• BANK Division 4.6.B BANK Division 4.6.B Securitisation process

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

    • BANK 4.6.7 Process of securitisation

      (1) The process of a securitisation is:
      (a) first, the origination of assets or credit risk;
      (b) second, the transfer of the assets or credit risk; and
      (c) third, the issuance of securities to investors.
      (2) In a securitisation, the cash flow from the pool is used to make payments on obligations to at least 2 tranches or classes of investors (typically holders of debt securities), with each tranche or class being entitled to receive payments from the pool before or after another tranche or class of investors, so that the tranches or classes bear different levels of credit risk.
      Inserted by QFCRA RM/2017-2 (as from 1st April 2017).

    • BANK 4.6.8 Special purpose entities

      (1) A special purpose entity (or SPE) is a legal entity that is created solely for a particular financial transaction or series of transactions. The SPE must not engage in any other business.
      (2) In a securitisation, an SPE typically purchases and holds the assets for the purposes of the securitisation. The SPE's payment for the pool is typically funded by debt, including through the issue of securities by the SPE.

      Guidance

      The purpose of the SPE to facilitate the securitisation, and the extent of a banking business firm's involvement in the SPE, should be clear. The SPE's activities should be limited to those necessary to accomplish that purpose.
      (3) Most securitisations require the creation of an SPE to:
      (a) hold the assets transferred by the originator;
      (b) issue securities based on the assets; and
      (c) act as intermediary between the originator and the investors.
      Note A synthetic securitisation may or may not require an SPE (see subrule 4.6.3 (3))
      (4) An SPE may take the form of a limited partnership, limited liability company, corporation, trust or collective investment fund. An SPE may also be established under a special law that allows the creation of SPEs.

      Guidance

      By its nature, an SPE is a legal shell with only the specific assets transferred by the originator (that is, the SPE has no other property in which any other party could have an interest).
      (5) An SPE must be bankruptcy-remote from the originator. It must not be consolidated with the originator for tax, accounting or legal purposes.
      (6) Any undertaking given by a banking business firm to an SPV must be stated clearly in the transaction documents for the securitisation.
      Inserted by QFCRA RM/2017-2 (as from 1st April 2017).