4.4.75RRP
The exposure value for leases must be the discounted minimum lease payments. Minimum lease payments are the payments over the lease term that the lessee is or can be required to make and any bargain option (i.e. option the exercise of which is reasonably certain). Any guaranteed residual value fulfilling the set of conditions in BIPRU 5.7.1 R (Eligibility), as modified by BIPRU 4.10.38 R and BIPRU 4.10.39 R (Unfunded credit protection: Eligibility of providers) regarding the eligibility
BIPRU 4.4.76RRP
Where an exposure takes the form of securities or commodities sold, posted or lent under repurchase transactions or securities or commodities lending or borrowing transactions, long settlement transactions and margin lending transactions, the exposure value must be the value of the securities or commodities determined in accordance with GENPRU 1.3 (Valuation). Where the financial collateral comprehensive method is used, the exposure value must be increased by the volatility adjustment
BIPRU 4.4.77RRP
Notwithstanding BIPRU 4.4.76 R, the exposure value of credit risk exposures outstanding, as determined by the firm, with a central counterparty must be determined in accordance with BIPRU 13.3.3 R and BIPRU 13.8.8 R (Exposure to central counterparty), provided that the central counterparty'sCCRexposures with all participants in its arrangements are fully collateralised on a daily basis.[Note:BCD Annex VII Part 3 point 8]
BIPRU 4.4.78RRP
In the case of any financial derivative instrument, the exposure value must be determined by the methods set out in BIPRU 13.[Note:BCD Annex VII Part 3 point 5]
BIPRU 4.4.79RRP
The risk weighted exposure amount for each exposure which meets the requirements set out in BIPRU 5.7.2 R and BIPRU 4.4.83 R (Double default) may be adjusted according to the following formula:(1) Risk weighted exposure amount = RW *exposure value * (0.15 + 160*PDpp)](2) PDpp = PD of the protection provider(3) RW must be calculated using the relevant risk weight formula set out in BIPRU 4.4.57 R for the exposure, the PD of the obligor and the LGD of a comparable direct exposure
BIPRU 4.4.80RRP
Notwithstanding BIPRU 4.4.34 R and BIPRU 4.4.43 R, for the purposes of BIPRU 4.4.79 R, the LGD of a comparable direct exposure to the protection provider shall either be the LGD associated with an unhedged facility to the guarantor or the unhedged facility of the obligor, depending upon whether in the event both the guarantor and the obligor default during the life of the hedged transaction available evidence and the structure of the guarantee indicate that the amount recovered
BIPRU 4.4.83RRP
An institution, an insurance undertaking (including an insurance undertaking that carries out reinsurance) or an export credit agency which fulfils the following conditions may be recognised as an eligible provider of unfunded credit protection which qualifies for the treatment set out in BIPRU 4.4.79 R:(1) the protection provider has sufficient expertise in providing unfunded credit protection;(2) the protection provider is regulated in a manner equivalent to the rules laid down
BIPRU 4.4.85RRP
To be eligible for the treatment set out in BIPRU 4.4.79 R, credit protection deriving from a guarantee or credit derivative must meet the following conditions:(1) the underlying obligation must be to:(a) a corporate exposure, excluding an exposure to an insurance undertaking (including an insurance undertaking that carries out reinsurance); or(b) an exposure to a regional government, local authority or public sector entity which is not treated as an exposure to a central government
IFPRU 4.8.1GRP
The FCA considers that a firm may provide own estimates of exposure at default (EAD) in place of the own estimates of conversion factors (CFs) that it is permitted or required to provide under article 151 of the EU CRR.
IFPRU 4.8.2GRP
For the purpose of this section, references to EAD refer to both direct estimates of EAD and CFs, unless specified otherwise (see article 151 of the EU CRR).
IFPRU 4.8.3GRP
The FCA expects that EAD estimates should not be less than current drawings (including interest accrued to date). Consequently, CF estimates should not be less than zero.
IFPRU 4.8.4GRP
The EAD required for IRB purposes is the exposure expected to be outstanding under a borrower's current facilities should it go into default in the next year, assuming that economic downturn conditions occur in the next year and a firm's policies and practices for controlling exposures remain unchanged other than changes that result for the economic downturn conditions.
IFPRU 4.8.5GRP
To achieve sufficient coverage of the EAD, the FCA expects firms to take into account all facility types that may result in an exposure when an obligor defaults, including uncommitted facilities.
IFPRU 4.8.6GRP
To the extent that a firm makes available multiple facilities, the FCA expects the firm to be able to demonstrate:(1) how they deal with the fact that exposures on one facility may become exposures under another on which the losses are ultimately incurred; and (2) the impact of its approach on its own funds requirements.
IFPRU 4.8.7GRP
The FCA expects firms using own estimates of EAD to have done the following in respect of EAD estimates:(1) applied EAD estimates at the level of the individual facility;(2) where there is a paucity of observations, ensured that all EAD estimates are cautious, conservative and justifiable. In accordance with article 179(1)(a) of the EU CRR, estimates must be derived using both historical experience and empirical evidence, and must not be based purely on judgemental consideration.
IFPRU 4.8.8GRP
The FCA uses a framework for assessing the conservatism of firms' wholesale EAD models for which there are a low number of defaults. This framework is set out in IFPRU 4 Annex 2G (Wholesale LGD and EAD framework). This framework is in the process of being used to assess the calibration of firms' material EAD models for low-default portfolios.
IFPRU 4.8.9GRP
In the following cases, the FCA expects firms to determine the effect of applying the framework in IFPRU 4 Annex 2G (Wholesale LGD and EAD framework) to models which include EAD values that are based on fewer than 20 'relevant' data points (as defined in IFPRU 4 Annex 2G):(1) the model is identified for review by the FCA; or(2) the firm submits a request for approval for a material change to its EAD model.
IFPRU 4.8.10GRP
The FCA expects firms to use a time horizon of one year for EAD estimates, unless they can demonstrate that another period would be more conservative.
IFPRU 4.8.11GRP
EAD estimates can be undertaken on the basis that default occurs at any time during the time horizon (the 'cohort approach') or at the end of the time horizon (the 'fixed-horizon approach'). The FCA considers that either approach is acceptable in principle.
IFPRU 4.8.12GRP
The FCA expects the time horizon for additional drawings to be the same as the time horizon for defaults. This means that EAD estimation need cover only additional drawings that might take place in the next year, such that:(1) no own funds requirements need be held against facilities, or proportions of facilities that cannot be drawn down within the next year; and(2) where facilities can be drawn down within the next year, firms may, in principle, reduce their estimates to the
IFPRU 4.8.13GRP
There are a range of approaches that focus on the total amount that will be drawn down at the time of default and directly estimate EAD. Typically, but not in all cases, these will estimate EAD as a percentage of total limit. These approaches can be described collectively as 'momentum' approaches.
IFPRU 4.8.14GRP
A 'momentum' approach can be used either:(1) by using the drawings/limit percentage to formulaically derive a conversion factor on the undrawn portion of the limit; or(2) by using the higher of percentage of the limit and the current balance as the EAD.
IFPRU 4.8.16GRP
In cases where firms estimate conversion factors (CFs) directly using a reference data set that includes a significant number of high CFs as a result of very low undrawn limits at the observation date, the FCA expects firms to:(1) investigate the distribution of realised CFs in the reference data set;(2) base the estimated CF on an appropriate point along that distribution, that results in the choice of a CF appropriate for the exposures to which it is being applied and consistent
IFPRU 4.8.17GRP
The FCA expects firms to treat a facility as an exposure from the earliest date at which a customer is able to make drawings under it.
IFPRU 4.8.19GRP
If the availability of a facility is subject to a further credit assessment by the firm, an EAD/CF may not be required. However, the FCA expects this to be the case only if the subsequent credit assessment was of substantially equivalent rigour to that of the initial credit approval and if this includes a re-rating or a confirmation of the rating of the borrower.
IFPRU 4.8.20GRP
Firms are not expected to include in their EAD/CF estimates the probability of increases in limits between observation and default date. If the reference data set includes the impact of such increases, the FCA expects firms to be able to adjust their estimates accordingly with the aim of assessing what the exposure would have been at default if the limit had not been increased.
IFPRU 4.8.21GRP
The FCA expects firms to investigate the incidence of exposures existing at default that arise from products or relationships that are not intended to result in a credit exposure and, consequently, have no credit limit established against them and are not reflected in their estimates of EAD. Unless such exposures are immaterial, the FCA expects firms to estimate a Pillar 1 own funds requirement on a portfolio basis to such exposures.
IFPRU 4.8.22GRP
The FCA expects firms to investigate how their EAD estimates are impacted by exposures that are in excess of limits at either the observation date (if in the reference data set) or at the current reporting date (for the existing book to which estimates need to be applied). Unless a momentum approach is being used, exposures in excess of limit should be excluded from the reference data set (as the undrawn limit is negative and nonsensical answers would result from their inclusion).
IFPRU 4.8.23GRP
Exposures include not only principal amounts borrowed under facilities but also interest accrued which will fluctuate between payment dates. To ensure proper coverage of interest, the FCA expects firms to take the following approach:(1) accrued interest to date should be included in current exposure for performing exposures;(2) firms may choose whether estimated increases in accrued interest up to the time of default should be included in LGD or EAD;(3) in the estimation of EAD,
IFPRU 4.8.24GRP
The FCA considers that there is scope within the EU CRR for a firm to recognise on-balance sheet netting (including in respect of cross-currency balances) through EAD as an alternative to LGD1 in cases where a firm meets the general conditions for on-balance1sheet netting, as set out in article 205 of1 the EU CRR.11
IFPRU 4.8.26GRP
The lower the net limit as a percentage of gross limits or exposures, the greater will be the need on the part of the firm to ensure that it is restricting exposures below net limits in practice and that it will be able to continue to do so should borrowers encounter difficulties. The application of a zero net limit is acceptable in principle but there is, consequently, a very high obligation on the firm to ensure that breaches of this are not tolerated (see article 166(3) of
IFPRU 4.8.28GRP
Firms are reminded that, since the basis of EAD estimation is that default by the borrower is expected to take place in a one-year time horizon and quite possibly in downturn conditions, the FCA expects any reduction in their CF in anticipation of syndication to take account of this scenario (see article 4(56) of the EU CRR).
MIPRU 4.2BA.7GRP
Eligible underlying assets would exclude, for example, assets purchased from third-party entities, those arising from re-securitisations and any revolving exposures such as credit cards.
MIPRU 4.2BA.10RRP
Monitoring: a firm must continuously monitor risks that it may be subject to when it has excluded the securitised exposures from its calculation of risk weighted exposure amounts.
MIPRU 4.2BA.11RRP
Exposure quality: a firm must consider the impact that securitisation has on the quality of the remaining exposures it holds and the capital planning implications.
MIPRU 4.2BA.12RRP
Stress testing: the firm must carry out regular stress testing which takes into account: (1) the firm-wide impact of securitisation activities and exposures in stressed market conditions; and(2) the implications for other sources of risk including, but not limited to, credit risk, concentration risk, counterparty risk, market risk, liquidity risk and reputational risk.
MIPRU 4.2BA.15RRP
(1) Credit-granting: a firm must apply the same sound and well-defined criteria used under SYSC 7.1.9 R for credit-granting in respect of exposures held on the balance sheet to exposures to be securitised.(2) These criteria must include the processes for approving and, where relevant, amending, renewing and re-financing credits.
MIPRU 4.2BA.18RRP
A firm must not maintain effective or indirect control over the transferred exposures.
MIPRU 4.2BA.19GRP
For the purposes of MIPRU 4.2BA.18 R, a firm will be considered to have maintained effective control over the transferred exposures if: (1) it has the right to repurchase previously transferred exposures to realise their benefits; or (2) it is required to re-assume any previously transferred risk.
