Related provisions for BIPRU 9.3.6

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MIPRU 4.2BA.2RRP
A firm must calculate the risk weighted exposure amounts for the securitisation positions it holds under MIPRU 4.2BA.31 R to MIPRU 4.2BA.53 R.
MIPRU 4.2BA.3GRP
Where a firm has transferred significant credit risk associated with securitised exposures which it has originated under MIPRU 4.2BA.5 R (High-level principles) and has complied with other applicable requirements in this section, it may exclude those securitised exposures from the calculation of its risk weighted exposure amount and expected loss 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.13GRP
Stress testing of securitisation activities should take into account both existing securitisations and pipeline transactions, as there is a risk that the latter would not be completed in a stressed market scenario.
MIPRU 4.2BA.16RRP
Legal opinions: legal opinions obtained in the context of securitisation transactions must be reviewed by an independent legal adviser periodically, or when there is a change in law (including case law) or any applicable rules that may affect the opinion.
MIPRU 4.2BA.17RRP
The transferee must be a securitisation special purpose entity.
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.26RRP
A firm must consider at least the following situations to determine whether there may be a breach of the prohibition against implied future support in MIPRU 4.2BA.5R (6):(1) support given under a contractual obligation;(2) support which is not provided for under the contractual documentation for the securitisation; and(3) support given under the contractual documentation for the securitisation which the firm is entitled, but not obliged, to give.
MIPRU 4.2BA.27RRP
(1) The support described in MIPRU 4.2BA.26R (1) is permitted.(2) The support described in MIPRU 4.2BA.26R (2) is not permitted.(3) The support described in MIPRU 4.2BA.26R (3) is permitted if the following conditions are met: (a) contractual and marketing documents of the securitisation expressly envisage and allow for the possibility of the firm providing such support;(b) the nature of any support that the firm may give is precisely described in the contractual and marketing
MIPRU 4.2BA.28GRP
A waiver of the right to future margin income will not breach the prohibition against implied future support in MIPRU 4.2BA.5R (6) provided that:(1) the degree of support that can be given can be defined precisely by reference to the contractual documentation for the securitisation, even if the amount of support may not be ascertainable in absolute monetary terms; and(2) no adjustment to the firm'scapital resources or capital resources requirement is required, as a firm should
MIPRU 4.2BA.29GRP
If a firm is found to have provided support to a securitisation this implies that the firm may be likely to provide future support to its securitisations, thus failing to achieve a significant transfer of risk. The FCA will consider taking appropriate measures to reflect this increased expectation after any instance of support is found.
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.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.33RRP
The providers of credit protection to securitisation positions must be treated as holding positions in the securitisation.
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.39RRP
Where a rated position has credit assessments from two nominated ECAIs, the firm must use the less favourable credit assessment.
MIPRU 4.2BA.40RRP
Where a rated position has more than two nominated ECAI credit assessments, the two most favourable credit assessments must be used. If the two most favourable credit assessments are different, the less favourable of the two must be used.
MIPRU 4.2BA.41RRP
Where eligible credit protection under MIPRU 4.2C (Credit risk mitigation) is provided directly to the securitisation special purpose entity and that protection is reflected in the credit assessment of a position by a nominated ECAI, the risk weight associated with that credit assessment may be used. Where the credit protection is not provided to the securitisation special purpose entity but provided directly to a securitisation position, the credit assessment must not be re
MIPRU 4.2BA.42RRP
A firm must attribute to an unrated position an inferred rating equivalent to the rating of those rated positions (the reference positions) which are the most senior positions and are, in all respects, subordinate to the unrated securitisation position in question when the following minimum operational requirements are satisfied:(1) the reference positions must be subordinate in all respects to the unrated securitisation position;(2) the maturity of the reference positions must
MIPRU 4.2BA.43RRP
Where publicly available credit assessments for securitisation positions are available from eligible ECAIs, a firm must:(1) nominate one or more of the eligible ECAIs;(2) use the credit assessments of nominated ECAIs in the calculation of its risk weightedexposure amounts under this section; and(3) apply those credit assessments consistently in respect of its rated positions.
MIPRU 4.2BA.45RRP
Table: Rated positions in securitisations for which a credit assessment by a nominated ECAI is availableThis table belongs to MIPRU 4.2BA.44 R.Credit quality step1234Other credit quality stepsSecuritisation positions20%50%100%350%1250%Resecuritisation positions40%100%225%650%1250%
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.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.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 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 9.13.3RRP
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 9.13.12RRP
An early amortisation provision must be treated as controlled for the purposes of this section where the following conditions are met:(1) the originator has an appropriate capital/liquidity plan in place to ensure that it has sufficient capital and liquidity available in the event of an early amortisation;(2) throughout the duration of the transaction there is a pro rata sharing between the originators interest and the investors interest (as defined in BIPRU 9.13.4 R or BIPRU
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 9.13.14RRP
Where the securitisation does not require excess spread to be trapped, the trapping point is deemed to be 4.5 percentage points greater than the excess spread level at which an early amortisation is triggered.[Note:BCD Annex IX Part 4 point 27]
BIPRU 9.13.15RRP
The conversion figure to be applied must be determined by the level of the actual three month average excess spread in accordance with BIPRU 9.13.16 R.[Note:BCD Annex IX Part 4 point 28]
BIPRU 9.13.16RRP
Table: Conversion figuresThis table belongs to BIPRU 9.13.15 RSecuritisations subject to a controlled early amortisation provisionSecuritisation subject to a non-controlled early amortisation provision3 months average excess spreadConversion figureConversion figureAbove level A0%0%Level A1%5%Level B2%15%Level C10%50%Level D20%100%Level E40%100%
BIPRU 9.13.17RRP
In BIPRU 9.13.16 R:(1) Level A means levels of excess spread less than 133.33% of the trapping level of excess spread but not less than 100% of that trapping level;(2) Level B means levels of excess spread less than 100% of the trapping level of excess spread but not less than 75% of that trapping level;(3) Level C means levels of excess spread less than 75% of the trapping level of excess spread but not less than 50% of that trapping level;(4) Level D means levels of excess spread
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 9.13.21RRP
A firm which is an originator of a revolving securitisation transaction involving early amortisation provisions should have liquidity plans to address the implications of both scheduled and early amortisation.[Note:BCD Annex V point 9]
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 9.12.6RRP
Subject to any IRB permission of the type described in BIPRU 9.12.28 G, in the case of an originator or sponsor unable to calculate KIRB and which has not obtained approval to use the ABCP internal assessment approach, and in the case of other firms where they have not obtained approval to use the supervisory formula method or, for positions in ABCP programmes, the ABCP internal assessment approach, a risk weight of 1250% must be assigned to securitisation positions which are
BIPRU 9.12.7RRP
When the following minimum operational requirements are satisfied a firm must attribute to an unrated position an inferred credit assessment equivalent to the credit assessment of those rated positions (the reference positions) which are the most senior positions which are in all respects subordinate to the unratedsecuritisation position in question:(1) the reference positions must be subordinate in all respects to the unratedsecuritisation position;(2) the maturity of the reference
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 9.12.21RRP
Subject to any permission of the type described in BIPRU 9.12.28 G, under the supervisory formula method, the risk weight for a securitisation position must be the risk weight to be applied in accordance with BIPRU 9.12.22 R. However, the risk weight must be no less than 20% for resecuritisation positions and no less than 7% for all other securitisation positions.4[Note:BCD Annex IX Part 4 point 52]4
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 9.12.27RRP
A conversion figure of 0% may be applied to the nominal amount of a liquidity facility that meets the conditions set out in BIPRU 9.11.12 R.[Note:BCD Annex IX Part 4 point 57]
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
IFPRU 4.12.1RRP
(1) A firm must notify the FCA that it is relying on the deemed transfer of significant credit risk under article 243(2) of the EU CRR (Traditional securitisation) or article 244(2) of the EU CRR (Synthetic securitisation), including when this is for the purposes of article 337(5) of the EU CRR, no later than one month after the date of the transfer.(2) The notification in (1) must include sufficient information to allow the FCA to assess whether the possible reduction in risk-weighted
IFPRU 4.12.2GRP
An originator of securitisations is able to use the securitisation risk weights (and not calculate own funds requirements on the assets underlying its securitisation) in either of the following cases:(1) the firm transfers significant credit risk associated with the securitisedexposures to third parties; or(2) the firm deducts from common equity tier 1 capital or applies a 1250% risk weight to all positions it holds in the securitisation.
