• IBANK Division 10.2.A IBANK Division 10.2.A General

    Inserted by QFCRA RM/2017-1 (as from 1st April 2017).

    • IBANK 10.2.1 Securitisation

      (1) Securitisation, in relation to an Islamic banking business firm, is the process of creating and issuing sukuk or tranches of sukuk. In securitisation:
      (a) payments of the principal and profits are derived from the cash flows generated by the securitised assets (that is, by the assets underlying the sukuk); and
      (b) legal or beneficial ownership to the underlying assets is transferred to the investors in the form of sukuk.
      A reference to securitisation includes re-securitisation.
      (2) The structure of a securitisation must be Shari'a-compliant.

      Note Under rule 10.1.2 (3), the assets that are the subject of sukuk (and the specific project or investment activity where the assets are) must also be Shari'a-compliant.
      Inserted by QFCRA RM/2017-1 (as from 1st April 2017).

    • IBANK 10.2.2 Parties to securitisation

      (1) For purposes of calculating an Islamic banking business firm's capital requirements, the parties to a securitisation are the originator, the issuer and the investors.

      Note 1 Depending on the securitisation structure, an Islamic banking business firm may be (or act in the capacity of) originator, issuer, investor or any 1 or more of the following:
      (a) a manager of the sukuk issuance;
      (b) a sponsor of the sukuk issuance;
      (c) an adviser to the sukuk issuance;
      (d) an entity to place the securities with investors;
      (e) a provider of credit enhancement;
      (f) a provider of a liquidity facility;
      (g) a servicer to carry out certain activities usually carried out by the manager of the sukuk issuance in relation to the underlying assets.
      Note 2 An Islamic banking business firm may act as sponsor of a sukuk issuance or similar programme involving assets of a customer. As sponsor, the firm earns fees to manage or advise on the programme, place the securities with investors, provide credit enhancement or provide a liquidity facility.

      Note 3 Depending on the securitisation structure, a servicer (instead of the manager of the sukuk or issuer) may carry out the following activities:
      (a) handling related taxes;
      (b) managing escrow accounts;
      (c) remitting payments;
      (d) obtaining takaful;
      (e) maintaining the underlying assets on behalf of the lessor (sukuk holders) in ijarah or IMB sukuk.
      Note 4 The originator of a sukuk issuance may act as servicer of the underlying assets.
      (2) The contractual terms of the sukuk issuance determine the rights of the sukuk holders to the securitised assets.

      Note For the rights of sukuk-holders, see rule 10.2.10 (Effects of true sale on sukuk holders).
      Inserted by QFCRA RM/2017-1 (as from 1st April 2017).

    • IBANK 10.2.3 IBANK 10.2.3 Firm acting as originator

      An Islamic banking business firm that acts as originator of a sukuk issuance must transfer (through an SPE) the ownership of assets held by it to sukuk holders.

      Inserted by QFCRA RM/2017-1 (as from 1st April 2017).

      • IBANK 10.2.3 Guidance

        1 As an originator, an Islamic banking business firm may obtain either or both of the following benefits:
        (a) increased liquidity, since a relatively illiquid asset (such as an asset held as lessor in an ijarah or IMB contract) is converted into cash paid by the investors;
        (b) reduced capital requirements, insofar as the securitisation permits the firm to exclude, from the calculation of its risk-weighted assets, exposures relating to the underlying assets.
        2 To obtain the benefit of reduced capital requirements, the firm must ensure that the securitisation structure enables it to derecognise, from its balance sheet, the underlying assets. For the criteria for derecognition, see rule 10.2.26.
        Inserted by QFCRA RM/2017-1 (as from 1st April 2017).

    • IBANK 10.2.4 IBANK 10.2.4 Firm acting as issuer

      An Islamic banking business firm may act as issuer of sukuk.

      Inserted by QFCRA RM/2017-1 (as from 1st April 2017).

      • IBANK 10.2.4 Guidance

        1 An Islamic banking business firm may act as issuer of asset-backed sukuk by packaging assets into a pool and transferring legal and beneficial ownership of the assets to sukuk holders by true sale under rule 10.2.8.
        2 An Islamic banking business firm may act as issuer of asset-based sukuk by packaging assets into a pool and transferring only beneficial ownership of the assets to sukuk holders because there is some obstacle to the transfer of legal ownership. Such an obstacle would, for example, exist if the assets were purchased by the firm from the central government of a state and the transfer of full ownership would require special legislation.
        Inserted by QFCRA RM/2017-1 (as from 1st April 2017).

    • IBANK 10.2.5 IBANK 10.2.5 Collateral security structure

      (1) A collateral security structure may be used in some sukuk, such as those based on project financing. The security interest arising from the structure must be perfected (or perfectible) and that interest must be the only claim on the collateral.

      Note In this rule, collateral:
      (a) arises from the structure (for example, the asset or project that is the subject of financing in a joint venture between the SPE and another party); and
      (b) is used to mitigate the underlying exposures of the securitisation.
      (2) The collateral security structure must be supported by a written and reasoned opinion of a qualified legal counsel. The legal opinion must conclude that the security interest is perfected (or perfectible) and that there are no prior or subsequent claims on the collateral.
      (3) The legal opinion must address:
      (a) the nature of the security interest;
      (b) the enforceability of the security interest against third parties;
      (c) perfection requirements (such as notices and registration); and
      (d) the effects of the issuer's bankruptcy on perfection.
      Inserted by QFCRA RM/2017-1 (as from 1st April 2017).

      • IBANK 10.2.5 Guidance

        The Regulatory Authority expects the legal opinion to consider that, in many jurisdictions:

        •    rahn (mortgage or other pledge of assets) is possessory in nature so as to make perfection a particularly difficult issue
        •    bankruptcy laws, the concept of perfection and the priorities in the distribution of assets are not well developed.
        Inserted by QFCRA RM/2017-1 (as from 1st April 2017).