MIPRU 4.2BA.20GRP
For the purposes of MIPRU 4.2BA.18 R, the originator's retention of servicing rights or obligations in respect of the exposures does not, of itself, constitute indirect control of the exposures.
MIPRU 4.2BA.21RRP
A clean-up call option must satisfy all of the following conditions:(1) it must be exercisable at the discretion of the firm;(2) it must only be exercised when 10% or less of the original value of the exposures securitised remains unamortised; (3) it must not be structured so that allocating losses to credit enhancement positions or other positions held by investors can be avoided; and (4) it must not otherwise be structured to provide credit enhancement.
MIPRU 4.2BA.22RRP
The credit enhancement documentation must not contain clauses that require securitisation positions to be improved by the firm in response to a deterioration in the credit quality of the securitised exposures, including: (1) altering the credit quality of the underlying exposures; or(2) increasing the yield payable to investors in the securitisation positions.
MIPRU 4.2BA.23RRP
The securitisation documentation must make clear, where applicable, that any repurchase of securitised exposures or securitisation positions by the firm beyond its contractual obligations is not mandatory and may only be made at fair market value.
MIPRU 4.2BA.25RRP
If a firm repurchases securitised exposures or securitisation positions, it must:(1) be able to demonstrate that it has adequately considered the following:(a) the price of the repurchase;(b) the firm's capital and liquidity position before and after repurchase;(c) the performance of the securitised exposures; and(d) the performance of the securitisation positions;(2) have concluded, taking into account the factors in (1) and any other relevant information, that the repurchase
MIPRU 4.2BA.30RRP
If a firm is found to have provided support to a securitisation it will be required to: (1) hold capital resources against all of the securitised exposures associated with the securitisation transaction as if they had not been securitised; and(2) disclose publicly in a timely fashion: (a) where it has provided such support; and(b) the regulatory capital impact of doing so.
MIPRU 4.2BA.31RRP
The risk weighted exposure amount equals the on-balance sheet exposure value multiplied by the risk weight associated with the credit quality step with which the credit assessment of that exposure value is associated.
MIPRU 4.2BA.32RRP
Where there is an exposure to different tranches in a securitisation, the exposure to each tranche must be considered as a separate securitisation position.
MIPRU 4.2BA.34RRP
Securitisation positions include exposures to a securitisation arising from interest rate or currency derivative contracts.
MIPRU 4.2BA.35RRP
The ECAI rating of a securitisation position must, at a minimum, comply with the following:(1) there must be no mismatch between the types of payments reflected in the credit assessment and the types of payment to which the firm is entitled under the contract giving rise to the securitisation position in question;(2) the rating must be publicly available to the market; and(3) the rating must not be based, or partly based, on support provided by the firm itself.
MIPRU 4.2BA.37GRP
MIPRU 4.2BA.35R (3) refers, for example, to situations where a firm holds securitisation positions which receive a lower risk weight by virtue of credit protection provided by the firm itself acting in a different capacity in the securitisation transaction.
MIPRU 4.2BA.38RRP
The assessment of whether a firm is providing unfunded support to its securitisation positions must take into account the economic substance of that support in the context of the overall transaction and any circumstances in which the firm could become exposed to a higher credit risk in the absence of that support. In this case the firm must consider the relevant position as if it were not rated and must apply the relevant treatment for unrated positions.
MIPRU 4.2BA.46RRP
When calculating its risk weighted exposure amount for securitised positions, subject to satisfying the conditions in MIPRU 4.2BA.47 R, a firm may apply the weighted-average risk weight that would be applied to the securitised exposures multiplied by a concentration ratio.
MIPRU 4.2BA.47RRP
The use of the concentration ratio approach for unrated securitisation positions is only permitted where all the following conditions are met:(1) the concentration ratio is equal to the sum of the nominal amounts of all the tranches divided by the sum of the nominal amounts of the tranches junior to, or equal to, the tranche in which the position is held, including that tranche itself;(2) where the resulting risk weight for a securitisation position is lower than any risk weight
MIPRU 4.2BA.48GRP
It is sufficient for the purposes of MIPRU 4.2BA.47R (4) for the composition of the pool of securitised exposures to be reported to the firm at least daily through information service providers, secure websites or other appropriate sources.
MIPRU 4.2BA.49RRP
Where the firm is unable to determine the risk weights that would be applied to the securitised exposures, it must apply a risk weight of 1250%.
MIPRU 4.2BA.50RRP
(1) A conversion factor of 100% must be applied to the nominal amount of unrated liquidity facilities unless the conditions in MIPRU 4.2BA.51 R or MIPRU 4.2BA.53 R for a conversion factor of 50% or 0% are met. (2) The risk weight to be applied is the highest risk weight that would be applied to any of the securitised exposures by a firm holding those exposures.
MIPRU 4.2BA.51RRP
(1) A conversion factor of 50% may be applied to the nominal amount of an unrated liquidity facility where all the conditions in MIPRU 4.2BA.52 R are met. (2) The risk weight to be applied is the highest risk weight that would be applied to any of the securitised exposures by a firm holding those exposures.
MIPRU 4.2BA.52RRP
The conditions for the application of a conversion factor of 50% are:(1) the liquidity facility documentation must clearly identify and limit the circumstances under which the facility may be drawn;(2) it must not be possible for the facility to be drawn so as to provide credit support by covering losses already incurred at the time of drawdown, for example by providing liquidity for exposures in default at the time of drawdown or by acquiring assets at more than fair value;(3)
MIPRU 4.2BA.53RRP
A conversion factor of 0% may be applied to the nominal amount of an unrated liquidity facility where the following conditions are met: (1) the conditions for a conversion factor of 50% in MIPRU 4.2BA.52 R are met;(2) the liquidity facility is unconditionally cancellable; and(3) repayment of any drawings on the facility are senior to any other claims on the cashflows arising from the securitised exposures.
MIPRU 4.2BA.54RRP
A firm must ensure that investors have access to all materially relevant data determined as at the date of the securitisation and, where appropriate due to the nature of the securitisation, thereafter. These data must include:(1) the credit quality, performance, cashflows and supporting collateral of the securitisation exposures; and(2) information necessary to conduct comprehensive and well-informed stress tests on the cashflows and collateral values supporting the securitisation
BIPRU 4.7.1RRP
BIPRU 4.7 applies with respect to the exposures referred to in BIPRU 4.7.2 R.
BIPRU 4.7.2RRP
The following exposures must be classed as equity exposures:(1) non-debt exposures conveying a subordinated, residual claim on the assets or income of the issuer; and(2) debt exposures the economic substance of which is similar to the exposures specified in (1).[Note:BCD Article 86(2)]
BIPRU 4.7.3RRP
Notwithstanding BIPRU 4.3.5 R (Relevant parameters), the calculation of risk weighted exposure amounts for credit risk for all exposures belonging to the equity exposureIRB exposure class must be calculated in accordance with one of the following ways:(1) the simple risk weight approach (see BIPRU 4.7.8 R;(2) the PD/LGD approach (see BIPRU 4.7.13 R); and(3) the internal models approach (see BIPRU 4.7.23 R);in accordance with BIPRU 4.7 and subject to the firm'sIRB permission.[Note:BCD
BIPRU 4.7.6RRP
Notwithstanding BIPRU 4.7.5 R a firm may, if its IRB permission permits it to do so, attribute the risk weighted exposure amounts for equity exposures to ancillary services undertakings according to the treatment of non credit-obligation assets.[Note:BCD Annex VII Part 1 point 18]
BIPRU 4.7.7RRP
The exposure value must be the value presented in the financial statements. Admissible equity exposure measures are the following:(1) for investments held at fair value with changes in value flowing directly through income and into capital resources, the exposure value is the fair value presented in the balance sheet;(2) for investments held at fair value with changes in value not flowing through income but into a tax-adjusted separate component of equity, the exposure value is
BIPRU 4.7.9RRP
The risk weighted exposure amounts must be calculated according to the following formula:risk-weighted exposure amounts = RW * exposure value;where:(1) risk weight (RW) = 190% for private equity exposures in sufficiently diversified portfolios;(2) risk weight (RW) = 290% for exchange traded equity exposures; and(3) risk weight (RW) = 370% for all other equity exposures.[Note:BCD Annex VII Part 1 point 19]
BIPRU 4.7.10RRP
Short cash positions and derivative instruments held in the non-trading book are permitted to offset long positions in the same individual stocks provided that these instruments have been explicitly designated as hedges of specific equity exposures and that they provide a hedge for at least another year. Other short positions must be treated as if they are long positions with the relevant risk weight assigned to the absolute value of each position. In the context of maturity mismatched
BIPRU 4.7.11RRP
A firm may recognise unfunded credit protection obtained on an equity exposure in accordance with the methods set out in BIPRU 5 (Credit risk mitigation), as modified by BIPRU 4.10.[Note:BCD Annex VII Part 1 point 21]
BIPRU 4.7.12RRP
The expected loss amounts1 for equity exposures must be calculated according to the following formula:(1) expected loss amount = EL × exposure value; and(2) the EL values must be the following:(a) expected loss (EL) = 0.8% for private equity exposures in sufficiently diversified portfolios;(b) expected loss (EL) = 0.8% for exchange traded equity exposures; and(c) expected loss (EL) = 2.4% for all other equity exposures.[Note:BCD Annex VII Part 1 point 32]
BIPRU 4.7.14RRP
The risk weighted exposure amounts must be calculated according to the formulas in BIPRU 4.4.58 R (Risk weighted exposure amounts for sovereigns, institutions and corporates). If a firm does not have sufficient information to use the definition of default a scaling factor of 1.5 must be assigned to the risk weights.[Note:BCD Annex VII Part 1 point 22]
BIPRU 4.7.15RRP
At the individual exposure level the sum of the expected loss amount multiplied by 12.5 and the risk weighted exposure amount must not exceed the exposure value multiplied by 12.5.[Note:BCD Annex VII Part 1 point 23]
BIPRU 4.7.16RRP
A firm may recognise unfunded credit protection obtained on an equity exposure in accordance with the methods set out in BIPRU 5 (Credit risk mitigation) as modified by BIPRU 4.10. This must be subject to an LGD of 90% on the exposure to the provider of the hedge. For private equity exposures in sufficiently diversified portfolios an LGD of 65% may be used.[Note:BCD Annex VII Part 1 point 24]
BIPRU 4.7.17RRP
The expected loss amounts for equity exposures must be calculated according to the following formulae:(1) expected loss (EL) = PD × LGD; and(2) expected loss amount = EL × exposure value.[Note:BCD Annex VII Part 1 point 33]
BIPRU 4.7.18RRP
PDs must be determined according to the methods for corporate exposures. The following minimum PDs must be applied:(1) 0.09% for exchange traded equity exposures where the investment is part of a long-term customer relationship;(2) 0.09% for non-exchange traded equity exposures where the returns on the investment are based on regular and periodic cash flows not derived from capital gains;(3) 0.40% for exchange traded equity exposures including other short positions as set out
BIPRU 4.7.20RRP
Private equity exposures in sufficiently diversified portfolios may be assigned an LGD of 65%.[Note:BCD Annex VII Part 2 point 25]
BIPRU 4.7.21RRP
All other exposures must be assigned an LGD of 90%.[Note:BCD Annex VII Part 2 point 26]
BIPRU 4.7.22RRP
M (maturity) assigned to all exposures must be 5 years.[Note:BCD Annex VII Part 2 point 27]
BIPRU 4.7.24RRP
The risk weighted exposure amount is the potential loss on the firm'sequity exposures as derived using internal value-at-risk models subject to the 99th percentile, one-tailed confidence interval of the difference between quarterly returns and an appropriate risk-free rate computed over a long-term sample period, multiplied by 12.5. The risk weighted exposure amounts at the equity exposure portfolio2 level must not be less than the total of the sums2 of the minimum risk weighted
BIPRU 4.7.26RRP
The expected loss amounts for equity exposures under the internal models approach must be 0%.[Note:BCD Annex VII Part 1 point 34]
BIPRU 4.7.27RRP
(1) A firm must meet the standards set out in (2) to (9) for the purpose of calculating capital requirements.(2) The estimate of potential loss must be robust to adverse market movements relevant to the long-term risk profile of the firm's specific holdings. The data used to represent return distributions must reflect the longest sample period for which data is available and be meaningful in representing the risk profile of the firm's specific equity exposures. The data used must
BIPRU 4.7.28RRP
(1) With regard to the development and use of internal models for capital requirement purposes, a firm must establish policies, procedures, and controls to ensure the integrity of the model and modelling process. These policies, procedures, and controls must include the ones set out in the rest of this paragraph.(2) There must be full integration of the internal model into the overall management information systems of the firm and in the management of the non-trading bookequity
BIPRU 4.7.32RRP
A firm must regularly compare actual equity exposure returns (computed using realised and unrealised gains and losses) with modelled estimates. Such comparisons must make use of historical data that cover as long a period as possible. A firm must document the methods and data used in such comparisons. This analysis and documentation must be updated at least annually.[Note:BCD Annex VII Part 4 point 120]
BIPRU 4.7.34RRP
A firm must have sound internal standards for situations where comparison of actual equity exposure returns with the models' estimates calls the validity of the estimates or of the models as such into question. These standards must take account of business cycles and similar systematic variability in equity exposure returns. All adjustments made to internal models in response to model reviews must be documented and consistent with the firm's model review standards.[Note:BCD Annex
BIPRU 4.8.2GRP
Purchased receivables do not form an IRB exposure class on their own. For any purchased receivable, the provisions of the sections of BIPRU 4 that deal with the IRB exposure class to which it belongs also apply, as modified by this section.[Note: BCD Annex VII Part 4 point 15 (part)]
BIPRU 4.8.3RRP
For retail exposure that are purchased receivables, the grouping referred to in BIPRU 4.6.9 R must reflect the seller's underwriting practices and the heterogeneity of its customers.