IFPRU 4.12.3GRP
The significant risk transfer requirements in articles 243 (Traditional securitisation) or 244 (Synthetic securitisation) of the EU CRR provide three options for a firm to demonstrate how it transfers significant credit risk for any given transaction:(1) the originator does not retain more than 50% of the risk-weighted exposure amounts of mezzanine securitisation positions, where these are:(a) securitisation positions to which a risk weight lower than 1250% applies; and(b) more
IFPRU 4.12.5GRP
Where the FCA considers that the possible reduction in risk-weighted exposure amounts (RWEA) achieved via the securitisation is not justified by a commensurate transfer of credit risk to third parties, significant risk transfer will be considered to not have been achieved. Consequently, a firm will not be able to recognise any reduction in RWEA due to the transaction.
IFPRU 4.12.9GRP
Under IIFPRU 4.12.1 G, within one month of a securitisation transaction closing, a firm must notify the FCA of the transaction if it has relied on options 1 or 2 to achieve significant risk transfer.
IFPRU 4.12.10GRP
Notification under IFPRU 4.12.1 G should include sufficient information to enable the FCA to assess whether the possible reduction in RWEA which would be achieved by the securitisation is justified by a commensurate transfer of credit risk to third parties. The FCA expects this to include the following:(1) details of the securitisation positions, including rating, exposure value and RWEA broken down by securitisation positions sold and retained;(2) key transaction documentation
IFPRU 4.12.14GRP
Where a firm applies for such permission, the FCA would expect the scope should be defined according to a range of characteristics, including the type of asset class and the structural features of the transaction. The characteristics the FCA would expect a firm to consider when scoping a permission application include:(1) asset class (eg, residential mortgages, commercial mortgages, credit card receivables, leasing, loans to corporates or small and medium-sized enterprises (SMEs),
IFPRU 4.12.16GRP
To assess a firm's ability to use its own policies and methodologies for assessing significant risk transfer, the FCA's permission reviews will focus on:(1) the firm's understanding of the risk of any potential transactions within permission scope, including for potential underlying assets, securitisation structures and other relevant factors that affect the economic substance of risk transfer;(2) the governance around significant risk transfer assessment (including sign-off procedures)
IFPRU 4.12.17GRP
The information the FCA expects a firm to provide in a permission application includes the following:(1) details of the firm's governance processes for significant risk transfer, including details of any relevant committees and the seniority and expertise of key persons involved in sign-off;(2) a copy of the firm's significant risk transfer policy, including details of the significant risk transfer calculation policies, methodologies and any models used to assess risk transfer
IFPRU 4.12.24GRP
An originator must transfer a significant amount of credit risk associated with securitisedexposures to third parties to be able to apply the securitisation risk weights set out in Part Three, Title II, Chapter 5 of the EU CRR (Securitisation), and any associated reduction in own funds requirements must be matched by a commensurate transfer of risk to third parties.
IFPRU 4.12.25GRP
As part of the notification and permissions process, the FCA expects the firm to inform it of the methodology it intends to use to calculate securitisation capital requirements.
IFPRU 4.12.26GRP
As part of a firm's ongoing consideration of risk transfer, the FCA expects it to consider the support it has provided to securitisation transactions.
IFPRU 4.12.27GRP
(1) If a firm is found to have provided support to a securitisation, the expectation that the firm will provide future support to its securitisations is increased. The FCA will take account of this increased expectation in future assessments of commensurate risk transfer to that firm.(2) The FCA expects securitisation documentation to make clear, where applicable, that repurchase of securitisation positions by the originator beyond its contractual obligations is not mandatory
IFPRU 4.12.31GRP
The FCA expects originators seeking to apply the securitisation risk weights to synthetic securitisations to take into account all relevant factors to assess the amount of risk transferred. As well as the size and timing of amounts payable to the protection seller, the circumstances in which those amounts are payable can undermine the effectiveness of risk transfer. The FCA expects a firm seeking capital relief through synthetic securitisations to incorporate premiums in their
IFPRU 4.12.34GRP
Significant risk transfer is an ongoing requirement. Accordingly, the FCA expects firms to ensure that any reduction in own funds requirements achieved through securitisation continues to be matched by a commensurate transfer of risk throughout the life of the transaction. The FCA expects firms to take a substance over form approach to assessing significant risk transfer. Firms should be able to demonstrate that the capital relief post-transaction adequately captures the economic
IFPRU 4.12.38GRP
The FCA expects relevant senior management of a firm to be appropriately engaged in the execution of securitisation transactions that lead to a reduction in RWEA where the firm is providing or purchasing structured trades.
IFPRU 4.12.39GRP
The FCA does not operate a pre-approval process for transactions. The FCA expects a firm to discuss with its supervisor at any early stage securitisation transactions that are material or have complex features. Where a firm claims a regulatory capital reduction from securitisation transactions in its disclosures to the market, the FCA expects such disclosures to include caveats making clear the risk of full or partial re-characterisation where this risk is material in the light
IFPRU 4.12.40GRP
Although this section sets out the FCA's expectations regarding securitisations, these expectations are also relevant for other similar credit protection arrangements.
