• BANK Division 4.6.F BANK Division 4.6.F Capital requirements where firm is originator or sponsor

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

    • BANK 4.6.20 Retained securitisation exposures

      (1) A banking business firm that is an originator or sponsor of a securitisation might, despite having transferred the underlying assets or the credit risk to those assets, continue to be exposed (through retained securitisation exposures) in relation to the securitisation. The firm must hold regulatory capital against all of its retained securitisation exposures.
      (2) The sources of retained securitisation exposures include:
      (a) investments in the securitisation (including the investment required under subrule (3));
      (b) investments in asset-backed securities (including mortgage-backed securities);
      (c) retention of a subordinated tranche;
      (d) credit enhancements provided by the firm; and
      (e) liquidity facilities provided by the firm.
      A repurchased securitisation exposure must be treated as a retained securitisation exposure.

      Note 1 For paragraph (a), the exposure arising from investments by a banking business firm in a securitisation originated by the firm is an on-balance-sheet exposure.

      Note 2 For paragraphs (d) and (e), the exposures arising from the provision of credit enhancements and liquidity facilities by a banking business firm in relation to a securitisation originated by the firm are off-balance-sheet exposures.
      (3) A banking business firm that is an originator or sponsor of a securitisation must retain 5% of the total issuance.

      Note Under rule 3.2.29, a banking business firm must derecognise, in its calculation of CET 1, any increase in equity capital or CET 1 capital from a gain-on-sale in a securitisation transaction.
      Inserted by QFCRA RM/2017-2 (as from 1st April 2017).

    • BANK 4.6.21 Effect of giving implicit support

      A banking business firm that gives implicit support to a securitisation:

      (a) must include the underwriting exposures of the securitisation in its calculation of risk-weighted assets (as if those assets had not been securitised and had remained on its balance sheet);
      (b) must not recognise any gain-on-sale of the underlying assets; and
      (c) must disclose to investors that it has provided implicit support and the effect on regulatory capital of doing so.
      Inserted by QFCRA RM/2017-2 (as from 1st April 2017).

    • BANK 4.6.22 Treatment of on-balance-sheet retained securitisation exposures

      (1) The risk-weighted asset amount of an on-balance-sheet retained securitisation exposure is calculated by multiplying the exposure by the applicable risk-weight in table 4.6.22.

      Table 4.6.22 Risk-weights based on ECRA rating

      Note In the table, the ratings are given according to Standard & Poor's conventions. If a claim or asset is not rated by Standard & Poor's, its ratings must be mapped to the equivalent Standard & Poor's rating.

      long-term rating securitisation exposure % re-securitisation exposure %
      AAA to AA- 20 40
      A+ to A- 50 100
      BBB+ to BBB- 100 225
      BB+ to BB- 350 650
      B+ and below or unrated As directed by the Regulatory Authority, apply 1,250% risk-weight or deduct the amount of the exposure from the firm's regulatory capital (see rule 4.6.22 (2))


      short-term rating securitisation exposure % re-securitisation exposure %
      A-1 20 40
      A-2 50 100
      A-3 100 225
      Below A-3 As directed by the Regulatory Authority, apply 1,250% risk-weight or deduct the amount of the exposure from the firm's regulatory capital (see rule 4.6.22 (2))
      (2) If an exposure is to be deducted from the firm's regulatory capital, the amount of the deduction may be calculated net of any specific provision taken against the exposure.
      Inserted by QFCRA RM/2017-2 (as from 1st April 2017).

    • BANK 4.6.23 Exceptions to treatment of unrated securitisation exposures

      The rule that the treatment of unrated securitisation exposures is as directed by the Regulatory Authority (to either apply 1,250% risk-weight or deduct the amount) does not apply to:

      (a) the most senior exposure in a securitisation;
      (b) exposures:
      (i) that are in a second loss position or better in ABCP programmes; and
      (ii) that meet the requirements in rule 4.6.25; and
      (c) eligible liquidity facilities.

      Note For the treatment of the exceptions, see:
      •    rule 4.6.24 for most senior exposure
      •    rule 4.6.25 for second loss positions or better
      •    rule 4.6.30 for eligible liquidity facilities
      Inserted by QFCRA RM/2017-2 (as from 1st April 2017).

    • BANK 4.6.24 Treatment of most senior exposure

      (1) If the most senior exposure in a securitisation is unrated and the composition of the underlying pool is known at all times, a banking business firm that holds or guarantees such an exposure may determine the risk weight by applying a "look-through" treatment. The firm need not consider any interest rate or currency swap when determining whether an exposure is the most senior in a securitisation.
      (2) In the look-through treatment, the unrated most senior position receives, subject to the Regulatory Authority's review, the average risk-weight of the underlying exposures.
      Inserted by QFCRA RM/2017-2 (as from 1st April 2017).