BIPRU 4.8.7RRP
For corporate exposure purchased receivables a firm may estimate ELs by obligor grade from long run averages of one-year realised default rates.[Note: BCD Annex VII Part 4 point 60]
BIPRU 4.8.8RRP
If a firm derives long run average estimates of PDs and LGDs for corporate exposure purchased receivables from an estimate of EL, and an appropriate estimate of PD or LGD, the process for estimating total losses must meet the overall standards for estimation of PD and LGD set out in the minimum IRB standards,2 and the outcome must be consistent with the concept of LGD as set out in BIPRU 4.3.99 R.[Note: BCD Annex VII Part 4 point 61]
BIPRU 4.8.9RRP
A firm may use external and internal reference data for its LGD estimates in the case of retail exposures that are purchased receivables.[Note: BCD Annex VII Part 4 point 85]
BIPRU 4.8.11RRP
The structure of the facility must ensure that under all foreseeable circumstances a firm has effective ownership and control of all cash remittances from the receivables. When the obligor makes payments directly to a seller or servicer a firm must verify regularly that payments are forwarded completely and within the contractually agreed terms. Servicer means an entity that manages a pool of purchased receivables or the underlying credit exposures on a day-to-day basis. A firm
BIPRU 4.8.16RRP
For its corporate exposure purchased receivables a firm must comply with the minimum requirements set out in BIPRU 4.8.11 R - BIPRU 4.8.15 R. For corporate exposure purchased receivables that comply in addition with the conditions set out in BIPRU 4.8.18 R, and where it would be unduly burdensome for a firm to use the risk quantification standards for corporate exposures as set out in the minimum IRB standards for these receivables, the risk quantification standards for retail
BIPRU 4.8.17RRP
For corporate exposure purchased receivables, refundable purchase discounts, collateral or partial guarantees that provide first-loss protection for defaultlosses, dilution losses, or both, may be treated as first-loss positions under the provisions in BIPRU 9 (Securitisation) about the IRB approach.[Note: BCD Annex VII Part 1 point 8]
BIPRU 4.8.18RRP
To be eligible for the retail exposure treatment purchased receivables must comply with the minimum requirements set out in BIPRU 4.8.11 R - BIPRU 4.8.15 R and the following conditions:(1) the firm has purchased the receivables from unrelated, third party sellers, and its exposure to the obligor of the receivable does not include any exposures that are directly or indirectly originated by the firm itself;(2) the purchased receivables must be generated on an arm's-length basis
BIPRU 4.8.19RRP
With respect to retail exposures, for purchased receivables, refundable purchase discounts, collateral or partial guarantees that provide first-loss protection for defaultlosses, dilution losses, or both, may be treated as first-loss positions under the provisions in BIPRU 9 (Securitisation) about the IRB approach.[Note: BCD Annex VII Part 1 point 15]
BIPRU 4.8.20RRP
For hybrid pools of purchased retail exposure receivables where the purchasing firm cannot separate exposures secured by real estate collateral and qualifying revolving retail exposures from other retail exposures, the retail risk weight2 function producing the highest capital requirements for those exposures must apply.[Note: BCD Annex VII Part 1 point 16]
BIPRU 4.8.21RRP
The risk weights for dilution risk for purchased receivables (both corporate exposures and retail exposures) must be calculated according to this rule. The risk weights must be calculated according to the formula in BIPRU 4.4.58 R. However, for the purposes of that formula, the total annual sales referred to in BIPRU 4.4.59 R are the weighted average by individual exposures of the pool. The input parameters PD and LGD and the exposure value must be determined under the applicable
BIPRU 4.8.22RRP
For purchased corporate exposure receivables in respect of which a firm cannot demonstrate that its PD estimates meet the minimum IRB standards, the PDs for these exposures must be determined according to the following methods:(1) for senior claims on purchased corporate exposure receivables PD must be the firm's estimate of EL divided by LGD for these receivables;(2) for subordinated claims on purchased corporate exposure receivables PD must be the firm's estimate of EL; and1(3)
BIPRU 4.8.23RRP
In the case of corporate exposures, for dilution risk of purchased receivables PD must be set equal to EL estimate for dilution risk. If a firm is under its IRB permission using the advanced IRB approach for LGD estimates for corporate exposures and it can decompose its EL estimates for dilution risk of purchased corporate exposure receivables into PDs and LGDs in a reliable manner, the PD estimate may be used. A firm may recognise unfunded credit protection in the PD in accordance
BIPRU 4.8.24RRP
In the case of retail exposures, for dilution risk of purchased receivables PD must be set equal to EL estimates for dilution risk. If a firm can decompose its EL estimates for dilution risk of purchased receivables into PDs and LGDs in a reliable manner, the PD estimate may be used.[Note: BCD Annex VII Part 2 point 19]
BIPRU 4.8.25RRP
The following LGD values apply for purchased corporate exposure receivables:(1) for senior purchased corporate exposure receivables exposures where a firm cannot demonstrate that its PD estimates meet the minimum IRB standards, the value is 45%;(2) for subordinated purchased corporate exposure receivables exposures where a firm cannot demonstrate that its PD estimates meet the minimum IRB standards, the value is 100%; and(3) for dilution risk of purchased corporate exposure receivables,
BIPRU 4.8.26RRP
Notwithstanding BIPRU 4.4.34 R and BIPRU 4.8.25 R, for dilution risk and default risk if a firm is under its IRB permission using the advanced IRB approach for LGD estimates for corporate exposures and it can decompose its EL estimates for purchased corporate exposure receivables into PDs and LGDs in a reliable manner, the LGD estimate for purchased corporate exposure receivables may be used.[Note: BCD Annex VII Part 2 point 9]
BIPRU 4.8.27RRP
For dilution risk of purchased retail exposure receivables an LGD value of 75% must be used. If a firm can decompose its EL estimates for dilution risk of purchased receivables into PDs and LGDs in a reliable manner, the LGD estimate may be used.[Note: BCD Annex VII Part 2 point 21]
BIPRU 4.8.28RRP
The exposure value for the calculation of risk weighted exposure amounts of purchased receivables must be the outstanding amount minus the capital requirements for dilution risk prior to credit risk mitigation.[Note: BCD Annex VII Part 3 point 6]
BIPRU 4.8.29RRP
(1) The exposure value for the items in (2) must be calculated as the committed but undrawn amount multiplied by a conversion factor.(2) For undrawn purchase commitments for revolving purchased receivables that are unconditionally cancellable or that effectively provide for automatic cancellation at any time by the firm without prior notice, a conversion factor of 0% applies. To apply a conversion factor of 0%, a firm must actively monitor the financial condition of the obligor,
BIPRU 4.8.30RRP
The expected loss amounts for dilution risk of purchased receivables must be calculated according to the following formula: expected loss (EL) = PD × LGD; andexpected loss amount = EL × exposure value.[Note: BCD Article 88(5) and Annex VII Part 1 point 35]
BIPRU 5.4.1RRP
(1) Where the credit risk mitigation used relies on the right of a firm to liquidate or retain assets, eligibility depends upon whether risk weighted exposure amounts, and, as relevant, expected loss amounts, are calculated under the standardised approach or the IRB approach.(2) Eligibility further depends upon whether the financial collateral simple method is used or the financial collateral comprehensive method.(3) In relation to repurchase transactions and securities or commodities
BIPRU 5.4.2RRP
The following financial items may be recognised as eligible collateral under all approaches and methods:(1) cash on deposit with, or cash assimilated instruments held by, the lending firm;(2) debt securities issued by central governments or central banks which securities have a credit assessment by an eligible ECAI or export credit agency recognised as eligible for the purposes of the standardised approach, which is associated with credit quality step 4 or above under the rules
BIPRU 5.4.3RRP
For the purposes of BIPRU 5.4.2 R (2), 'debt securities issued by central governments or central banks' include -(1) debt securities issued by regional governments or local authorities exposures to which are treated as exposures to the central government in whose jurisdiction they are established under the standardised approach;(2) debt securities issued by public sector entities which are treated as exposures to central governments in accordance with BIPRU 3.4.24 R;(3) debt securities
BIPRU 5.4.4RRP
For the purposes of BIPRU 5.4.2 R (3), 'debt securities issued by institutions' include:(1) debt securities issued by regional governments or local authorities other than those exposures to which are treated as exposures to the central government in whose jurisdiction they are established under the standardised approach;(2) debt securities issued by public sector entities, exposures to which are treated as exposures to a credit institution under the standardised approach;(3) debt
BIPRU 5.4.5RRP
Debt securities issued by institutions which securities do not have a credit assessment by an eligible ECAI may be recognised as eligible collateral if they fulfil the following criteria:(1) they are listed on a recognised investment exchange or a designated investment exchange;(2) they qualify as senior debt;(3) all other rated issues by the issuing institution of the same seniority have a credit assessment by an eligible ECAI associated with credit quality step 3 or above under
BIPRU 5.4.13RRP
In addition to the requirements set out in BIPRU 5.4.9 R, for the recognition of financial collateral under the financial collateral simple method the residual maturity of the protection must be at least as long as the residual maturity of the exposure.[Note:BCD Annex VIII Part 2 point 7]
BIPRU 5.4.15RRP
The financial collateral simple method is available only where risk weighted exposure amounts are calculated under the standardised approach to credit risk.[Note:BCD Annex VIII Part 3 point 24 (part)]
BIPRU 5.4.18RRP
The risk weight that would be assigned under the standardised approach to credit risk if the lending firm had a direct exposure to the collateral instrument must be assigned to those portions of exposure values4 collateralised by the market value of recognised collateral. For this purpose, the exposure value of an off-balance sheet item listed in BIPRU 3.7.2 R must be 100% of its value rather than the exposure value indicated in BIPRU 3.2.1 R.4 The risk weight of the collateralised
BIPRU 5.4.19RRP
A risk weight of 0% must be assigned to the collateralised portion of the exposure arising from transactions which fulfil the criteria enumerated in BIPRU 5.4.62 R or BIPRU 5.4.65 R. If the counterparty to the transaction is not a core market participant a risk weight of 10% must be assigned.[Note:BCD Annex VIII Part 3 point 27]
BIPRU 5.4.20RRP
A risk weight of 0% must, to the extent of the collateralisation, be assigned to the exposure values determined under BIPRU 13 for financial derivative instruments and subject to daily marking-to-market, collateralised by cash or cash assimilated instruments where there is no currency mismatch. A risk weight of 10% must be assigned to the extent of the collateralisation to the exposure values of such transactions collateralised by debt securities issued by central governments
BIPRU 5.4.21RRP
A 0% risk weight may be assigned where the exposure and the collateral are denominated in the same currency, and either:(1) the collateral is cash on deposit or a cash assimilated instrument; or(2) the collateral is in the form of debt securities issued by central governments or central banks eligible for a 0% risk weight under the standardised approach, and its market value has been discounted by 20%.[Note:BCD Annex VIII Part 3 point 29]
BIPRU 5.4.22RRP
For the purposes of BIPRU 5.4.20 R and BIPRU 5.4.21 R 'debt securities issued by central governments or central banks' must include:(1) debt securities issued by regional governments or local authorities exposures to which are treated as exposures to the central government in whose jurisdiction they are established under the standardised approach;(2) debt securities issued by multilateral development banks to which a 0% risk weight is assigned under or by virtue of the standardised
BIPRU 5.4.25RRP