IFPRU 4.12.41GRP
The FCA will seek to ensure that the securitisation framework is not used to undermine or arbitrage other parts of the prudential framework. For other similar credit protection arrangements (eg, those subject credit risk mitigation or trading book requirements), the impact of certain features (such as significant premiums or call options) may cast doubt on the extent of risk transferred and the resulting capital assessment. Features which result in inadequate own funds requirements
IFPRU 4.12.42GRP
Where a firm achieves significant risk transfer for a particular transaction, the FCA expects it to continue to monitor risks related to the transaction to which it may still be exposed. The firm should consider capital planning implications of securitised assets returning to its balance sheet. The EU CRR requires a firm to conduct regular stress testing of its securitisation activities and off-balance sheet exposures. The stress tests should consider the firm-wide impact of stressed
BIPRU 9.11.1RRP
Subject to BIPRU 9.11.5 R, the risk weighted exposure amount of a rated securitisation position or resecuritisation position2 must be calculated by applying to the exposure value the risk weight associated with the credit quality step with which the credit assessment has been determined to be associated, as prescribed in BIPRU 9.11.2 R .2[Note:BCD Annex IX Part 4 point 6]2
BIPRU 9.11.2RRP
Table: This table belongs to BIPRU 9.11.1 R2Credit Quality step1234 (only for credit assessments other than short-term credit assessments)2All other credit quality steps22Securitisation positions2220%50%100%350%1250%22Resecuritisation positions40%100%225%650%1250%[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 for the FCA and http://www.bankofengland.co.uk/pra/Documents/publications/ss/2013/ss913.pdf
BIPRU 9.11.4RRP
Subject to BIPRU 9.11.6 RBIPRU 9.11.12 R, the risk weighted exposure amount of an unratedsecuritisation position must be calculated by applying a risk weight of 1250%.[Note:BCD Annex IX Part 4 point 7]
BIPRU 9.11.5RRP
For an originator or sponsor, the risk weighted exposure amounts calculated in respect of its positions in a securitisation may be limited to the risk weighted exposure amounts which would be calculated for the securitised exposures had they not been securitised subject to the presumed application of a 150% risk weight to all past due items and items belonging to regulatory high risk categories (see BIPRU 3.4.104 R and BIPRU 3 Annex 3 R) amongst the securitised exposures.[Note:BCD
BIPRU 9.11.6RRP
(1) A firm having an unratedsecuritisation position may apply the treatment set out in this paragraph for calculating the risk weighted exposure amount for that position provided the composition of the pool of exposuressecuritised is known at all times.(2) A firm may apply the weighted-average risk weight that would be applied to the securitised exposures referred to in (1) under the standardised approach by a firm holding the exposures multiplied by a concentration ratio.(3)
BIPRU 9.11.7GRP
(1) This provision contains guidance on the requirement in BIPRU 9.11.6 R (1) that the composition of the pool of exposuressecuritised must be known at all times.(2) The composition should be known sufficiently at the time of purchase for the firm to be able accurately to calculate the risk weighted exposure amounts of the pool under the standardised approach.(3) Thereafter, any change to the composition of the pool during the life of the transaction that would lead to an increase
BIPRU 9.11.8RRP
Subject to the availability of a more favourable treatment by virtue of the provisions concerning liquidity facilities in BIPRU 9.11.10 RBIPRU 9.11.12 R, a firm may apply to securitisation positions meeting the conditions set out in BIPRU 9.11.9 R a risk weight that is the greater of:(1) 100%, or(2) the highest of the risk weights that would be applied to any of the securitised exposures under the standardised approach by a firm holding the exposures.[Note:BCD Annex IX Part 4
BIPRU 9.11.9RRP
For the treatment in BIPRU 9.11.8 R to be available,:(1) the securitisation position must be in an ABCP programme;(2) the securitisation position must be in a tranche which is economically in a second loss position or better in the securitisation and the first loss tranche must provide meaningful credit enhancement to the second loss tranche;(3) the securitisation position must be of a quality the equivalent of investment grade or better; and(4) the firm in question must not hold
BIPRU 9.11.10RRP
When the conditions in this paragraph have been met, and in order to determine its exposure value, a conversion figure of 50% may be applied to the nominal amount of a liquidity facility. The risk weight to be applied is the highest risk weight that would be applied to any of the securitised exposures under the standardised approach by a firm holding the exposures. Those conditions are as follows:11(1) the liquidity facility documentation must clearly identify and limit the circumstances
BIPRU 9.11.12RRP
To determine its exposure value, a conversion figure of 0% may be applied to the nominal amount of a liquidity facility that is unconditionally cancellable provided that the conditions set out at BIPRU 9.11.10 R are satisfied and that repayment of draws on the facility are senior to any other claims on the cash flows arising from the securitised exposures.[Note:BCD Annex IX Part 4 point 15]
BIPRU 9.11.13RRP
Where a firm calculates the risk weighted exposure amount of a securitisation position under the standardised approach, where credit protection is obtained on a securitisation position, the calculation of risk weighted exposure amounts may be modified in accordance with BIPRU 5 (Credit risk mitigation).[Note:BCD Annex IX Part 4 point 34]
BIPRU 9.9.1RRP
To calculate the risk weighted exposure amount of a securitisation position, the relevant risk weight must be assigned to the exposure value of the position in accordance with BIPRU 9.9 - BIPRU 9.14 based on the credit quality of the position.[Note:BCD Article 96(1) (part) and Annex IX1, Part 4 point 1]
BIPRU 9.9.3RRP
(1) Where there is an exposure to different tranches in a securitisation, the exposure to each tranche must be considered a separate securitisation position.(2) The providers of credit protection to securitisation positions must be treated as holding positions in the securitisation.(3) securitisation positions include exposures to a securitisation arising from interest rate or currency derivative contracts.[Note:BCD Article 96(2)]
BIPRU 9.9.4RRP
Subject to BIPRU 9.9.5 R,(1) where a firm calculates risk weighted exposure amounts under the standardised approach to securitisations outlined in BIPRU 9.11, the exposure value of an on-balance sheet securitisation position must be its balance sheet value;(2) where a firm calculates risk weighted exposure amounts under the IRB approach to securitisations outlined in BIPRU 9.12, the exposure value of an on-balance sheet securitisation position must be measured gross of value adjustments;(3)
BIPRU 9.9.5RRP
The exposure value of a securitisation position arising from a financial derivative instrument must be determined in accordance with BIPRU 13 (Treatment of derivative instruments).[Note:BCD Annex IX Part 4 point 3]
BIPRU 9.9.6RRP
Where a securitisation position is subject to funded credit protection, the exposure value of that position may be modified in accordance with and subject to the requirements of BIPRU 5 (Credit risk mitigation) as further specified in BIPRU 9.11.13 R and BIPRU 9.14.[Note:BCD Annex IX Part 4 point 4]
BIPRU 9.9.7RRP
Where a securitisation position is subject to funded or unfunded credit protection the risk weight to be applied to that position may be modified in accordance with BIPRU 5 (Credit risk mitigation) and, if applicable, BIPRU 4.10 (Credit risk mitigation under the IRB approach) read in conjunction with BIPRU 9.14.[Note:BCD Article 96(3)]
BIPRU 9.9.8RRP
(1) Where a firm has two or more overlapping positions in a securitisation the firm must, to the extent that the positions overlap, include in its calculation of risk weighted exposure amounts only the position, or portion of a position, producing the higher risk weighted exposure amounts. The firm may also recognise such an overlap between capital charges for specific risk in relation to positions in the trading book and capital charges for positions in the non-trading book,
BIPRU 9.9.9RRP
Subject to the provisions of GENPRU that deal with the deduction of securitisation positions at stage M in the relevant capital resources table, the risk weighted exposure amount must be included in the firm's total of risk weighted exposure amounts for the purposes of the calculation of its credit risk capital requirement.[Note:BCD Article 96(4)]
BIPRU 9.9.10GRP
2Where BIPRU 9.7.2R (5) applies to securitisation positions in an ABCP programme, the firm may be granted a waiver in the terms described in BIPRU 9.7.4 G.[Note: BCD, Annex IX, Part 4, Point 5]
BIPRU 9.1.3RRP
A firm must calculate the risk weighted exposure amount for securitisation positions in accordance with BIPRU 9.
