Related provisions for IPRU-INV 5.13.1
1 - 20 of 49 items.
(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
(1) A firm must have CCR management policies, processes and systems that are conceptually sound and implemented with integrity.(2) A sound CCR management framework must include the identification, measurement, management, approval and internal reporting of CCR.[Note: BCD Annex III Part 6 point 18]
(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
A firm'sgoverning body and senior management must be actively involved in the CCR control process and must regard this as an essential aspect of the business to which significant resources need to be devoted. Senior management must be aware of the limitations and assumptions of the model used and the impact these can have on the reliability of the output. Senior management must also consider the uncertainties of the market environment and operational issues and be aware of how
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]
(1) A firm's CCR management system must be used in conjunction with internal credit and trading limits.(2) A firm must ensure that its credit and trading limits are related to its risk measurement model in a manner that is:(a) consistent over time; and(b) well understood by credit managers, traders and senior management.[Note: BCD Annex III Part 6 point 22]
(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:
(1) A firm must have a routine and rigorous program of stress testing in place as a supplement to the CCR analysis based on the day-to-day output of the firm's risk measurement model.(2) The results of this stress testing must be reviewed periodically by senior management and must be reflected in the CCR policies and limits set by management and the governing body.(3) Where stress tests reveal particular vulnerability to a given set of circumstances, prompt steps must be taken
(1) A firm must have a routine in place for ensuring compliance with a documented set of internal policies, controls and procedures concerning the operation of the CCR management system.(2) The firm's CCR management system must be well documented and must provide an explanation of the empirical techniques used to measure CCR.[Note: BCD Annex III Part 6 point 25]
A firm must conduct an independent review of the CCR management system regularly through its own internal auditing process. This review must include both the activities of the business units referred to in BIPRU 13.6.41 R and of the independent CCR control unit. A review of the overall CCR management process must take place at regular intervals and must specifically address, at a minimum:(1) the adequacy of the documentation of the CCR management system and process;(2) the organisation
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]
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]
(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
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
(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
(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
A firm that makes use of collateral to mitigate its CCR must have internal procedures to verify that, prior to recognising the effect of collateral in its calculations, the collateral meets the legal certainty standards set out in BIPRU 5 as modified, where relevant, by BIPRU 4.10.[Note: BCD Annex III Part 6 point 41]
(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
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)
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]
Where a credit derivative included in the trading book forms part of an internal hedge and the credit protection is recognised under the BCD3, there is deemed to be no counterparty risk arising from the position in the credit derivative. Alternatively, a firm may consistently include for the purposes of calculating capital requirements for counterparty credit risk all credit derivatives included in the trading book forming part of internal hedges or purchased as protection against
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.
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]
A firm must apply the CCR mark to market method to transactions with a non-linear risk profile or for payment legs and transactions with debt instruments as underlying if:(1) the firm does not have a CAD 1 model permission or a VaR model permission; or(2) where the firm does have a CAD 1 model permission or a VaR model permission but cannot determine the delta or the modified duration, respectively, with its CAD 1 model permission or VaR model permission.[Note: BCD Annex III Part
A firm must not recognise netting for the purpose of applying the CCR mark to market method to an exposure treated under BIPRU 13.5.9 R (that is, the exposure value must be determined as if there were a netting set that comprises just the individual transaction).[Note: BCD Annex III Part 5 point 19 (part)]
There is one hedging set for each issuer of a reference debt instrument that underlies a credit default swap.Nth to default basket credit default swaps must be treated as follows:2(1) 2the size of a risk position in a reference debt instrument in a basket underlying an nth to default credit default swap is the effective notional value of the reference debt instrument, multiplied by the modified duration of the nth to default derivative, with respect to a change in the credit spread
A firm that makes use of collateral to mitigate its CCR must have internal procedures to verify that, prior to recognising the effect of collateral in its calculations, the collateral meets the legal certainty standards set out in BIPRU 5 modified, where relevant, by BIPRU 4.10.[Note: BCD Annex III Part 5 point 21]
This table belongs to BIPRU 13.5.21 R.Hedging set categoriesCCR Multiplier (CCRM)(1)Interest Rates0.2%(2)Interest Rates for risk positions from a reference debt instrument that underlies a credit default swap and to which a capital charge of 1.60%, or less, applies under BIPRU 7.2.44 R1.0.3%(3)Interest Rates for risk positions from a debt instrument or reference debt instrument to which a capital charge of more than 1.60% applies under BIPRU 7.2.44 R.0.6%(4)Exchange Rates2.5%(5)Electric
A firm must determine the exposure value net of collateral, as follows:exposure value = *max(CMV-CMC;(j)((i)(RPTij)-(l)(RPClj))*CCRMj)where:CMV = current market value of the portfolio of transactions within the netting set with a counterparty gross of collateral.That is, where:CMV = (i)(CMVi)where:CMVi = the current market value of transaction i;CMC = the current market value of the collateral assigned to the netting set.That is, where:CMC = (l)(CMCl)whereCMCl = the current market
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
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)
(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
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]
If the calculation of the amount of an exposure or of a combination of exposures under BIPRU 13 would materially understate the amount of the counterparty credit risk the firm must increase the amount of the credit risk capital requirement by an amount sufficient to compensate for that understatement.