Subject to the treatment for currency mismatches in the case of financial derivative instrument set out in BIPRU 5.4.26 R, where collateral is denominated in a currency that differs from that in which the underlying exposure is denominated, an adjustment reflecting currency volatility must be added to the volatility adjustment appropriate to the collateral as set out in BIPRU 5.4.30 R to BIPRU 5.4.65 R.[Note:BCD Annex VIII Part 3 point 31]
BIPRU 5.4.27RRP
In the case of a firm using the financial collateral comprehensive method, where an exposure takes the form of securities or commodities sold, posted or lent under a repurchase transaction or under a securities or commodities lending or borrowing transaction, and margin lending transactions the exposure value must be increased by the volatility adjustment appropriate to such securities or commodities as prescribed in BIPRU 5.4.30 R to BIPRU 5.4.65 R.[Note: BCD Article 78(1), third
BIPRU 5.4.28RRP
(1) The volatility-adjusted value of the collateral to be taken into account is calculated as follows in the case of all transactions except those transactions subject to recognised master netting agreements to which the provisions set out in BIPRU 5.6.5 R to BIPRU 5.6.29 R are to be applied:CVA = C x (1-HC-HFX)(2) The volatility-adjusted value of the exposure to be taken into account is calculated as follows:EVA = E x (1+HE), and in the case of financial derivative instruments
BIPRU 5.4.31RRP
A firm may choose to use the supervisory volatility adjustments approach or the own estimates of volatility adjustments approach independently of the choice it has made between the standardised approach and the IRB approach for the calculation of risk weighted exposure amounts. However, if a firm seeks to use the own estimates of volatility adjustments approach, it must do so for the full range of instrument types, excluding immaterial portfolios where it may use the supervisory
BIPRU 5.4.37RRP
This table belongs to BIPRU 5.4.34 R.Other collateral or exposure types20 day liquidation period (%)10 day liquidation period (%)5 day liquidation period (%)Main index equities, main index convertible bonds21.2131510.607Other equities or convertible bonds listed on a recognised investment exchange or designated investment exchange35.3552517.678Cash000Gold21.2131510.607
BIPRU 5.4.39RRP
(1) For secured lending transactions the liquidation period is 20 business days.(2) For repurchase transactions (except insofar as such transactions involve the transfer of commodities or guaranteed rights relating to title to commodities) and securities lending or borrowing transactions the liquidation period is 5 business days.(3) For other capital market-driven transactions1, the liquidation period is 10 business days.[Note:BCD Annex VIII Part 3 point 37]
BIPRU 5.4.45RRP
A firm complying with the requirements set out in BIPRU 5.4.50 R to BIPRU 5.4.60 R may use the own estimates of volatility adjustments approach for calculating the volatility adjustments to be applied to collateral and exposures.[Note:BCD Annex VIII Part 3 point 42]
BIPRU 5.4.49RRP
A firm using the own estimates of volatility adjustments approach must estimate volatility of the collateral or foreign exchange mismatch without taking into account any correlations between the unsecured exposure, collateral and/or exchange rates.[Note:BCD Annex VIII Part 3 point 46]
BIPRU 5.4.57RRP
The volatility estimates must be used in the day-to-day risk management process of a firm including in relation to its internal exposure limits.[Note:BCD Annex VIII Part 3 point 53]
BIPRU 5.4.62RRP
In relation to repurchase transaction and securities lending or borrowing transactions, where a firm uses the supervisory volatility adjustments approach or the own estimates of volatility adjustments approach and where the conditions set out in (1) - (8) are satisfied, a firm may, instead of applying the volatility adjustments calculated under BIPRU 5.4.30 R to BIPRU 5.4.61 R, apply a 0% volatility adjustment:(1) both the exposure and the collateral are cash or debt securities
BIPRU 5.4.64RRP
Core market participant means the following entities:(1) the entities mentioned in BIPRU 5.4.2 R (2)exposures to which are assigned a 0% risk weight under the standardised approach to credit risk;(2) institutions;(3) other financial companies (including insurance companies) exposures which are assigned a 20% risk weight under the standardised approach;(4) regulated CIUs that are subject to capital or leverage requirements;(5) regulated pension funds; and(6) a recognised clearing
BIPRU 5.4.66RRP
Under the standardised approachE* as calculated under BIPRU 5.4.28 R must be taken as the exposure value for the purposes of BIPRU 3.2.20 R to BIPRU 3.2.26 R. In the case of off-balance sheet items listed in BIPRU 3.7, E* must be taken as the value to which the percentages indicated in BIPRU 3.2.1 R and BIPRU 3.7.2 R must be applied to arrive at the exposure value.[Note:BCD Annex VIII Part 3 point 60]
BIPRU 4.6.1RRP
BIPRU 4.6 applies with respect to the exposures referred to in BIPRU 4.6.2 R.
BIPRU 4.6.2RRP
To be eligible to be treated as a retail exposure, exposures must meet the following criteria:(1) they must be either to an individual person or persons, or to a small or medium sized entity, provided in the latter case that the total amount owed to the firm and parent undertaking and its subsidiary undertakings, including any past due exposure, by the obligor client or group of connected clients, but excluding claims or contingent claims secured on residential real estate collateral,
BIPRU 4.6.3RRP
The present value of retail minimum lease payments is eligible to be treated as a retail exposure.[Note:BCD Article 86(4) (part)]
BIPRU 4.6.4GRP
(1) This paragraph sets out guidance on BIPRU 4.6.2 R so far as it relates to the boundary between retail exposures and corporate exposures.(2) In deciding what steps are reasonable for the purposes of BIPRU 4.6.2 R (1), a firm may take into account complexity and cost, as well as the materiality of the impact upon its capital calculation. A firm should be able to demonstrate to the appropriate regulator that it has complied with the obligation to take reasonable steps under BIPRU
BIPRU 4.6.7RRP
The level of risk differentiation must ensure that the number of exposures in a given grade or pool is sufficient to allow for meaningful quantification and validation of the loss characteristics at the grade or pool level. The distribution of exposures and obligors across grades or pools must be such as to avoid excessive concentrations.[Note:BCD Annex VII Part 4 point 14]
BIPRU 4.6.8GRP
(1) This paragraph contains guidance on the level of differentiation referred to in BIPRU 4.6.7 R.(2) It is important that a firm achieves adequate segmentation to deliver robust estimates of LGD and conversion factors, as well as PD. Whether the focus should be more on exposure size or collateral type is a question of fact for the particular circumstances in which the assignment of exposures to grades or pools occurs. Typically the appropriate regulator would expect both to be
BIPRU 4.6.9RRP
A firm must be able to demonstrate to the appropriate regulator that the process of assigning exposures to grades or pools provides for a meaningful differentiation of risk, provides for a grouping of sufficiently homogenous exposures, and allows for accurate and consistent estimation of loss characteristics at grade or pool level.[Note:BCD Annex VII Part 4 point 15 (part)]
BIPRU 4.6.11RRP
(1) A firm must consider the following risk drivers when assigning exposures to grades or pools:(a) obligor risk characteristics;(b) transaction risk characteristics, including product or collateral types or both; and(c) delinquency.(2) In the case of (1)(b) a firm must explicitly address cases where several exposures benefit from the same collateral.(3) However:(a) a firm need not consider delinquency if this is compatible with its IRB permission; and(b) (in the case of a firm
BIPRU 4.6.12RRP
Each exposure must be assigned to a grade or a pool as part of the credit approval process.[Note:BCD Annex VII Part 4 point 24]
BIPRU 4.6.14RRP
A firm must at least annually update obligor and facility assignments or review the loss characteristics and delinquency status of each identified risk pool whichever is applicable. A firm must also at least annually review in a representative sample the status of individual exposures within each pool as a means of ensuring that exposures continue to be assigned to the correct pool.[Note:BCD Annex VII Part 4 point 29]
BIPRU 4.6.18RRP
In addition to complying with BIPRU 4.3.54 R (Data maintenance) a firm must collect and store:(1) data used in the process of allocating exposures to grades or pools;(2) data on the estimated PDs, LGDs and conversion factors associated with grades or pools of exposures;(3) the identity of obligors and exposures that defaulted;(4) for defaultedexposures, data on the grades or pools to which the exposure was assigned over the year prior to default and the realised outcomes on LGD
BIPRU 4.6.20RRP
(1) This rule, in accordance with BIPRU 4.3.57 R (4) (Definition of default), sets the exact number of days past due that a firm must abide by in the case of retail exposures.(2) For retail exposures to counterparts situated within the United Kingdom the number of days past due is 180 days with the exception of retail SME exposures. For these exposures the number is 90 days.(3) For retail exposures to counterparts situated in another EEA State the number of days past due is the
BIPRU 4.6.26RRP
A firm must regard internal data for assigning exposures to grades or pools as the primary source of information for estimating loss characteristics. A firm may use external data (including pooled data) or statistical models for quantification provided a strong link can be demonstrated between:(1) the firm's process of assigning exposures to grades or pools and the process used by the external data source; and(2) the firm's internal risk profile and the composition of the external
BIPRU 4.6.27RRP
If a firm derives long run average estimates of PD and LGD for retail exposures from an estimate of total losses, and an appropriate estimate of PD or LGD, the process for estimating total losses must meet the minimum IRB standards1 for estimation of PD and LGD, and the outcome must be consistent with the concept of LGD as set out in BIPRU 4.3.99 R (Default weighted average).[Note:BCD Annex VII Part 4 point 70]
BIPRU 4.6.30RRP
A firm must identify and analyse expected changes of risk parameters over the life of credit exposures (seasoning effects).[Note:BCD Annex VII Part 4 point 72]
BIPRU 4.6.32RRP
Notwithstanding BIPRU 4.3.128 R (Additional drawings), a firm may reflect future drawings either in its conversion factor or in its LGD estimates.[Note:BCD Annex VII Part 4 point 84]
BIPRU 4.6.41RRP
Subject to BIPRU 4.6.43 R and BIPRU 4.6.44 R, the risk weighted exposure amounts for retail exposures must be calculated according to the formulae in the table in BIPRU 4.6.42 R.[Note:BCD Annex VII Part 1 point 10 1st sentence]
BIPRU 4.6.42RRP
Table: Risk weighted exposure amounts for retail exposuresThis table belongs to BIPRU 4.6.41 RCorrelation (R)0.03 × (1 - EXP(-35*PD))/(1-EXP(-35)) + 0.16*[1-(1-EXP(-35*PD))/(1-EXP(-35))]Risk weight (RW)(LGD*N[(1-R)-0.5*G(PD)+(R/(1-R))0.5 *G(0.999)]-PD*LGD)* 12.5*1.06N(x)denotes the cumulative distribution function for a standard normal random variable (i.e. the probability that a normal random variable with mean zero and variance of one is less than or equal to x).G(z)denotes
BIPRU 4.6.43RRP
For retail exposures secured by real estate collateral a correlation (R) of 0.15 must replace the correlation formula in the table in BIPRU 4.6.42 R.[Note:BCD Annex VII Part 1 point 12]
BIPRU 4.6.44RRP
(1) For qualifying revolving retail exposures a correlation (R) of 0.04 must replace the correlation formula in the table in BIPRU 4.6.42 R.(2) Retail exposures qualify as qualifying revolving retail exposures if they meet the following conditions:(a) the IRB permission of the firm in question does not disapply this paragraph;(b) the exposures are to individuals;(c) the exposures are revolving, unsecured, and, to the extent they are not drawn, immediately and unconditionally cancellable
BIPRU 4.6.45GRP
A firm should be able to demonstrate the low volatility of loss rates mentioned in BIPRU 4.6.44 R (2)(e) at the time of the initial application for an IRB permission and thereafter at any time on request. The benchmark level should be the volatility of loss rates for the qualifying revolving retail exposure portfolio relative to the volatilities of loss rates of other relevant types of retail exposures. A firm should demonstrate low volatility by reference to data on the mean
BIPRU 4.6.46GRP
In the appropriate regulator's view a sub-portfolio consisting of credit card or overdraft obligations will usually meet the condition in BIPRU 4.6.44 R (2)(f). In the appropriate regulator's view it is unlikely that any other type of retail exposure will do so. If a firm wishes to apply the treatment in BIPRU 4.6.44 R (1) to product types other than credit card or overdraft obligations it should first discuss this with the appropriate regulator.