BIPRU 9.1.4GRP
A firm should apply the securitisation framework set out in this chapter for determining regulatory capital requirements on exposures arising from traditional securitisations and from synthetic securitisations and from structures that contain features of both.
BIPRU 9.1.5GRP
Since transactions may be structured in many different ways, the capital treatment of a position should be determined on the basis of its economic substance rather than merely its legal form. A firm should look to the economic substance of a transaction to determine whether the securitisation framework is applicable for purposes of determining regulatory capital. A firm should consult the appropriate regulator when there is uncertainty about whether a given transaction should
BIPRU 9.1.6RRP
The risks arising from securitisation transactions in relation to which a firm is investor,3originator or sponsor, including reputational risks,3 must be evaluated and addressed through appropriate policies and procedures, to ensure in particular that the economic substance of the transaction is fully reflected in risk assessment and management decisions.[Note:BCD Annex V point 8]3
BIPRU 9.1.7GRP
A firm that is a party to a securitisation should fully understand the risks it has assumed or retained. In particular it should do so in order that it can correctly determine in accordance with BIPRU 9 the capital effects of the securitisation.
BIPRU 9.1.8GRP
The appropriate regulator expects an originator to continue to monitor any risks that it may be subject to when it has excluded the securitised exposures from its calculation of risk weighted exposure amounts. The originator should consider capital planning implications where risks may return and the impact that securitisation has on the quality of the remaining exposures held by the originator.
BIPRU 9.1.8AGRP
(1) The appropriate regulator expects firms to conduct regular stress testing in relation to their securitisation activities and off-balance sheet exposures. The stress tests should consider the firm-wide impact of those activities and exposures in stressed market conditions and the implications for other sources of risk, for example, credit risk, concentration risk, counterparty risk, market risk, liquidity risk and reputational risk. Stress testing of securitisation activities
BIPRU 9.1.9GRP
BIPRU 9 deals with:(1) requirements for investors,3originators and sponsors of securitisations of non-trading bookexposures;3(2) the calculation of risk weighted exposure amount for securitisation positions for the purposes of calculating either the credit risk capital component or the counterparty risk capital component; and3(3) the requirements that investors, originators and sponsors of securitisations in the trading book will have to meet (BIPRU 9.3.1AR, BIPRU 9.3.15R to BIPRU
BIPRU 9.1.10GRP
BIPRU 7 sets out the calculation of the market risk capital requirement for securitisation positions held in the trading book.
BIPRU 9.4.1RRP
The originator of a traditional securitisation may exclude securitised exposures from the calculation of risk weighted exposure amounts and expected loss amounts if either of the following conditions is fulfilled:(1) 2significant credit risk associated with the securitised exposures is considered to have been transferred to third parties; or(2) 2the originator applies a 1250% risk weight to all securitisation positions it holds in the securitisation or deducts these securitisation
BIPRU 9.4.2RRP
The securitisation documentation must reflect the economic substance of the transaction.[Note:BCD Annex IX Part 2 point 1 (part)]
BIPRU 9.4.3RRP
The securitised exposures must be put beyond the reach of the originator and its creditors, including in bankruptcy and receivership. This must be supported by the opinion of qualified legal counsel.[Note:BCD Annex IX Part 2 point 1 (part)]
BIPRU 9.4.6RRP
The transferee must be a securitisation special purpose entity.[Note:BCD Annex IX Part 2 point 1 (part)]
BIPRU 9.4.8RRP
Where there is a clean-up call option, the following conditions must be satisfied:(1) the clean-up call option is exercisable at the discretion of the originator;(2) the clean-up call option may only be exercised when 10% or less of the original value of the exposuressecuritised remains unamortised; and(3) the clean-up call option is not structured to avoid allocating losses to credit enhancement positions or other positions held by investors and is not otherwise structured to
BIPRU 9.4.9RRP
The securitisation documentation must not contain clauses that:(1) other than in the case of early amortisation provisions, require positions in the securitisation to be improved by the originator including but not limited to altering the underlying credit exposures or increasing the yield payable to investors in response to a deterioration in the credit quality of the securitised exposures; or(2) increase the yield payable to holders of positions in the securitisation in response
BIPRU 9.4.11RRP
2Significant credit risk will be considered to be transferred for an originator in the following cases:(1) 2the risk weighted exposure amounts of the mezzanine securitisation positions held by the originator in the securitisation do not exceed 50% of the risk weighted exposure amounts of all mezzanine securitisation positions existing in this securitisation;(2) 2where there are no mezzanine securitisation positions in a given securitisation and the originator can demonstrate that
BIPRU 9.4.12RRP
2An originator must notify the appropriate regulator that it is relying on the deemed transfer of significant credit risk under BIPRU 9.4.11R within a reasonable period before or after a relevant transfer, not being later than one month after the date of the transfer. The notification must include the following information:(1) 2the risk weighted exposure amount of the securitised exposures and retained securitisation positions; (2) 2the exposure value of the securitised exposures
BIPRU 9.4.13GRP
2In the event that the appropriate regulator decides that the possible reduction in risk weighted exposure amounts which the originator would achieve by the securitisation referred to in BIPRU 9.4.11R is not justified by a commensurate transfer of credit risk to third parties, it will use its powers under section 55J (Variation etc on the Authority's own initiative) of the Act to require the firm to increase its risk weight exposure amount to an amount commensurate with the appropriate
BIPRU 9.4.15DRP
2An originator's application for a waiver of the requirements in BIPRU 9.4.11R and BIPRU 9.4.12R must demonstrate that the following conditions are satisfied.(1) 2it has policies and methodologies in place which ensure that the possible reduction of capital requirements which the originator achieves by the securitisation is justified by a commensurate transfer of credit risk to third parties; and(2) 2that such a transfer of credit risk to third parties is also recognised for the
BIPRU 9.14.1RRP
This section applies to credit risk mitigation in relation to a securitisation position for a firm calculating risk weighted exposure amounts using the IRB approach.[Note:BCD Annex IX Part 4 point 37 (part)]