If a firm in relation to an exposure covered by BIPRU 13:(1) has an exposure of a non-standard type; or(2) an exposure that is part of a non-standard arrangement; or(3) has an exposure that, taken together with other exposures (whether or not they are subject to BIPRU 13), gives rise to a non-standard counterparty credit risk; or(4) is subject to the rule in BIPRU 13.2.1 R;it must notify the appropriate regulator as soon as practicable of that fact, the counterparty involved,
Positions arising from client servicing include those arising out of contracts where a firm acts as principal (even in the context of activity described as 'broking' or 'customer business'). Such positions should be allocated to a firm'strading book if the intent is trading (see BIPRU 1.2.10 R). This applies even if the nature of the business means that generally the only risks incurred by the firm are counterparty risks (i.e. no market risk charges apply). If the nature of the
Term trading-related repo-style transactions that a firm accounts for in its non-trading book may be included in the trading book for capital requirement purposes so long as all such repo-style transactions are included. For this purpose, trading-related repo-style transactions are defined as those that meet the requirements of BIPRU 1.2.4 R, BIPRU 1.2.10 R and BIPRU 1.2.12 R, and both legs are in the form of either cash or securities includable in the trading book. Regardless
This table belongs to GENPRU 2.2.55 GDescription of the stage of the capital resources calculationStage in the capital resources tableAmount (£)Total tier one capital and tier two capital after deductionsStage N140Credit and counterparty1 risk requirement16(100)Tier one capital and tier two capital available to meet market risk requirement40Tier three capitalStage Q50Total capital available to meet market risk requirement90Market risk requirement(90)Market risk requirement met
In this example it is assumed that the maximum possible amount of tier one capital is carried forward to meet the market risk requirement. There are other options as to the allocation of tier one capital and tier two capital to the credit and counterparty1 risk requirement.1In order to calculate the relevant tier one capital for the upper tier three gearing limit in accordance with GENPRU 2.2.49 R it is first necessary to allocate tier one capital and tier two capital to the individual
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.
1The requirement to be met in respect of the assets set out in IPRU-INV 5.17.2R, other than those to which position risk requirements and counterparty risk requirements apply or which have been deducted in full as illiquid assets, and in respect of off-balance sheet items set out in IPRU-INV 5.17.2R, must be calculated as follows:A= AV x RF whereA= the amount of the requirement;AV= the current asset value; andRF= the appropriate risk factor derived from IPRU-INV 5.17.2R.
Assets and Off-Balance Sheet ItemsRisk FactorAssetsCash at bank and in hand and equivalent itemsNILAssets secured by acceptable collateral including deposits and certificates of deposit with lending institutionsNILAmount due from trustees of authorised unit trusts or depositaries of authorised contractual schemesNILNote 1This only applies to firms who are authorised unit trust managers in relation to authorised unit trusts or authorised contractual scheme managers in relation
(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 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
(1) This guidance sets out the FCA's expectations for granting permission to a firm to use its own one-sided credit valuation adjustment internal models (an "internal CVA model") for the purpose of estimating the maturity factor "M", as proposed under article 162(2)(h) of the EU CRR (Maturity).(2) In the context of counterparty credit risk, the maturity factor "M" is intended to increase the own funds requirements to reflect potential higher risks associated with medium and long-term
(1) This guidance sets out the FCA's expectations for permitting a firm with the permission to use the Internal Model Method set out in Part Three, Title II, Chapter 6, Section 6 (Internal model method) and the permission to use an internal VaR model for specific risk set out in Part Three, Title IV, Chapter 5 (Use of internal models) associated with traded debt instruments to set to 1 the maturity factor "M" defined in article 162 of the EU CRR.(2) In the context of counterparty
(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
In relation to a core concentration risk group counterparty, an 2undertaking is included within the scope of consolidation of a group on a full basis if it is at the head of the group or if its assets and liabilities are taken into account in full as referred to in BIPRU 8.5.2 G (Basis of inclusion of undertakings in consolidation).22
For the purpose of BIPRU 3.2.25R (1)(e) (Prompt transfer of capital resources): 22(1) 2in the case of an undertaking that is a firm the requirement in BIPRU 3.2.25R (1)(e) for the prompt transfer of capital resources refers to capital resources in excess of the capital and financial resources requirements to which it is subject under the regulatory system; and2(2) 44[deleted](3) 4the FCA will consider the following criteria:(a) the speed with which funds can be transferred or
A firm must address and control, by means which include written policies and procedures, the concentration risk arising from:(1) exposures to each counterparty, including central counterparties, groups of connected counterparties and counterparties in the same economic sector, geographic region or from the same activity or commodity;(2) the application of credit risk mitigation techniques; and(3) risks associated with large indirect credit exposures, such as a single collateral
A firm with an IRB permission which has any material credit exposures excluded from its IRB models should also include these exposures in its stress and scenario testing to meet its obligations under the general stress and scenario testing rule. A firm without IRB permission should conduct analyses to assess risks to the credit quality of its counterparties, including any protection sellers, considering both on and off-balance sheet exposures.