BIPRU 4.6.48RRP
Table: Formulae for the calculation of expected loss amountsThis table belongs to BIPRU 4.6.47 RExpected loss (EL)equals PD×LGDExpected loss amountequals EL×exposure valueFor defaultedexposures (PD = 1) where a firm uses its own estimates of LGDs, EL must be ELBE, the firm's best estimate of expected loss for the defaultedexposure according to BIPRU 4.3.122 R.For exposures subject to the treatment set out in BIPRU 4.4.79 R (Double default) EL must be 0.[Note:BCD Annex VII Part
BIPRU 4.6.50RRP
The PD of an exposure must be at least 0.03%.[Note:BCD Annex VII Part 2 point 17]
BIPRU 4.6.51RRP
The PD of obligors in default must be 100%. If a firm is using the facility level approach described in BIPRU 4.6.21 R, the PD of an exposure in default must be 100%.[Note:BCD Annex VII Part 2 point 18]
BIPRU 4.6.54RRP
Unfunded credit protection may be recognised as eligible by adjusting PD or LGD estimates subject to the minimum IRB standards as specified in BIPRU 4.10.43 R - BIPRU 4.10.48 R and in accordance with the IRB permission either in support of an individual exposure or a pool of exposures. A firm must not assign guaranteed exposures an adjusted PD or LGD such that the adjusted risk weight would be lower than that of a comparable, direct exposure to the guarantor.[Note:BCD Annex VII
BIPRU 4.6.57RRP
The risk weighted exposure amount for each exposure to retail SME as defined in BIPRU 4.6.2 R which meets the requirements set out in BIPRU 4.4.83 R and BIPRU 4.4.85 R may be calculated according to BIPRU 4.4.79 R (Double default).[Note:BCD Annex VII Part 1 point 11]
BIPRU 4.6.58RRP
Notwithstanding BIPRU 4.6.54 R for the purposes of BIPRU 4.4.80 R the LGD of a comparable direct exposure to the protection provider must either be the LGD associated with an unhedged facility to the guarantor or the unhedged facility of the obligor, depending upon whether in the event both the guarantor and obligor default during the life of the hedged transaction available evidence and the structure of the guarantee indicate that the amount recovered would depend on the financial
BIPRU 14.2.2RRP
A firm must hold capital calculated in accordance with BIPRU 14.2.13 Ragainst the CCR arising from exposures arising in the trading book due to the following:(1) free deliveries (where BIPRU 14.4 requires it to be treated as an exposure);(2) financial derivative instruments and credit derivatives;(3) repurchase agreements, reverse repurchase agreements, securities or commodities lending or borrowing transaction based on securities or commodities included in the trading book;(4)
BIPRU 14.2.3RRP
For the purposes of the calculation of the counterparty risk capital component, a financial derivative instrument means:(1) an item falling within BIPRU 13.3.3 R other than an item to which an exposure value of zero is attributed under BIPRU 13.3.13 R or BIPRU 13.8.8 R (Exposure to a central counterparty); and(2) a credit derivative.[Note: CAD Article 3(1)(h) and Annex II point 7 first sentence]
BIPRU 14.2.4RRP
BIPRU 14.2.5 R to BIPRU 14.2.8 R apply for the purposes of BIPRU 13.4 (CCR mark to market method).
BIPRU 14.2.5RRP
In the case of total return swap credit derivatives and credit default swap credit derivatives, a firm must obtain a figure for potential future credit exposure by multiplying the nominal amount of the instrument by the following percentages:(1) 5% where the reference obligation is one that if it gave rise to a direct exposure of the firm would be a qualifying debt security for the purposes of BIPRU 7.2;(2) 10 % where the reference obligation is one that if it gave rise to a direct
BIPRU 14.2.6RRP
In the case of a credit default swap, a firm the exposure of which arising from the swap represents a long position in the underlying may use a figure of 0% for potential future credit exposure, unless the credit default swap is subject to closeout upon the insolvency of the entity the exposure of which arising from the swap represents a short position in the underlying, even though the underlying has not defaulted, in which case the potential for future credit exposure of the
BIPRU 14.2.7GRP
BIPRU 14.2.6 R permits the seller of credit protection to determine potential future credit exposure as 0%, unless the protection is subject to close-out on the insolvency of the buyer.
BIPRU 14.2.9GRP
The operation of BIPRU 14.2.8 R can be illustrated by an example as follows: where the credit derivative is a first to default transaction, the appropriate percentage for the potential future credit exposure will be determined by the lowest credit quality of the underlying obligations in the basket. If there are non-qualifying items in the basket, the percentage applicable to the non-qualifying reference obligation should be used. For second and subsequent to default transactions,
BIPRU 14.2.11RRP
Subject to BIPRU 14.2.3 R to BIPRU 14.2.5 R and BIPRU 14.2.14 R to BIPRU 14.2.17 R, a firm must calculate exposure values and risk weighted exposure amounts for the exposures falling under BIPRU 14.2.2 R (1) to BIPRU 14.2.2R (5) in accordance with:(1) the standardised approach to credit risk; or(2) if the firm has an IRB permission, the IRB approach in accordance with the terms of the firm'sIRB permission.[Note: CAD Annex II point 6]
BIPRU 14.2.12GRP
For the purpose of calculating counterparty exposure values for financial derivative instruments, securities financing transactions and long settlement transactions, or for credit risk mitigation, the effect of BIPRU 14.2.11 R is to direct a firm to BIPRU 13 or BIPRU 5 as appropriate.
BIPRU 14.2.13RRP
A firm must calculate the capital requirement for the purposes of BIPRU 14.2.2 R as 8% of the total risk weighted exposure amounts.[Note: CAD Annex II point 12]
BIPRU 14.2.14RRP
For the purposes of BIPRU 14.2.11 R, in calculating risk weighted exposure amounts a firm must not use the financial collateral simple method for the recognition of the effects of financial collateral.[Note: CAD Annex II point 8]
BIPRU 14.2.15RRP
For the purposes of BIPRU 14.2.11 R:(1) in the case of repurchase transactions and securities or commodities lending or borrowing transactions booked in the trading book, all CRD financial instruments and commodities that are eligible to be included in the trading book may be recognised as eligible collateral;(2) for exposures due to financial derivative instruments and long settlement transactions booked in the trading book, commodities that are eligible to be included in the
BIPRU 14.2.18RRP
Where a firm calculates risk weighted exposure amounts for the purposes of BIPRU 14 in accordance with the IRB approach, then for the purposes of the calculation provided for in BIPRU 4.3.8 R, the following will apply:44(1) value adjustments made to take account of the credit quality of the counterparty may be included in the sum of value adjustments and provisions made for the exposures indicated in BIPRU 14; and(2) unless the firm'sIRB permission does not permit it, if the credit
BIPRU 14.2.20RRP
For the purposes of the calculation of the counterparty risk capital component, without prejudice to BIPRU 13.3.13 R and BIPRU 13.8.8 R (Exposure to a central counterparty) exposures to recognised third-country investment firms and exposures incurred to recognised clearing houses and designated investment exchanges must be treated as exposures to institutions.[Note: CAD Article 40]
BIPRU 14.2.21RRP
For the purposes of counterparty credit risk, a firm may net exposures arising from items in the trading book against exposures arising from items in the non-trading book.
BIPRU 14.2.22RRP
Where a firm carries out netting under BIPRU 14.2.21 R, it must allocate the net exposure to:(1) the trading book for the purposes of the calculation under BIPRU 14.2.11 R, if the gross trading bookexposures exceed gross non-trading bookexposures; and(2) the non-trading book for the purposes of BIPRU 13, if the gross non-trading bookexposures exceed gross trading bookexposures.
BIPRU 14.2.23RRP
A firm may only net exposures under BIPRU 14.2.21 R if it continues to meet other GENPRU and BIPRU requirements applicable to the trading book or non-trading book in respect of those exposures.
BIPRU 14.2.24GRP
For example, in relation to BIPRU 14.2.23 R, collateral which is eligible only against trading bookexposures will not be applicable against non-trading bookexposures; and the large exposures limits on non-trading book positions will also remain applicable.
MIPRU 4.2C.1RRP
This section applies to a firm carrying on any home financing connected to regulated mortgage contracts or home financing and home financing administration connected to regulated mortgage contracts see 1MIPRU 4.2.23 R where it applies credit risk mitigation1 to the calculation of its risk weighted exposure amounts under MIPRU 4.2A (Credit risk capital requirement)1.11
MIPRU 4.2C.2GRP
MIPRU 4.2C sets out the provisions a firm should comply with when calculating risk weighted exposure amounts for calculating the credit risk capital requirement1 under MIPRU 4.2.23 R.11
MIPRU 4.2C.5RRP
1A firm may recognise credit risk mitigation under this section in calculating risk weighted exposure amounts for calculating the credit risk capital requirement.
MIPRU 4.2C.12RRP
1Even where a firm recognises credit risk mitigation when calculating risk weighted exposure amounts, it must: (1) continue to undertake full credit-risk assessment of the underlying exposure; and(2) demonstrate to the FCA the fulfilment of the requirement in (1).
MIPRU 4.2C.16RRP
1For unfunded credit protection:(1) to be eligible for recognition:(a) the party giving the undertaking must be sufficiently reliable; and(b) the protection agreement must be legally effective and enforceable in the relevant jurisdictions, to provide appropriate certainty as to the credit protection achieved, having regard to the approach used to calculate risk weighted exposure amounts and to the degree of recognition allowed; and(2) protection must be provided by central governments
MIPRU 4.2C.17RRP
1The calculation of risk weighted exposure amounts may be modified in accordance with this section where a firm has complied with MIPRU 4.2C.7 R to MIPRU 4.2C.16 R.