    • BANK 4.6.25 Treatment of second loss position in ABCP programmes

      (1) This rule applies to an unrated securitisation exposure in an ABCP programme if:
      (a) the exposure is economically in a second loss position or better and the first loss position provides significant credit protection to the second loss position;
      (b) the associated credit risk is the equivalent of investment grade or better; and
      (c) the banking business firm holding the exposure does not retain or provide the first loss position.
      (2) An unrated securitisation exposure arising from a second loss position (or better position) is subject to a risk-weight of the higher of:
      (a) 100%; and
      (b) the highest risk-weight applicable to an underlying exposure covered by the facility.
      Inserted by QFCRA RM/2017-2 (as from 1st April 2017).

    • BANK 4.6.26 Treatment of overlapping exposures

      (1) Overlapping exposures may result if a banking business firm provides 2 or more facilities (such as liquidity facilities and credit enhancements) in relation to a securitisation that can be drawn under various conditions with different triggers. In effect, the firm provides duplicate cover to the underlying exposures.
      (2) For the purposes of calculating its capital requirements, a banking business firm's exposure (exposure A) overlaps another exposure (exposure B) if in all circumstances the firm will preclude any loss to it on exposure B by fulfilling its obligations with respect to exposure A.

      Example

      If, under exposure A, a firm provides full credit support to some notes while simultaneously holding as exposure B a portion of those notes, its full credit support obligation precludes any loss from its exposure from its holding of the notes. If the firm can satisfactorily show that fulfilling its obligations with respect to exposure A will preclude a loss from its exposure B under any circumstance, there are overlapping exposures between the 2 exposures and the firm need not calculate risk-weighted assets for exposure B.
      (3) If a banking business firm has 2 or more overlapping exposures to a securitisation, the firm must, to the extent that the exposures overlap, include in its calculation of risk-weighted assets only the exposure, or portion of the exposure, producing the higher or highest risk-weighted assets amount.
      (4) If the overlapping exposures are subject to different credit conversion factors, the firm must apply the higher or highest factor to the exposures.
      Inserted by QFCRA RM/2017-2 (as from 1st April 2017).

    • BANK 4.6.27 Treatment of off-balance-sheet retained securitisation exposures

      A 100% credit conversion factor must be applied to an off-balance-sheet retained securitisation exposure unless the exposure qualifies as:

      (a) an eligible liquidity facility, or
      (b) an eligible servicer cash advance facility.

      Note 1 For risk-weighting of eligible liquidity facilities, see rules 4.6.29 and 4.6.30. For risk-weighting of eligible servicer cash advance facility, see rule 4.6.31.
      Inserted by QFCRA RM/2017-2 (as from 1st April 2017).

    • BANK 4.6.28 Liquidity facility and eligible liquidity facility

      (1) A liquidity facility, for a securitisation, is a commitment from the facility provider to provide liquid funds if:
      (a) funds are needed to meet contractual payments to investors; and
      (b) there is a delay between the date of collection of the related cash flows and the date on which the payment to the investors is due.

      Example

      Timing mismatches between cash collections from the underlying assets and the scheduled payments to the investors in certain securitisation structures may require liquidity facilities to be built into the structures.
      (2) To be an eligible liquidity facility:
      (a) the commitment to provide liquid funds must be in writing and must clearly state the circumstances under which the facility may be availed of and the limits for any drawdown;
      (b) drawdowns must be limited to the amount that is likely to be repaid fully from the liquidation of the underlying exposures and any seller-provided credit enhancements;
      (c) the facility must not cover any losses incurred in the underlying pool of exposures before a drawdown;
      (d) the facility must not be structured in such a way that drawdowns are certain;
      (e) the facility must be subject to an asset quality test that precludes it from being availed of to cover credit risk exposures that are past due for more than 90 days;
      (f) if the exposures that the facility is required to fund are ECRA-rated securities, the facility can only be used to fund securities that are rated, by an ECRA, investment grade at the time of funding;
      (g) the facility cannot be availed of after all applicable credit enhancements (whether transaction-specific or programme-wide enhancements), from which the liquidity would benefit, have been exhausted; and
      (h) the repayment of drawdowns on the facility (that is, assets acquired under a purchase agreement or loans made under a lending agreement):
      (i) must not be subordinated to any interests of any note holder in the programme (such as an ABCP programme); and
      (ii) must not be subject to deferral or waiver.
      Inserted by QFCRA RM/2017-2 (as from 1st April 2017).

    • BANK 4.6.29 Treatment of certain liquidity facilities

      (1) This rule applies in relation to a liquidity facility that is not an eligible servicer cash advance facility.
      (2) If a banking business firm that is an originator or sponsor of a securitisation also provides such a liquidity facility to the securitisation, the risk-weight of the exposure from the facility must be calculated by:
      (a) applying:
      (i) a 50% credit conversion factor (regardless of the maturity of the facility) if the facility is an eligible liquidity facility; or
      (ii) a 100% credit conversion factor if the facility is not an eligible liquidity facility; and
      (b) multiplying the resulting credit equivalent amount by the applicable risk-weight in table 4.6.22, depending on the credit rating of the firm (or by 100% if the firm is unrated).
      However, if an ECRA rating of the facility is itself used for risk-weighting the facility, a 100% credit conversion factor must be applied.
      Inserted by QFCRA RM/2017-2 (as from 1st April 2017).