BIPRU 9.14.2RRP
Where a firm uses the ratings based method to calculate the risk weighted exposure amounts of securitisation positions, the firm may recognise credit risk mitigation in accordance with BIPRU 9.14.4 R to BIPRU 9.14.6 R.[Note:BCD Annex IX Part 4 point 51]
BIPRU 9.14.3RRP
Where a firm uses the supervisory formula method to calculate the risk weighted exposure amounts of securitisation positions, the firm may recognise credit risk mitigation in accordance with BIPRU 9.14.4 R to BIPRU 9.14.5 R and BIPRU 9.14.7 R to BIPRU 9.14.13 R.[Note:BCD Annex IX Part 4 point 54]
BIPRU 9.14.6RRP
Where risk weighted exposure amounts are calculated using the ratings based method, the exposure value and/or the risk weighted exposure amount for a securitisation position in respect of which credit protection has been obtained may be modified in accordance with the provisions of BIPRU 5 (Credit risk mitigation) as they apply for the calculation of risk weighted exposure amounts under the standardised approach set out in BIPRU 3.[Note:BCD Annex IX Part 4 point 62]
BIPRU 9.14.9RRP
In the case of funded credit protection, the risk weighted exposure amount of the securitisation position must be calculated by multiplying the funded protection-adjusted exposure amount of the position (E*, as calculated under BIPRU 5.4.28 R (3), taking the amount of the securitisation position to be E) by the effective risk weight.[Note:BCD Annex IX Part 4 point 64]
BIPRU 9.14.10RRP
In the case of unfunded credit protection, the risk weighted exposure amount of the securitisation position must be calculated by multiplying GA (the amount of the protection adjusted for any currency mismatch and maturity mismatch in accordance BIPRU 5.7.23 R (2)) by the risk weight of the protection provider; and adding this to the amount arrived at by multiplying the amount of the securitisation position minus GA by the effective risk weight.[Note:BCD Annex IX Part 4 point
BIPRU 9.14.11RRP
BIPRU 9.14.12 RBIPRU 9.14.13 R apply where risk weighted exposure amounts are calculated using the supervisory formula method where there is partial protection.
BIPRU 9.14.12RRP
If the credit risk mitigation covers the first loss or losses on a proportional basis on the securitisation position, a firm may apply BIPRU 9.14.7 R to BIPRU 9.14.10 R.[Note:BCD Annex IX Part 4 point 66]
BIPRU 9.14.13RRP
In other cases the firm must treat the securitisation position as two or more positions with the uncovered portion being the position with the lower credit quality. For the purposes of calculating the risk weighted exposure amount for this position, the provisions in BIPRU 9.12.22 R to BIPRU 9.12.24 G apply subject to the modifications that T is adjusted to e* in the case of funded credit protection; and to T-g in the case of unfunded credit protection, where e* denotes the ratio
BIPRU 9.6.1RRP
An originator which, in respect of a securitisation in the non-trading book,1 has made use of BIPRU 9.3.1 R in the calculation of risk weighted exposure amounts, or a sponsor, must not, with a view to reducing potential or actual losses to investors, provide support to the securitisation beyond its contractual obligations.[Note: BCD Article 101(1)]
BIPRU 9.6.1ARRP
1An originator which has sold instruments in its trading book to an SSPE and no longer holds market risk capital requirements for these instruments, or a sponsor, must not, with a view to reducing potential or actual losses to investors, provide support to the securitisation beyond its contractual obligations.[Note: BCD Article 101(1)]
BIPRU 9.6.2RRP
If an originator or sponsor fails to comply with BIPRU 9.6.1 R or BIPRU 9.6.1A R1 in respect of a securitisation, it must:(1) hold capital against all of the securitised exposures associated with the securitisation transaction as if they had not been securitised; and(2) disclose publicly:(a) that it has provided non-contractual support;1 and(b) the regulatory capital impact of doing so.[Note: BCD Article 101(2)]
BIPRU 9.6.3GRP
(1) Securitisation documentation should make clear, where applicable, that any repurchase of securitised exposures or securitisation positions by the originator or sponsor beyond its contractual obligations is not mandatory and may only be made at fair market value. In general, any such repurchase should be subject to a firm's credit review and approval process, which should be adequate to ensure that the repurchase complies with BIPRU 9.6.1 R.(2) If an originator or sponsor repurchases
BIPRU 9.6.4GRP
If a firm is found to have provided implicit support to a securitisation, that fact increases the expectation that the firm will provide future support to its securitisations thus failing to achieve a significant transfer of risk. The appropriate regulator will consider taking appropriate measures to reflect this increased expectation after an instance of implicit support is found.
BIPRU 9.6.5GRP
A firm may need to consider three main situations to determine whether there is a breach of the prohibition against implicit support in BIPRU 9.6.1 R:(1) support given under a contractual obligation;(2) support given under the contractual documentation for the securitisation which the firm is entitled, but not obliged, to give; and(3) support which is not provided for under the contractual documentation for the securitisation.
BIPRU 9.6.6GRP
(1) The support described in BIPRU 9.6.5 G (1) is permitted by BIPRU 9.6.1 R.(2) The support described in BIPRU 9.6.5 G (3) is not permitted by BIPRU 9.6.1 R.(3) The support described in BIPRU 9.6.5 G (2) may be permitted by BIPRU 9.6.1 R under the following conditions:(a) the fact that the firm may give it is expressly set out in the contractual and marketing documents for the securitisation;(b) the nature of the support that the firm may give is precisely described in the documentation;(c)
BIPRU 9.6.7GRP
A waiver of the right to future margin income may not breach the prohibition against implicit support:(1) the degree of support that can be given can be defined precisely by reference to the securitisation contractual documentation , albeit the amount of support may not be ascertainable in absolute monetary terms; and(2) no adjustment to the firm'scapital resources or capital resources requirement is required, as a firm should not in any case reflect future margin income in its
BIPRU 7.2.42ARRP
3A correlation trading portfolio may only consist of securitisation positions and nth-to-default credit derivatives that meet the following criteria:(1) the positions are neither resecuritisation positions, nor options on a securitisation position, nor any other derivatives of securitisationexposures that do not provide a pro-rata share in the proceeds of a securitisationtranche;(2) all reference instruments are either single-name instruments, including single-name credit derivatives,
BIPRU 7.2.42BRRP
3Positions which are not securitisation positions or nth-to-default credit derivatives may be included in the correlation trading portfolio only if they hedge other such positions in this portfolio and a liquid two-way market exists for the relevant position or its reference entities.