MIPRU 4.2C.18RRP
1No exposure for which credit risk mitigation is obtained may produce a higher risk weighted exposure amount than an otherwise identical exposure for which there is no credit risk mitigation.
MIPRU 4.2C.19RRP
1Where the risk weighted exposure amount already takes account of credit protection, the calculation of the credit protection must not be further recognised under MIPRU 4.2C (Credit risk mitigation).
MIPRU 4.2C.21RRP
1Where unfunded credit protection is denominated in a currency different from that in which the exposure is denominated (a currency mismatch) the value of the credit protection must be reduced by the application of a volatility adjustment HFX as follows:G* = G x (1-HFX)where: (1) G is the nominal amount of the credit protection;(2) G* is G adjusted for any foreign currency risk; and (3) HFX is the volatility adjustment for any currency mismatch between the credit protection and
MIPRU 4.2C.24RRP
(1) 1In calculating risk weighted exposure amounts, a maturity mismatch occurs where the residual maturity of the credit protection is less than that of the protected exposure.(2) Protection of less than three months residual maturity, the maturity of which is less than the maturity of the underlying exposure, must not be recognised.
MIPRU 4.2C.26RRP
(1) 1Subject to a maximum of five years, the effective maturity of the underlying exposure is the longest possible remaining time before the borrower is scheduled to fulfil its obligations.(2) Unless MIPRU 4.2C.27 R applies, the maturity of the credit protection is the length of time to the earliest date at which the protection may terminate or be terminated.
MIPRU 4.2C.28RRP
(1) 1The maturity of the credit protection and that of the exposure must be reflected in the adjusted value of the credit protection according to the following formula: GA = G* x (t-t*)/(T-t*) where:(a) G* is the amount of the protection adjusted for any currency mismatch;(b) GA is G* adjusted for any maturity mismatch;(c) t is the number of years remaining to the maturity date of the credit protection calculated in accordance with MIPRU 4.2C.27 R to MIPRU 4.2C.28 R, or the value
MIPRU 4.2C.29RRP
1Under MIPRU 4.2A.9 R, MIPRU 4.2A.12 R, MIPRU 4.2A.17A R and MIPRU 4.2A.17B R, g is the risk weight to be assigned to an exposure, the exposure value (E) of which is fully protected by unfunded credit protection (GA), where: (1) g is the risk weight of exposures to the protection provider; (2) GA is the value of G* as calculated under MIPRU 4.2C.22 R further adjusted for any maturity mismatch under MIPRU 4.2C.24 R to MIPRU 4.2C.28 R; and(3) E is the exposure value according to
MIPRU 4.2C.30RRP
(1) 1Proportional regulatory capital relief is afforded if:(a) the protected amount is less than the exposure value; and(b) the protected and unprotected portions are of equal seniority, i.e. the firm and the protection provider share losses on a pro-rata basis.(2) Under MIPRU 4.2A.9 R, MIPRU 4.2A.12 R, MIPRU 4.2A.17A R and MIPRU 4.2A.17B R, risk weighted exposure amounts must be calculated in accordance with the following formula:(E-GA) x r + GA x gwhere:(a) E is the exposure
MIPRU 4.2C.31GRP
1Where the protected and unprotected portions of the exposure are not of equal seniority, MIPRU 4.2C.6 R applies.
MIPRU 4.2C.32RRP
1A firm may assign a risk weight of 0% to exposures or parts of exposures guaranteed by the UK government or its central bank if the following conditions are met: (1) the guarantee is denominated in the domestic currency of the borrower; and(2) the exposure is funded in that currency.
MIPRU 4.2C.33RRP
1Where a firm calculating risk weighted exposure amounts has more than one form of credit risk mitigation covering a single exposure: (1) it must divide the exposure into parts covered by each type of credit risk mitigation; and(2) the risk weighted exposure amount for each portion must be calculated separately in accordance with MIPRU 4.2A (Credit risk capital requirement).
BIPRU 3.2.1RRP
Subject to BIPRU 13:(1) the exposure value of an asset item must be its balance-sheet value, subject to any value adjustments required by GENPRU 1.3; and(2) the exposure value of an off-balance sheet item listed in the table in BIPRU 3.7.2 R must be the percentage of its value set out in that table.[Note: BCD Article 78(1) part]
BIPRU 3.2.3RRP
Where an exposure is subject to funded credit protection, a firm may modify the exposure value applicable to that item in accordance with BIPRU 5.[Note: BCD Article 78(3)]
BIPRU 3.2.4GRP
BIPRU 13 sets out the method for determination of the exposure value of a financial derivative instrument, with the effects of contracts of novation and other netting agreements taken into account for the purposes of that method in accordance with BIPRU 13.7.[Note: reference to BCD Article 78(2) first sentence. Implementation in BIPRU 13]
BIPRU 3.2.9RRP
A firm must assign each exposure to one of the following exposure classes:(1) claims or contingent claims on central governments or central banks;(2) claims or contingent claims on regional governments or local authorities;(3) claims or contingent claims on administrative bodies and non-commercial undertakings;(4) claims or contingent claims on multilateral development banks;(5) claims or contingent claims on international organisation;(6) claims or contingent claims on institutions;(7)
BIPRU 3.2.10RRP
To be eligible for the retail exposure class, an exposure must meet the following conditions:(1) the exposure must be either to an individual person or persons, or to a small or medium sized entity;(2) the exposure must be one of a significant number of exposures with similar characteristics such that the risks associated with such lending are substantially reduced; and(3) the total amount owed to the firm, its parent undertakings and its subsidiary undertakings, including any
BIPRU 3.2.18GRP
Where an exposure is denominated in a currency other than the euro, a firm may calculate the euro equivalent for purposes of BIPRU 3.2.10 R using any appropriate set of exchange rates provided its choice has no obvious bias and that the firm is consistent in its approach to choosing rates.
BIPRU 3.2.20RRP
(1) To calculate risk weighted exposure amounts, risk weights must be applied to all exposures, unless deducted from capital resources, in accordance with the provisions of BIPRU 3.4.(2) The application of risk weights must be based on the standardised credit risk exposure class to which the exposure is assigned and, to the extent specified in BIPRU 3.4, its credit quality.(3) Credit quality may be determined by reference to:(a) the credit assessments of eligible ECAIs in accordance
BIPRU 3.2.21RRP
For the purposes of applying a risk weight, as referred to in BIPRU 3.2.20 R, the exposure value must be multiplied by the risk weight specified or determined in accordance with the standardised approach.[Note: BCD Article 80(2)]
BIPRU 3.2.22RRP
Notwithstanding BIPRU 3.2.20 R, where an exposure is subject to credit protection the risk weight applicable to that item may be modified in accordance with BIPRU 5.[Note: BCD Article 80(4)]
BIPRU 3.2.23RRP
Risk weighted exposure amounts for securitisedexposures must be calculated in accordance with BIPRU 9.[Note: BCD Article 80(5)]
BIPRU 3.2.24RRP
Exposures the calculation of risk weighted exposure amounts for which is not otherwise provided for under the standardised approach must be assigned a risk weight of 100%.[Note: BCD Article 80(6)]
BIPRU 3.2.25RRP
(1) Subject to BIPRU 3.2.35 R, and with the exception of exposures giving rise to liabilities in the form of the items referred to in BIPRU 3.2.26 R, a firm is not required to comply with BIPRU 3.2.20 R (Calculation of risk weighted exposures amounts under the standardised approach) in the case of the exposures of the firm to a counterparty which is its parent undertaking, its subsidiary undertaking or a subsidiary undertaking of its parent undertaking provided that the following
BIPRU 3.2.26RRP
A firm must not apply the treatment in BIPRU 3.2.25 R to exposures giving rise to liabilities in the form of any of the following items:(1) in the case of a BIPRU firm, any tier one capital or tier two capital; and(2) in the case of any other undertaking, any item that would be tier one capital or tier two capital if the undertaking were a BIPRU firm.[Note: BCD Article 80(7), part]
BIPRU 3.2.33GRP
A firm that has chosen to apply the treatment in BIPRU 3.2.25 R should monitor the exposures to which a 0% risk weight is applied under that treatment and report these to the appropriate regulator as required.
BIPRU 3.2.34GRP
If a firm has an IRB permission and exposures are exempted from the IRB approach under BIPRU 4.2.26 R (6) the firm may apply a 0% risk weight to them under BIPRU 3.2.25 R (2) (Zero risk weighting for intra-group exposures) if the conditions in BIPRU 3.2.25 R (1) are satisfied.
BIPRU 3.2.35RRP
(1) A firm may not apply BIPRU 3.2.25 R unless it has a core UK group waiver.22(2) [deleted]22(3) A firm may stop applying BIPRU 3.2.25 R or may stop applying it to some exposures.(4) [deleted]22(5) A firm must notify the appropriate regulator if it becomes aware that any exposure that it has treated as exempt under BIPRU 3.2.25 R has ceased to meet the conditions for exemption or if the firm ceases to treat an exposure under that rule.
BIPRU 3.2.37GRP
BIPRU 3 Annex 1 G is a flow chart guide to assessing whether an intra-group exposure can be zero risk weighted using the standardised approach subject to the conditions set out in BIPRU 3.2.25 R - BIPRU 3.2.35 R.
BIPRU 3.2.38RRP
For the purposes of the standardised approach (including as it applies for the purposes of BIPRU 14) and without prejudice to BIPRU 13.3.13 R and BIPRU 13.8.8 R (Exposure to a central counterparty), exposures to recognised third country investment firms and exposures to recognised clearing houses, designated clearing houses, recognised investment exchanges and designated investment exchanges must be treated as exposures to institutions.[Note: CAD Article 40]
BIPRU 4.2.1RRP
This section applies to all exposures treated under the IRB approach.