    • BANK 4.6.30 Treatment of unrated eligible liquidity facility

      A banking business firm providing an eligible liquidity facility that is unrated, or that is treated as unrated, must apply to the resulting securitisation exposure the highest risk weight that would be applied to an underlying exposure covered by the facility.

      Examples when facility must be treated as unrated

      •    when the facility's rating is not publicly available (see rule 4.6.12)
      •    when the facility is provided to a particular securitisation exposure (such as a particular tranche) and the resulting mitigation is reflected in the ECRA rating of the securitisation (see rule 4.6.35 (5))
      Inserted by QFCRA RM/2017-2 (as from 1st April 2017).

    • BANK 4.6.31 Treatment of eligible servicer cash advance facility

      (1) A servicer cash advance facility is a liquidity facility under which a servicer to a securitisation advances cash to ensure timely payment to investors.

      Note For servicer, see note 1 (g) under rule 4.6.5.
      (2) A zero percent risk-weight may be applied to an undrawn servicer cash advance facility only if the facility is an eligible servicer cash advance facility.

      Note If the servicer cash advance facility is not an eligible servicer cash advance facility, see rule 4.6.29.
      (3) To be an eligible servicer cash advance facility:
      (a) the servicer must be entitled to full reimbursement;
      (b) the servicer's right to reimbursement must be senior to other claims on cash flows from the underlying pool;
      (c) the facility is itself an eligible liquidity facility; and
      (d) the facility may be cancelled at any time, without any condition and without any need to give advance notice.
      Inserted by QFCRA RM/2017-2 (as from 1st April 2017).

    • BANK 4.6.32 Capital relief from CRM techniques obtained by firm

      (1) A banking business firm that has obtained a CRM technique (such as eligible financial collateral, an eligible credit derivative, a guarantee or an eligible netting agreement) applicable to a securitisation exposure may reduce its capital requirement for the exposure.
      (2) Collateral pledged by an SPE as part of the securitisation may be used as a CRM technique if it is eligible financial collateral. However, an SPE of a securitisation cannot be an eligible protection provider in the securitisation.

      Note For eligible financial collateral see rule 4.5.7. For eligible protection provider, see rule 4.6.35 (2).
      (3) In this rule, collateral is used to hedge the credit risk of a securitisation exposure rather than to mitigate the underlying exposures of the securitisation.
      Inserted by QFCRA RM/2017-2 (as from 1st April 2017).

    • BANK 4.6.33 Treatment of CRM techniques provided by firm

      (1) If a banking business firm provides a CRM technique to a securitisation exposure, the calculation of its risk-weighted assets for credit risk must be in accordance with Part 4.5. The firm must calculate the capital requirement as if it were an investor in the securitisation.
      (2) If a banking business firm provides a CRM technique to an unrated credit enhancement, it must treat the protection provided as if it were directly holding the unrated credit enhancement.
      Inserted by QFCRA RM/2017-2 (as from 1st April 2017).

    • BANK 4.6.34 Treatment of enhanced portions

      The capital requirement for a credit-enhanced portion of a securitisation must be calculated in accordance with the standardised approach in Part 4.3.

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

    • BANK 4.6.35 Effect of CRM techniques

      (1) If a CRM technique is provided to specific underlying exposures or the entire pool of exposures by an eligible protection provider and the credit risk mitigation is reflected in the ECRA rating assigned to a securitisation exposure, the risk-weight based on that rating must be used. To avoid double-counting, no additional capital recognition is permitted.
      (2) Eligible protection provider means:
      (a) a central counterparty;
      (b) the State of Qatar or any other sovereign;
      (c) an entity that is treated as a sovereign in accordance with the Basel Accords;
      (d) a public sector enterprise or other entity that has:
      (i) a risk-weight of 20% or lower; and
      (ii) a lower risk-weight than the party to whom the protection is provided; or
      (e) a parent entity, subsidiary or affiliate of a party to whom the protection is provided that has a lower risk-weight than the party.
      (3) If the provider of the CRM technique is not an eligible protection provider, a banking business firm must treat the exposure as unrated.
      (4) A banking business firm must not use an ECRA rating if the assessment by the ECRA is based partly on unfunded support provided by the firm itself.

      Example

      If a banking business firm buys ABCP for which it provides an unfunded securitisation exposure (such as a liquidity facility or credit enhancement) to the ABCP programme and the exposure plays a role in determining the credit assessment on the ABCP, the firm must treat the ABCP as if it were unrated.
      (5) If the CRM technique is provided solely to protect a particular securitisation exposure (for example, if the technique is provided to a tranche of the securitisation) and the protection is reflected in the ECRA rating of the securitisation, a banking business firm must treat the exposure as unrated.

      Note For the treatment of an exposure arising from a liquidity facility of the kind described in rule 4.6.35 (5), see rule 4.6.30.
      (6) Subrule (5) applies to a securitisation exposure whether it is in the firm's trading book or banking book. The capital requirement for a securitisation exposure in the trading book must not be less than the amount that would be required if the exposure were in the firm's banking book.
      Inserted by QFCRA RM/2017-2 (as from 1st April 2017).