BIPRU 7.2.48ARRP
(1) 3Subject to (3), a firm must calculate the specific risk portion of the interest rate PRR for each securitisation and resecuritisationposition by multiplying the market value of the individual net position (ignoring the sign) by the appropriate position risk adjustment from the table in BIPRU 7.2.48D R or BIPRU 7.2.48E R, or in accordance with BIPRU 7.2.48F R, as applicable.(2) In calculating the specific risk capital charge of an individual net securitisation or resecuritisation
BIPRU 7.2.48BRRP
3The firm must report to the appropriate regulator the total sum of its weighted net long and net short securitisation and resecuritisation positions, broken down by types of underlying assets.
BIPRU 7.2.48CRRP
3When calculating the PRR of a protection seller in securitisation and resecuritisation credit derivatives, a firm must apply BIPRU 7.11.3 R.
BIPRU 7.2.48DRRP
Table: specific risk position risk adjustments - standardised approach3Credit quality step1234 (only for credit assessments other than short-term credit assessments)All other credit quality stepsSecuritisations1.6%4%8%28%100%Resecuritisations3.2%8%18%52%100%A firm may only apply the position risk adjustments in this table where it would have to calculate a risk weighted exposure amount in accordance with the standardised approach to securitisation and resecuritisation positions
BIPRU 7.2.48ERRP
Table: specific risk Position Risk Adjustments - IRB approach3Credit Quality StepSecuritisation positionsResecuritisation positionsCredit assessments other than short termShort-term credit assessmentsABCDE110.56%0.96%1.6%1.6%2.4%20.64%1.20%2%2%3.2%30.8%1.44%2.8%2.8%4%420.96%1.6%3.2%5.2%51.60%2.8%4.8%8%62.8%4%8%12%734.8%6%12%18%88%16%28%920%24%40%1034%40%52%1152%60%68%all other unrated100%A firm may only apply the position risk adjustments in this table where it would have to calculate
BIPRU 7.2.48GRRP
3Where a securitisation position in the trading book is subject to an increased risk weight in accordance with BIPRU 9.15, the appropriate position risk adjustment must be calculated as 8% of the risk weight that would apply to the position in accordance with BIPRU 9.15.
BIPRU 7.2.48HGRP
3Originators, investors and sponsors of securitisations in the trading book will have to meet the requirements of BIPRU 9.3.1A R, BIPRU 9.3.15 R to BIPRU 9.3.20 R and BIPRU 9.15.
BIPRU 7.2.48IGRP
(1) 3Subject to BIPRU 7.2.48J G, BIPRU 9.15.9 R and BIPRU 9.15.10 R, where the investor, originator or sponsor of a securitisation fails to meet any of the requirements in BIPRU 9.3.18 R to BIPRU 9.3.20 R (Disclosure requirements) and BIPRU 9.15.11 R to BIPRU 9.15.16 R (investor due diligence requirements) in any material respect by reason of its negligence or omission, the appropriate regulator will use its powers under section 55J (Variation etc. on the Authority's own initiative)
BIPRU 7.2.48JGRP
3When calculating the additional capital charge it will impose under BIPRU 7.2.48G R, the appropriate regulator will take into account the exemption of certain securitisations from the scope of BIPRU 9.15.3 R under BIPRU 9.15.9 R and BIPRU 9.15.10 R and, if those exemptions are relevant, it will reduce the capital charge it would otherwise impose.
BIPRU 7.2.48KRRP
3A securitisation exposure in the trading book that would be subject to deduction in accordance with GENPRU 2.2. (Capital resources) or to a 1250% risk weight in accordance with BIPRU 9 (Securitisation) is subject to a capital charge that is no less than that set out under those provisions, capped at the maximum possible default-risk-related loss. Unrated liquidity facilities are subject to a capital charge that is no less than that set out in BIPRU 9.
BIPRU 9.3.7RRP
1Significant credit risk will be considered to have been transferred for originators in the following cases:(1) the risk weighted exposure amounts of the mezzanine securitisation positions held by the originator in the securitisation do not exceed 50% of the risk weighted exposure amounts of all mezzanine securitisation positions existing in this securitisation;(2) where there are no mezzanine securitisation positions in a given securitisation and the originator can demonstrate
BIPRU 9.3.8RRP
1An originator must notify the appropriate regulator that it is relying on the deemed transfer of significant credit risk under BIPRU 9.3.7R within a reasonable period before or after a relevant transfer, not being later than one month after the date of the transfer. The notification must include the following information: (1) the risk weighted exposure amount of the securitised exposures and retained securitisation positions; (2) the exposure value of the securitised exposures
BIPRU 9.3.9GRP
1In the event that the appropriate regulator decides that the possible reduction in risk weighted exposure amounts which the originator would achieve by the securitisation referred to in BIPRU 9.3.7R is not justified by a commensurate transfer of credit risk to third parties, it will use its powers under section 55J of the Act (Variation etc on the Authority's own initiative) to require the firm to increase its risk weighted exposure amount to an amount commensurate with the appropriate
BIPRU 9.3.11DRP
1An originator's application for a waiver of the requirements in BIPRU 9.3.7R and BIPRU 9.3.8R must demonstrate that the following conditions are satisfied:(1) it has policies and methodologies in place which ensure that the possible reduction of capital requirements which the originator achieves by the securitisation is justified by a commensurate transfer of credit risk to third parties; and(2) that such transfer of credit risk to third parties is also recognised for the purposes
BIPRU 9.3.21GRP
1Subject to BIPRU 9.3.22G, BIPRU 9.15.9R and BIPRU 9.15.10R, where the originator or sponsor of a securitisation fails to meet any of the requirements in BIPRU 9.3.18R to BIPRU 9.3.20R (disclosure requirements) in any material respect by reason of its negligence or omission, the appropriate regulator will use its powers under section 55J (Variation etc on the Authority's own initiative) of the Act to impose an additional risk weight of no less than 250% (capped at 1250%) of the
BIPRU 9.3.22GRP
1When calculating the additional risk weight it will impose, the appropriate regulator will take into account the exemption of certain securitisations from the scope of BIPRU 9.15.3R under BIPRU 9.15.9R and BIPRU 9.15.10R and, if those exemptions are relevant, reduce the risk weight it would otherwise impose.[Note:BCD, Article 122a, paragraph 5]
BIPRU 9.5.1RRP
(1) An originator of a synthetic securitisation may calculate risk weighted exposure amounts1, and, as relevant, expected loss amounts, for the securitised exposures in accordance with BIPRU 9.5.3 R and BIPRU 9.5.4 R, if either of the following conditions is fulfilled:1(a) 1significant credit risk is considered to have been transferred to third parties, either through funded or unfunded credit protection; or(b) 1the originator applies a 1250% risk weight to all securitisation
BIPRU 9.5.1BDRP