BIPRU 4.2.2RRP
A firm's systems for the management and rating of credit risk exposures must be sound and implemented with integrity and, in particular, they must meet the following standards in accordance with the minimum IRB standards:(1) the firm'srating systems provide for a meaningful assessment of obligor and transaction characteristics, a meaningful differentiation of risk and accurate and consistent quantitative estimates of risk;(2) internal ratings and default and loss estimates used
BIPRU 4.2.5GRP
(1) This paragraph provides guidance on BIPRU 4.2.2 R and in particular BIPRU 4.2.2 R (1).(2) The information that a firm produces or uses for the purpose of the IRB approach should be reliable and take proper account of the different users of the information produced (customers, shareholders, regulators and other market participants).(3) A firm should establish quantified and documented targets and standards, against which it should test the accuracy of data used in its rating
BIPRU 4.2.11RRP
A firm must be able to demonstrate that it has been using for the IRB exposure classes in question rating systems that were broadly in line with the minimum IRB standards for internal risk measurement and management purposes for at least three years prior to the date of its IRB permission.[Note:BCD Article 84(3)]
BIPRU 4.2.17RRP
Without prejudice to BIPRU 4.2.26 R, a firm and any parent undertaking and its subsidiary undertakings must implement the IRB approach for all exposures.[Note: BCD Article 85(1) (part)]
BIPRU 4.2.18RRP
To the extent that a firm'sIRB permission permits this, implementation may be carried out sequentially across the different IRB exposure classes within the same business unit, across different business units in the same group or for the use of own estimates of LGDs or conversion factors for the calculation of risk weights for the sovereign, institution and corporate IRB exposure class.3[Note:BCD Article 85(1) (part)]
BIPRU 4.2.19RRP
In the case of the retail exposures, implementation may (but only to the extent provided for in the firm'sIRB permission) be carried out sequentially across the categories of exposures to which the different correlations in BIPRU 4.6.41 R-BIPRU 4.6.44 R correspond.[Note:BCD Article 85(1) (part)]
BIPRU 4.2.20RRP
(1) Implementation of the IRB approach as referred to in BIPRU 4.2.18 R must be carried out within a reasonable period of time as set out in the IRB permission.(2) The implementation must be carried out subject to strict conditions determined by the appropriate regulator and set out in the IRB permission.(3) A firm must not use the flexibility under BIPRU 4.2.18 R selectively with the purpose of achieving reduced minimum capital requirements in respect of those IRB exposure classes
BIPRU 4.2.21GRP
(1) A firm should achieve full roll-out of the IRB approach to all its exposures, subject to the exemptions outlined in BIPRU 4.2.26 R, within the period specified in its IRB permission. A firm should not retain a permanent mix of portfolios on the standardised approach and the IRB approach, on the foundation IRB approach and the advanced IRB approach or on a mixture of all approaches with the exception of portfolios covered by those exemptions.(2) This applies to a move:(a) from
BIPRU 4.2.22RRP
A firm using the IRB approach for any IRB exposure class must at the same time use the IRB approach for the equity exposure class.[Note:BCD Article 85(3)]
BIPRU 4.2.23RRP
Subject to BIPRU 4.2.17 R - BIPRU 4.2.20 R, BIPRU 4.2.22 R and BIPRU 4.2.26 R, a firm that has an IRB permission must not use the standardised approach for the calculation of risk weighted exposure amounts for the exposures to which the IRB approach applies under the IRB permission.[Note:BCD Article 85(4)]1
BIPRU 4.2.24RRP
Subject to BIPRU 4.2.17 R - BIPRU 4.2.22 R and BIPRU 4.2.26 R, a firm whose IRB permission provides for the use of the advanced IRB approach for the calculation of LGDs and conversion factors for the sovereign, institution and corporate IRB exposure class must not use the LGD values and conversion factors applicable to the foundation IRB approach for the exposures to which the advanced IRB approach applies under the IRB permission.[Note:BCD Article 85(5)]
BIPRU 4.2.26RRP
(1) To the extent that its IRB permission permits this, a firm permitted to use the IRB approach in the calculation of risk weighted exposure amounts and expected loss amounts3 for one or more IRB exposure classes may apply the standardised approach in accordance with this rule.3(2) A firm may apply the standardised approach to the IRB exposure class referred to in BIPRU 4.3.2 R (1) (Sovereigns) where the number of material counterparties is limited and it would be unduly burdensome
BIPRU 4.2.27GRP
As part of the application for an IRB permission, a firm should have a well documented policy explaining the basis on which exposures are to be selected for permanent exemption from the IRB approach and for treatment under the standardised approach. The firm's roll out plan should also contain provisions for the continuing application of that policy on a consistent basis over time.
BIPRU 4.2.28GRP
A firm intending to make use of BIPRU 4.2.26 R (2) or BIPRU 4.2.26 R (3) should demonstrate to the appropriate regulator when applying for an IRB permission that it meets the requirements of those provisions with respect to its sovereign or, as the case may be, institutional, exposures.
BIPRU 4.2.29RRP
For the purposes of BIPRU 4.2.26 R (4), the equity exposureIRB exposure class of a firm must be considered material if its aggregate value, excluding equity exposures incurred under legislative programmes as referred to in BIPRU 4.2.26 R (8) but including exposures in a CIU treated as equity exposures in accordance with BIPRU 4.9.11 R to BIPRU 4.9.15 R,4 exceeds, on average over the preceding year, 10% of the firm'scapital resources. If the number of those equity exposures is
BIPRU 4.2.30RRP
(1) This rule sets out what must be treated as being non-significant business or immaterial for the purposes of BIPRU 4.2.26 R (4), for exposures that do not fall within the equity exposureIRB exposure class.(2) A firm may elect permanently to exclude exposures from the IRB approach and apply the standardised approach. However a firm may only make use of this exemption to the extent that:(a) the consolidated credit risk requirement (adjusted under (6)) so far as it is attributable
BIPRU 4.2.31RRP
If a firm applies to use the advanced IRB approach for the sovereign, institution and corporate IRB exposure class, BIPRU 4.2.26 R (4) also applies with respect to exposures in that class. For these purposes, to the extent permitted in the firm'sIRB permission, a firm may:(1) exclude some exposures from the IRB approach and apply the standardised approach to those exposures; and(2) exclude other exposures from the advanced IRB approach and apply the foundation IRB approach to
BIPRU 4.2.32GRP
Where BIPRU 4.2.31 R applies:(1) the 15% limit in BIPRU 4.2.30 R (2) is a combined limit for excluded exposures remaining on the standardised approach and excluded exposures remaining on the foundation IRB approach; and(2) the calculation in BIPRU 4.2.30 R (2)(a) is carried out under whichever method of calculation would be applicable to the exposure in question.
BIPRU 4.2.34GRP
(1) Generally, the appropriate regulator will consider excluding, through a firm'sIRB permission, exposures falling into BIPRU 4.2.26 R (6) from the IRB approach. The degree to which this exclusion applies will be set out in the firm'sIRB permission.(2) Exposures excluded under (1) will be eligible for a 0% risk weight under the standardised approach if they satisfy the conditions in BIPRU 3.2.25 R to BIPRU 3.2.27A R5 (Zero risk weight for certain intra-group exposures).5(3) Exposures
BIPRU 4.2.35GRP
(1) This guidance deals with some possible effects of acquiring a major new business after the grant of an IRB permission.(2) A firm should if possible ensure that the exposures arising through the acquisition are dealt with in accordance with the firm'sIRB permission.(3) If the acquisition is made during the currency of a roll out plan under BIPRU 4.2.18 R, a firm should ensure that the exposures arising through the acquisition are dealt with in accordance with that plan. For
BIPRU 9.12.1RRP
BIPRU 9.12 applies to the calculation of risk weighted exposure amounts of securitisation positions under the IRB approach.[Note:BCD Annex IX Part 4 point 37 (part)]
BIPRU 9.12.8RRP
For an originator, a sponsor, or for other firms which can calculate KIRB, the risk weighted exposure amounts calculated in respect of its positions in a securitisation may be limited to that which would produce an amount in respect of its credit risk capital requirement equal to the sum of 8% of the risk weighted exposure amount which would be produced if the securitised assets had not been securitised and were on the balance sheet of the firm plus the expected loss amounts of
BIPRU 9.12.9RRP
BIPRU 9.12.10 R to BIPRU 9.12.19 R apply to the calculation of risk weighted exposure amount of securitisation positions under the ratings based method.
BIPRU 9.12.10RRP
Under the ratings based method, the risk weighted exposure amount of a rated securitisation position4 or resecuritisation position4 must be calculated by applying to the exposure value the risk weight associated with the credit quality step with which the credit assessment is associated as prescribed in BIPRU 9.12.11 R multiplied by 1.06.[Note:BCD Annex IX Part 4 point 46]44
BIPRU 9.12.11RRP
Table: This table belongs to BIPRU 9.12.10 R44Credit Quality StepSecuritisation positionsResecuritisation positionsCredit assessments other than short termShort-term credit assessmentsABCDE117%12%20%20%30%28%15%25%25%40%310%18%35%35%50%4212%20%40%65%520%35%60%100%635%50%100%150%7360%75%150%225%8100%200%350%9250%300%500%10425%500%650%11650%750%850%all other, unrated1250%[Note: For mapping of the credit quality step to the credit assessments of eligible ECAIs, refer to: http://www.fca.org.uk/your-fca/documents/fsa-ecais-securitisation
BIPRU 9.12.13RRP
4For the purposes of BIPRU 9.12.10 R:34(1) the weightings in column C of BIPRU 9.12.11 R must be applied where the securitisation position is not a resecuritisation position and where the effective number of exposures securitised is less than six;4(2) for the remainder of the securitisation positions that are not resecuritisation positions, the weightings in column B must be applied unless the position is in the most senior tranche of a securitisation, in which case the weightings
BIPRU 9.12.17RRP
In calculating the effective number of exposuressecuritised,4 multiple exposures to one obligor must be treated as one exposure. The effective number of exposures is calculated as:N = (((i)(EADi))2)/((i)(EADi2))where EADi represents the sum of the exposure values of all exposures to the ith obligor. If the portfolio share associated with the largest exposure, C1, is available, the firm may compute N as 1/C1.4[Note:BCD Annex IX Part 4 point 49]44
BIPRU 9.12.20RRP
(1) If:(a) a firm'sIRB permission allows it to use this treatment; and(b) the conditions in (2)(16) are satisfied,a firm may attribute to an unrated position in an asset backed commercial paper programme a derived rating as laid down in (3).(2) Positions in the commercial paper issued from the programme must be rated positions.(3) Under the ABCP internal assessment approach, the unrated position must be assigned by the firm to one of the rating grades described in (5). The position
BIPRU 9.12.22RRP
(1) Subject to any permission of the type described in BIPRU 9.12.28 G, the risk weight to be applied to the exposure amount must be:12.5 (S[L+T] - S[L]) / T(2) The remaining provisions of this paragraph define the terms used in the formulae in (1) and (3).(3) 2(4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) (15) In these expressions, Beta [x; a, b]refers to the cumulative beta distribution with parameters a and b evaluated at x.(16) T (the thickness of the tranche in which the
BIPRU 9.12.23RRP
(1) Under the supervisory formula method, if the exposure value of the largest securitisedexposure, C1, is no more than 3% of the sum of the exposure values of the securitisedexposures, then for the purposes of the supervisory formula method the firm may set LGD equal 50% and N equal to either:(a) ;or(b) N=1/ C1.(2) Cm is the ratio of the sum of the exposure values of the largest 'm' exposures to the sum of the exposure values of the exposuressecuritised. The level of m may be
BIPRU 9.12.24GRP
Where a securitisation of retail exposures has a sufficiently low value of N for the simplification in BIPRU 9.12.23 R (3) to result in a material change in the capital charge as compared to the position if the approach in BIPRU 9.12.23 R were not taken, a firm should discuss with the appropriate regulator the suitability of its use.
