• BANK Division 4.6.A BANK Division 4.6.A General

    Inserted by QFCRA RM/2017-2 (as from 1st April 2017).

    • BANK 4.6.1 Introduction

      (1) The Part sets out the framework for determining a banking business firm's minimum capital requirements to cover the firm's exposures arising from traditional and synthetic securitisations.
      (2) A firm's securitisation exposures may arise from the firm being (or acting in the capacity of) party to a securitisation.
      Inserted by QFCRA RM/2017-2 (as from 1st April 2017).

    • BANK 4.6.2 Securitisation and re-securitisation

      (1) Securitisation, in relation to a banking business firm, is the process of pooling various kinds of contractual debt or non-debt assets that generate receivables and selling their related cash flows to third party investors as securities. In a securitisation, payments to the investors depend on the performance of the underlying pool of assets, rather than on an obligation of the originator of the assets.
      (2) The underlying pool in a securitisation may include 1 or more exposures.
      (3) The securities usually take the form of bonds, notes, pass-through securities, collateralised debt obligations or even equity securities that are structured into different classes (tranches) with different payment priorities, degrees of credit risk and return characteristics.

      Note A securitisation (whether traditional or synthetic) must have at least 2 tranches (see subrules 4.6.3 (2) and (3)).
      (4) Re-securitisation is a securitisation in which at least one of the underlying assets is itself a securitisation or another re-securitisation.

      Note Exposures arising from re-tranching are not re-securitisation exposures if, after the re-tranching, the exposures act like direct tranching of a pool with no securitised assets. This means that the cash flows to and from the firm as originator could be replicated in all circumstances and conditions by an exposure to the securitisation of a pool of assets that contains no securitisation exposures.
      (5) A reference in this Part to securitisation includes re-securitisation.
      Inserted by QFCRA RM/2017-2 (as from 1st April 2017).

    • BANK 4.6.3 BANK 4.6.3 Securitisation structures

      (1) A securitisation may be a traditional securitisation or a synthetic securitisation.
      (2) In a traditional securitisation, title to the underlying assets is transferred to an SPE, and the cash flows from the underlying pool of assets are used to service at least 2 tranches. A traditional securitisation generally assumes the movement of assets off the originator's balance-sheet.
      (3) A synthetic securitisation is a securitisation with at least 2 tranches that reflect different degrees of credit risk where the credit risk of the underlying pool of exposures is transferred, in whole or in part, through the use of credit derivatives or guarantees. In a synthetic securitisation, the third party to whom the risk is transferred need not be an SPE.
      Inserted by QFCRA RM/2017-2 (as from 1st April 2017).

      • BANK 4.6.3 Guidance

        The Regulatory Authority would treat as securitisations other structures designed to finance assets that are legally transferred to a scheme by packaging them into tradeable securities secured on the assets and serviced from their related cash flows.

        Funded credit derivatives would include credit-linked notes, and unfunded credit derivatives would include credit default swaps.

        Inserted by QFCRA RM/2017-2 (as from 1st April 2017).

    • BANK 4.6.4 Securitisation exposures

      A securitisation exposure of a banking business firm is a risk position (whether on-balance-sheet or off-balance-sheet) held by the firm arising from a securitisation.

      Examples of sources

      •    investments in a securitisation
      •    asset-backed securities (including mortgage-backed securities)
      •    credit enhancements and liquidity facilities
      •    interest rate swaps and currency swaps
      •    credit derivatives
      •    corporate bonds, equity securities and private equity investments
      •    reserve accounts (such as cash collateral accounts) recorded as assets by a firm that is, or that acts in the capacity of, an originator.
      Inserted by QFCRA RM/2017-2 (as from 1st April 2017).

    • BANK 4.6.5 Parties to securitisation

      For purposes of calculating a 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, a 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 securitisation;
      (b) a sponsor of the securitisation;
      (c) an adviser to the securitisation;
      (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 securitisation in relation to the underlying assets.

      Note 2 A banking business firm may act as sponsor of a securitisation 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.

      Inserted by QFCRA RM/2017-2 (as from 1st April 2017).

    • BANK 4.6.6 BANK 4.6.6 Firm as originator

      A banking business firm is an originator of a securitisation if:

      (a) the firm originates, directly or indirectly, underlying assets included in the securitisation; or
      (b) the firm serves as sponsor of an asset-backed commercial paper programme (or similar programme) that acquires exposures from third parties.
      Inserted by QFCRA RM/2017-2 (as from 1st April 2017).

      • BANK 4.6.6 Guidance

        1 In relation to a programme that acquires exposures from third parties, a banking business firm would generally be considered a sponsor (and, therefore, an originator) if the firm, in fact or in substance, manages or advises the programme, places securities into the market, provides a liquidity facility or provides a credit enhancement.
        2 Acts of management would include handling related taxes, managing escrow accounts, remitting payments and obtaining insurance.
        Inserted by QFCRA RM/2017-2 (as from 1st April 2017).