(1) BIPRU 14.2 deals with the calculation of the capital requirement for CCR for trading book positions arising from financial derivative instruments, securities financing transactions and long settlement transactions. The approaches used to calculate exposure values and risk weighted exposure amounts for these positions are largely based on the approaches applicable to non-trading book positions (BIPRU 3, BIPRU 4, BIPRU 5 and BIPRU 13). However, there are some treatments that
This chapter:(1) implements article 78 of CRD;(2) contains the rules that exercise the discretion afforded to the FCA as competent authority under articles 115, 119(5), 124(2), 125(3), 126(2), 178(1)(b), 243(2), 244(2), 286(2), 298(4) and 380 of the EU CRR; and(3) contains the guidance in relation to the IRB approach, securitisation, counterparty credit risk and credit risk mitigation.
1Type of counterpartyRisk Weighting Solvency Ratio Risk Factor (1) A counterparty which is, or the contract of which is, explicitly guaranteed by a category a body.NIL 8%NIL (2) A counterparty which is, or the contract of which is, explicitly guaranteed by a category b body.20% 8%1.6% (3) Any other counterparty100% 8%8%
In assessing whether a UK recognised body has sufficient financial resources in relation to counterparty and market risks, the FCA5 may have regard to:5(1) the amount and liquidity of its financial assets and the likely availability of liquid financial resources to the UK recognised body during periods of major market turbulence or other periods of major stress for the UK financial system;3 and(2) the nature and scale of the UK recognised body's exposures to counterparty and market
In assessing whether a UK recognised body has sufficient financial resources in relation to operational and other risks, the FCA5 may have regard to the extent to which, after allowing for the financial resources necessary to cover counterparty and market risks, the UK recognised body's financial resources are sufficient and sufficiently liquid:5(1) to enable the UK recognised body to continue carrying on properly the regulated activities that it expects to carry on; and(2) to
(1) This rule does not apply in respect of a transferable security or an approved money-market instrument to which COLL 5.6.8R (Spread: government and public securities) applies5.(2) Not more than 20% in value of the scheme property is to consist of deposits with a single body.(3) Not more than 10% in value of the scheme property is to consist of transferable securities or approved money-market instruments issued by any single body subject to COLL 5.6.23 R (Schemes replicating
An authorised fund manager carrying out due diligence for the purpose of the rules in this section should make enquiries or otherwise obtain information needed to enable him properly to consider:(1) whether the experience, expertise, qualifications and professional standing of the second scheme's investment manager is adequate for the type and complexity of the second scheme;(2) the adequacy of the regulatory, legal and accounting regimes applicable to the second scheme and its
The risk factors which the FCA will take into account in assessing the issuer's and owner's compliance with Regulations 17(2)(d) (general requirements on issuer in relation to the asset pool) and 23(2) (requirements on owner relating to the asset pool) will include credit risk of the assets, concentration risk, market risk and counterparty risk.
Counterparty risk is the risk that the counterparty to a transaction could default before the final settlement of the transactions cash flows. The relevant factors the FCA may consider include whether the:(1) counterparty has an appropriate credit rating;(2) counterparty can unilaterally terminate the hedging agreement, and if so under what circumstances;(3) contractual arrangements contain appropriate termination procedures (for example, what provisions apply in the event of
(1) An authorised fund manager of a UCITS scheme or a UK UCITS management company of an EEA UCITS scheme must establish, implement and maintain an adequate and documented risk management policy for identifying the risks to which that scheme is or might be exposed.(2) The risk management policy must comprise such procedures as are necessary to enable the authorised fund manager or UK UCITS management company to assess the exposure of each UCITS it manages to market risk, liquidity
(1) An authorised fund manager of a UCITS scheme or a UK UCITS management company of an EEA UCITS scheme must adopt adequate and effective arrangements, processes and techniques in order to:(a) measure and manage at any time the risks to which that UCITS is or might be exposed; and(b) ensure compliance with limits concerning global exposure and counterparty risk, in accordance with COLL 5.2.11B R (Counterparty risk and issuer concentration) and COLL 5.3 (Derivative exposure).(2)