BIPRU 9.12.25RRP
The provisions in BIPRU 9.12.26 R to BIPRU 9.12.28 G apply for the purposes of determining the exposure value of an unratedsecuritisation position in the form of certain types of liquidity facility.[Note:BCD Annex IX Part 4 point 55]
BIPRU 9.12.28GRP
(1) When it is not practical for the firm to calculate the risk weighted exposure amounts for the securitised exposures as if they had not been securitised and the position does not qualify for the ABCP internal assessment approach, a firm may apply to the appropriate regulator for a variation of its IRB permission under which, on an exceptional basis, it may temporarily apply the method in (2) for the calculation of risk weighted exposure amounts for an unratedsecuritisation
BIPRU 9.13.1RRP
Where there is a securitisation of revolving exposures subject to an early amortisation provision, the originator must calculate an additional risk weighted exposure amount in accordance with this section in respect of the risk that the levels of credit risk to which it is exposed may increase following the operation of the early amortisation provision. Accordingly this section sets out how an originator must calculate a risk weighted exposure amount when it sells revolving exposures
BIPRU 9.13.2RRP
A firm must calculate a risk weighted exposure amount in respect of the sum of the originators interest and the investors interest.[Note:BCD Annex IX Part 4 point 17]
BIPRU 9.13.3RRP
For securitisation structures where the securitised exposures comprise revolving exposures and non-revolving exposures, an originator must apply the treatment set out in this section to that portion of the underlying pool containing revolving exposures.[Note:BCD Annex IX Part 4 point 18]
BIPRU 9.13.4RRP
For the purposes of this section, subject to BIPRU 9.13.6 R:(1) originators interest means the exposure value of that notional part of a pool of drawn amounts sold into a securitisation, the proportion of which in relation to the amount of the total pool sold into the structure determines the proportion of the cash-flows generated by principal and interest collections and other associated amounts which are not available to make payments to those having securitisation positions
BIPRU 9.13.5RRP
Subject to BIPRU 9.13.7 R, the exposure of the originator associated with its rights in respect of the originators interest must not be treated as a securitisation position but as a pro rata exposure to the securitised exposures as if they had not been securitised.[Note:BCD Annex IX Part 4 point 20]
BIPRU 9.13.6RRP
(1) For firms using the IRB approach set out in BIPRU 4, this paragraph applies in place of BIPRU 9.13.4 R.(2) For the purposes of this section, originators interest means the sum of:(a) the exposure value of that notional part of a pool of drawn amounts sold into a securitisation, the proportion of which in relation to the amount of the total pool sold into the structure determines the proportion of the cash-flows generated by principal and interest collections and other associated
BIPRU 9.13.7RRP
For firms using the IRB approach set out in BIPRU 4, this paragraph applies in place of BIPRU 9.13.5 R. The exposure of the originator associated with its rights in respect of that part of the originators interest described in BIPRU 9.13.6 R (2)(a) must not be treated as a securitisation position but as a pro rata exposure to the securitised drawn amounts as if they had not been securitised in an amount equal to that described in BIPRU 9.13.6 R (2)(a). The originator must also
BIPRU 9.13.8RRP
Originators of the following types of securitisation are exempt from the capital requirement in BIPRU 9.13.1 R:(1) securitisations of revolving exposures whereby investors remain fully exposed to all future draws by borrowers so that the risk on the underlying facilities does not return to the originator even after an early amortisation event has occurred; and(2) securitisations where any early amortisation provision is solely triggered by events not related to the performance
BIPRU 9.13.9RRP
For an originator subject to the capital requirement in BIPRU 9.13.1 R the total of the risk weighted exposure amounts in respect of its positions in the investors interest (as defined in BIPRU 9.13.4 R or BIPRU 9.13.6 R) and the risk weighted exposure amounts calculated under BIPRU 9.13.1 R must be no greater than the greater of:(1) the risk weighted exposure amounts calculated in respect of its positions in the investors interest (as so defined); and(2) the risk weighted exposure
BIPRU 9.13.11RRP
The risk weighted exposure amount to be calculated in accordance with BIPRU 9.13.1 R must be determined by multiplying the amount of the investors interest (as defined in BIPRU 9.13.4 R or BIPRU 9.13.6 R) by the product of:(1) the appropriate conversion figure as indicated in BIPRU 9.13.16 R, BIPRU 9.13.19 R or BIPRU 9.13.20 R; and(2) the weighted average risk weight that would apply to the securitised exposures if the exposures had not been securitised.[Note:BCD Annex IX Part
BIPRU 9.13.13RRP
In the case of a securitisation meeting the following conditions:(1) it is subject to an early amortisation provision;(2) the securitisation is of retail exposures which are uncommitted and unconditionally cancellable without prior notice; and(3) the early amortisation is triggered by the excess spread level falling to a specified levela firm must, to calculate the appropriate conversion figure referred to in BIPRU 9.13.11 R, compare the three-month average excess spread level
BIPRU 9.13.18GRP
In the case of a securitisation meeting the conditions in this paragraph, a firm may apply to the appropriate regulator for a waiver that would allow a treatment which approximates closely to that prescribed in BIPRU 9.13.13 R to BIPRU 9.13.17 R for determining the conversion figure indicated. If a firm wants such a waiver, it should satisfy the appropriate regulator that:(1) the securitisation is subject to an early amortisation provision of retail exposures;(2) those retail
BIPRU 9.13.19RRP
All other securitisations subject to a controlled early amortisation provision of revolving exposures are subject to a credit conversion figure of 90%.[Note:BCD Annex IX Part 4 point 32]
BIPRU 9.13.20RRP
All other securitisations subject to a non-controlled early amortisation provision of revolving exposures are subject to a credit conversion figure of 100%.[Note:BCD Annex IX Part 4 point 33]
BIPRU 4.9.1RRP
BIPRU 4.9 applies with respect to securitisationexposures, non credit-obligation assets and exposures to CIUs.
BIPRU 4.9.2RRP
The following must be calculated in accordance with BIPRU 9 (Securitisation):(1) risk-weighted exposure amounts for securitisedexposures and for exposures belonging to the IRB exposure class referred to in BIPRU 4.3.2 R (6) (securitisation positions); and(2) the expected loss amounts for securitisedexposures.[Note: BCD Article 87(10) and Article 88(3)]
BIPRU 4.9.3RRP
Where a firm provides credit protection for a number of exposures under terms that the nth default among the exposures shall trigger payment and that this credit event shall terminate the contract, if the product has an external credit assessment from an eligible ECAI the risk weights set out in BIPRU 9 must be applied. If the product is not rated by an eligible ECAI, the risk weights of the exposures included in the basket must be aggregated, excluding n-1 exposures where the
BIPRU 4.9.4RRP
BIPRU 4.9.5 R-BIPRU 4.9.10 R apply to non credit-obligation assets.
BIPRU 4.9.5RRP
The non credit obligation assetIRB exposure class includes the residual value of leased properties, if not included in the lease exposure as defined in BIPRU 4.4.75 R.[Note: BCD Article 86(8)]
BIPRU 4.9.6RRP
The risk weighted exposure amounts must be calculated according to the formula:Risk-weighted exposure amount = 100% * exposure value except for when the exposure is a residual value of leased properties1 in which case it must1 be calculated as follows:1/t * 100% * exposure value;where t is the greater of 1 and the nearest number of whole years of the lease remaining.1[Note: BCD Annex VII Part 1 point 27]1
BIPRU 4.9.8RRP
Where a firm has full recourse in respect of purchased receivables for default risk and for dilution risk, to the seller of the purchased receivables, BIPRU 4.8.21 R and BIPRU 4.8.30 R need not be applied. The exposure may instead be treated as a collateralised exposure.[Note: BCD Article 87(2) (part)]
BIPRU 4.9.9RRP
The exposure value of non credit-obligation assets must be the value presented in the financial statements.[Note: BCD Annex VII Part 3 point 13]
BIPRU 4.9.10RRP
For non credit-obligation assets the expected loss amount must be zero.[Note: BCD Article 88(4)]
BIPRU 4.9.11RRP
(1) Where exposures in the form of a CIU1 meet the criteria set out in BIPRU 3.4.121 R to BIPRU 3.4.122 R (Conditions for look through treatment under the standardised approach) and the firm is aware of all of the underlying exposures of the CIU, the firm must look through to those underlying exposures in order to calculate risk weighted exposure amounts and expected loss amounts in accordance with the methods set out in BIPRU 4.BIPRU 4.9.12 R applies to the part of the underlying
BIPRU 4.9.12RRP
(1) Where exposures in the form of a CIU do not meet the criteria set out in BIPRU 3.4.121 R to BIPRU 3.4.122 R (Conditions for look through treatment under the standardised approach) or the firm is not aware of all of the underlying exposures of the CIU, a firm must look through to the underlying exposures and calculate risk weighted exposure amounts and expected loss amounts in accordance with the approach set out in BIPRU 4.7.9 R - BIPRU 4.7.12 R (Simple risk weights). If,
BIPRU 4.9.13GRP
For the purposes of BIPRU 4.9.12 R (1), in the case of non-equity exposures a firm should look at the risk profile of the underlying exposures and map these to an equivalent equity risk weight. For example, if the underlying exposures are exchange-traded, the risk weight of exchange-traded equity exposures will apply. If the underlying exposures are unknown, the risk weight of the other equity class will apply. Only under exceptional circumstances would supervisors expect to see
BIPRU 4.9.15RRP
The expected loss amounts for exposures referred to in BIPRU 4.9.11 R - BIPRU 4.9.12 R must be calculated in accordance with the methods set out in BIPRU 4.4.61 R (Calculation of expected loss for sovereigns, institutions and corporates), BIPRU 4.5.12 R - BIPRU 4.5.14 R (Calculation of expected loss for specialised lending), BIPRU 4.6.47 R - BIPRU 4.6.48 R (Calculation of expected loss for retail exposures), BIPRU 4.7.12 R, BIPRU 4.7.17 R and BIPRU 4.7.26 R (Calculation of expected
BIPRU 13.3.1RRP
A firm must determine the exposure value of a financial derivative instrument in accordance with BIPRU 13, with the effects of contracts of novation and other netting agreements taken into account for the purposes of those methods in accordance with BIPRU 13.[Note: BCD Article 78(2) first sentence]
BIPRU 13.3.2RRP
Subject to BIPRU 13.3, a firm must determine the exposure value for financial derivative instruments with the CCR mark to market method, the CCR standardised method or the CCR internal model method.[Note: BCD Annex III, Part 2 point 1]
BIPRU 13.3.5RRP
A firm must calculate the exposure value of a long settlement transaction in accordance with either:(1) BIPRU 13; or(2) the master netting agreement internal models approach, if it has a master netting agreement internal models approachwaiver which permits it to apply that approach.[Note: BCD Article 78(2) second sentence, in respect of long settlement transaction]
BIPRU 13.3.6RRP
A firm may determine exposures arising from long settlement transactions using any of the CCR mark to market method, the CCR standardised method and the CCR internal model method, regardless of the methods chosen for treating financial derivatives instruments and repurchase transactions, securities or commodities lending or borrowing transactions, and margin lending transactions. In calculating capital requirements for long settlement transactions, a firm that uses the IRB approach
BIPRU 13.3.7GRP
A firm is not required to calculate the exposure value of a transaction as a long settlement transaction for the purposes of BIPRU 13 if the transaction is a financial derivative instrument or a securities financing transaction and the firm chooses to calculate the capital requirement for the transaction according to the methods applicable to those exposures.
BIPRU 13.3.8RRP
Under the CCR mark to market method, the CCR standardised method and the CCR internal model method, a firm must determine the exposure value for a given counterparty as equal to the sum of the exposure values calculated for each netting set with that counterparty.[Note: BCD Annex III Part 2 point 5]
BIPRU 13.3.12RRP
Notwithstanding BIPRU 13.3.1 R and BIPRU 13.3.5 R, a firm may determine the exposure value of a credit risk exposure outstanding with a central counterparty in accordance with BIPRU 13.3.13 R, provided that the central counterparty'scounterparty credit riskexposure with all participants in its arrangements are fully collateralised on a daily basis.[Note: BCD Article 78(4) in respect of financial derivatives and long settlement transactions]
BIPRU 13.3.13RRP
A firm may attribute an exposure value of zero for CCR to derivative contracts and long settlement transactions, or to other exposures arising in respect of those contracts or transactions (but excluding an exposure arising from collateral held to mitigate losses in the event of the default of other participants in the central counterparty's arrangements) where they are outstanding with a central counterparty and have not been rejected by the central counterparty.[Note: BCD Annex
BIPRU 13.3.14RRP
When a firm purchases credit derivative protection against a non-trading book ,exposure or against a CCRexposure, it must compute its capital requirement for the hedged asset in accordance with:(1) BIPRU 5.7.16 R to BIPRU 5.7.25 R and BIPRU 4.10.49 R (4) to (6) (Unfunded credit protection: Valuation and calculation of risk-weighted exposure amounts and expected loss amounts); or1(2) 1where a firm calculates risk weighted exposure amounts in accordance with the IRB approach:1(a)
BIPRU 13.3.15RRP
(1) 1In the cases in BIPRU 13.3.14R, and where the option in the second sentence of BIPRU 14.2.10 R is not applied, the exposure value for CCR for these creditderivatives is set to zero.(2) 1However, a firm may choose consistently to include for the purposes of calculating capital requirements for counterparty credit risk all credit derivatives not included in the trading book and purchased as protection against a non-trading exposure or against a CCRexposure where the credit
BIPRU 13.3.16RRP
A firm must set the exposure value for CCR from sold credit default swaps in the non-trading book, where they are treated as credit protection provided by the firm and subject to a capital requirement for credit risk for the full notional amount, to zero.[Note: BCD Annex III Part 2 point 4]