1An originator's application for a waiver of the requirements in BIPRU 9.5.1R (6) and (7) must demonstrate that the following conditions are satisfied:(1) it has policies and methodologies in place which ensure that the possible reduction of capital requirements which the originator achieves by the securitisation is justified by a commensurate transfer of credit risk to third parties; and(2) that such transfer of credit risk to third parties is also recognised for the purposes
BIPRU 9.5.1FGRP
1In the event that the appropriate regulator decides that the possible reduction in risk weighted exposure amounts which the originatorcredit institution would achieve by the securitisation referred to in BIPRU 9.5.1R (6) is not justified by a commensurate transfer of credit risk to third parties, it will use its powers under section 55J (Variation etc on the Authority's own initiative) of the Act to require the firm to increase its risk weight exposure amount to an amount commensurate
BIPRU 9.5.3RRP
(1) In calculating risk weighted exposure amounts for the securitised exposures, where the conditions in BIPRU 9.5.1 R are met, the originator of a synthetic securitisation must, subject to the treatment of maturity mismatches set out in BIPRU 9.5.6 R-BIPRU 9.5.8 R, use the relevant calculation methodologies set out in BIPRU 9.9-BIPRU 9.14and not those set out in BIPRU 3 (Standardised credit risk) or BIPRU 4 (IRB approach).(2) For firms calculating risk weighted exposure amounts
BIPRU 9.5.4RRP
Subject to the treatment of maturity mismatches set out in BIPRU 9.5.6 R-BIPRU 9.5.8 R, the originator must calculate risk weighted exposure amounts in respect of all tranches in the securitisation in accordance with the provisions of BIPRU 9.9-BIPRU 9.14. For example, where a tranche is transferred by means of unfunded credit protection to a third party, the risk weight of that third party must be applied to the tranche in the calculation of the originatorsrisk weighted exposure
BIPRU 9.5.6RRP
For the purposes of calculating risk weighted exposure amounts in accordance with BIPRU 9.5.3 R, any maturity mismatch between the credit protection by which the tranching is achieved and the securitised exposures must be taken into consideration in accordance with BIPRU 9.5.7 R-BIPRU 9.5.8 R.[Note:BCD Annex IX Part 2 point 5]
BIPRU 9.5.7RRP
The maturity of the securitised exposures must be taken to be the longest maturity of any of those exposures subject to a maximum of five years. The maturity of the credit protection must be determined in accordance with BIPRU 5 (Credit risk mitigation) and, so far as relevant, BIPRU 4.10 (Credit risk mitigation under the IRB approach).[Note:BCD Annex IX Part 2 point 6]
BIPRU 9.5.8RRP
(1) An originator must ignore any maturity mismatch in calculating risk weighted exposure amounts for tranches appearing pursuant to BIPRU 9.9-BIPRU 9.14 with a risk weight of 1250%. For all other tranches the maturity mismatch treatment prescribed in BIPRU 5.8 (Maturity mismatches) must be applied in accordance with the following formula:RW* is [RW(SP) x (t-t*)/(T-t*)] + [RW(Ass) x (T-t)/(T-t*)](2) The following apply for the purposes of the formula in (1):(a) RW* is risk weighted
BIPRU 9.7.1RRP
An ECAI's credit assessment may be used to determine the risk weight of a securitisation position in accordance with BIPRU 9.9 only if the ECAI is an eligible ECAI.[Note:BCD Article 97(1)]
BIPRU 9.7.2RRP
(1) A firm must2 not use a credit assessment of an eligible ECAI to determine the risk weight of a securitisation position in accordance with BIPRU 9.9 unless it complies with the principles of credibility and transparency as elaborated in (2) to (6).222(2) 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.(3)
BIPRU 9.7.2AGRP
2The requirements in BIPRU 9.7.2R (5) and (6) apply to situations where a firm holds securitisation positions which receive a lower risk weight by virtue of unfunded credit protection provided by the firm itself acting in a different capacity in the securitisation transaction. The assessment of whether a firm is providing unfunded support to its securitisation positions should take into account the economic substance of that support in the context of the overall transaction and
BIPRU 9.7.4GRP
2Where BIPRU 9.7.2R (5) applies to securitisation positions in an ABCP programme, the firm may be granted a waiver which allows it to use the risk weight assigned to a liquidity facility in order to calculate the risk weighted exposure amount for the positions in the ABCP programme, provided that the liquidity facility ranks pari passu with the positions in the ABCP programme so that they form overlapping positions and 100% of the commercial paper issued by the ABCP programme
PERG 4.16.1GRP
It is common practice in the mortgage industry for the original lender which makes the loan to pass on ownership of the loan to a third party through securitisation. Securitisation transactions take different forms, but the essence is that the original lender sells the beneficial interest (with or without the legal interest) in a mortgage portfolio to a special purpose vehicle ('SPV'), which raises finance to pay for the portfolio by selling its own securities. The original lender
PERG 4.16.2GRP
The government's intention behind the regulatory regime for mortgages was "to ensure that, at any one time, it would be possible for each mortgage to be linked to one and only one authorised firm (with mortgage permission) to have the ongoing regulatory responsibility towards consumers" (HM Treasury, Regulating Mortgages, February 2002, paragraph 47). In other words, it should be possible to arrange a securitisation transaction so that the SPV and other third parties do not carry
PERG 4.16.4GRP
If an unauthorised SPV arranges for an authorised person with permission to administer a regulated mortgage contract to administer its regulated mortgage contracts, it can avoid carrying on the regulated activities of:(1) administering a regulated mortgage contract, because of the exclusion in article 62 of the Regulated Activities Order (described in PERG 4.8.4 G);(2) arranging (bringing about) or making arrangements with a view to regulated mortgage contracts, because any arrangements
BIPRU 9.10.2RRP
In respect of a securitisation position in respect of which a 1250% risk weight is assigned, a firm may, as an alternative to including the position in its calculation of risk weighted exposure amounts, deduct from its capital resources the exposure value of the position. For these purposes, the calculation of the exposure value may reflect eligible funded protection in a manner consistent with BIPRU 9.14.[Note:BCD Annex IX Part 4 points 35, 74 and 75(b)]
BIPRU 9.10.4RRP
The risk weighted exposure amount of a securitisation position to which a 1250% risk weight is assigned may be reduced by 12.5 times the amount of any value adjustments made by the firm in respect of the securitised exposures.[Note:BCD Annex IX Part 4 point 72 (part)]
BIPRU 9.10.6RRP
The risk weighted exposure amount of a securitisation position may be reduced by 12.5 times the amount of any value adjustments made by the firm in respect of the position.[Note:BCD Annex IX Part 4 point 73]
IFPRU 2.2.7RRP
A firm must have in place sound, effective and comprehensive strategies, processes and systems:(1) to assess and maintain, on an ongoing basis, the amounts, types and distribution of financial resources, own funds and internal capital that it considers adequate to cover:(a) the nature and level of the risks to which it is, or might be, exposed;(b) the risk in the overall financial adequacy rule;(c) the risk that the firm might not be able to meet the obligations in Part Three
IFPRU 2.2.8RRP
(1) This rule defines some of the terms used in the overall Pillar 2 rule. (2) Residual risk means the risk that credit risk mitigation techniques used by the firm prove less effective than expected.(3) Securitisation risk includes the risk that the own funds held by a firm for assets which it has securitised are inadequate having regard to the economic substance of the transaction, including the degree of risk transfer achieved.(4) Business risk means any risk to a firm arising
IFPRU 2.2.18RRP
A firm must have internal methodologies that:(1) enable it to assess the credit risk of exposures to individual obligors, securities or securitisation positions and credit risk at the portfolio level;(2) do not rely solely or mechanistically on external credit ratings;(3) where its own funds requirements under Part Three of the EUCRR (Capital Requirements) are based on a rating by an ECAI or based on the fact that an exposure is unrated, enable the firm to consider other relevant
IFPRU 2.2.24RRP
A firm must evaluate and address through appropriate policies and procedures the risks arising from securitisation transactions in relation to which a firm is investor, originator or sponsor, including reputational risks, to ensure, in particular, that the economic substance of the transaction is fully reflected in risk assessment and management decisions.[Note: article 82(1) of CRD]
IFPRU 2.2.25RRP
A firm which is an originator of a revolving securitisation transaction involving early amortisation provisions must have liquidity plans to address the implications of both scheduled and early amortisation.[Note: article 82(2) of CRD]
GENPRU 2.2.90RRP
In the case of a BIPRU firm which is the originator of a securitisation, net gains arising from the capitalisation of future income from the securitised assets and providing credit enhancement to positions in the securitisation must be excluded from profit and loss account and other reserves.
GENPRU 2.2.192RRP
For the purpose of GENPRU 2.2.190 R and GENPRU 2.2.191 R, risk weighted exposure amounts must not include those calculated in respect of securitisation positions which have a risk weight of 1250%.
GENPRU 2.2.193RRP
If a BIPRU firm calculates risk weighted exposure amounts under the IRB approach for the purposes of BIPRU 14 (Capital requirements for settlement and counterparty risk) it must not include valuation adjustments referred to in BIPRU 14.2.18 R (1) (Treatment of expected loss amounts) in its capital resources except in accordance with that rule.
GENPRU 2.2.237RRP
A BIPRU firm calculating risk weighted exposure amounts under the IRB approach or the standardised approach to credit risk must deduct from its capital resources the following:1313(1) the exposure amount of securitisation positions which receive a risk weight of 1250% under BIPRU 9 (Securitisation), unless the firm includes the securitisation positions in its calculation of risk weighted exposure amounts (see BIPRU 9.10 (Reduction in risk-weighted exposure amounts)); and13(2)
GENPRU 2.2.238RRP
GENPRU 2.2.238 R to GENPRU 2.2.241 R apply to a BIPRU firm and relate to the deductions in respect of:(1) material holdings;(2) expected loss amounts and other negative amounts referred to in GENPRU 2.2.236 R; and(3) securitisation positions referred to in GENPRU 2.2.237 R.
GENPRU 2.2.239RRP
(1) The treatment in the capital resources table of the deductions in GENPRU 2.2.238 R only has effect for the purpose of the capital resources gearing rules.(2) In other cases (3) and (4) apply.(3) A BIPRU firm making the deductions described in GENPRU 2.2.238 R must deduct 50% of the total amount of those deductions at stage E (Deductions from tier one capital) and 50% at stage J (Deductions from tier two capital) of the calculation in the capital resources table after the application
BIPRU 12.5.44RRP
For the purpose of BIPRU 12.5.42R, a firm must in particular consider the impact on its cash flows of:(1) derivatives positions;(2) contingent liabilities;(3) commitments given; and(4) liquidity facilities to support securitisation programmes.
BIPRU 12.5.50GRP
In relation to liquidity facilities to support securitisation programmes, a firm should:(1) assess the extent of its contractual obligations to provide liquidity support to sponsored and third-party structured vehicles;(2) identify the circumstances in which support will, or is likely to, be called; and(3) assess the impact on that firm's cash flows of such support being called:(a) in normal financial conditions; and(b) under the liquidity stresses required by BIPRU 12.5.6R.
BIPRU 12.5.70GRP
A firm may also use its unsecured wholesale assets to generate liquidity, otherwise than by outright sale or repo. A firm may, for example, choose to generate funding from some of the assets included in its liquidity resources by using them in securitisation or covered bond programmes. Assets that are typically used to raise liquidity in this manner include residential mortgage loans; commercial mortgage and other loans; credit card and automobile receivables, which have been
BIPRU 12.5.71GRP
The assessment required by BIPRU 12.5.63R is particularly important for a firm which:(1) ordinarily does not raise funding from its non-marketable assets in this way; or(2) places proportionately greater reliance on securitisation programmes as compared to other funding strategies to generate liquidity.
BIPRU 12.5.72RRP
In complying with BIPRU 12.5.63R, a firm must in particular assess the non-marketable assets risk associated with asset securitisations, having regard to:(1) the existence of early amortisation triggers and the consequences of their operation; and(2) its financing of assets which are warehoused prior to their securitisation.
BIPRU 7.11.11RRP
Ifan nth-to-default4 derivative is externally rated and meets the conditions for a qualifying debt security, then the protection seller need only calculate one specific risk charge reflecting the rating of the derivative. The specific risk charge must be based on the securitisationPRAs in BIPRU 7.2 as applicable.44
BIPRU 7.11.62GRP
BIPRU 7.11.5 R requires a firm to recognise any premiums payable or receivable under the contract as notional zero-specific-risk securities. These positions are then entered into the general market risk framework. As premium payments paid under such contracts are contingent on no credit event occurring, a credit event could significantly change the general market risk capital requirement. A firm should consider, under the overall Pillar 2 rule, whether this risk means that the
BIPRU 7.11.63GRP
If a firm recognises profits on a non-accrual basis it should consider whether the capital requirements for its credit derivatives business adequately cover the risk that any recognised profit may not be achieved due to a credit event occurring. This includes positions for which the firm may have a perfect hedge in place.