• BANK Subdivision 4.6.G.1 BANK Subdivision 4.6.G.1 General

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

    • BANK 4.6.36 Definitions for Division 4.6.G

      In this Division:

      excess spread, in relation to a securitisation, means finance charge collections and other income received by the SPV or trust, minus certificate interest, servicing fees, charge-offs, costs and expenses. Excess spread is also known as future margin income.

      securitisation involving revolving exposures means a securitisation in which 1 or more of the underlying exposures represents, directly or indirectly, current or future draws on a revolving credit facility (such as a credit card facility, home equity line of credit or commercial line of credit).

      uncommitted credit line is a credit line that may be cancelled at any time, without any condition and without any need to give advance notice. Any other credit line is a committed credit line.

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

    • BANK 4.6.37 Early amortisation provisions

      (1) An early amortisation provision in a securitisation is a mechanism that, if triggered, allows investors to be paid out before the originally stated maturity of the securities issued. An early amortisation provision may be controlled or non-controlled.

      Note Triggers include economic triggers which are events that are economic in nature by reference to the financial performance of the transferred assets.
      (2) An early amortisation provision is a controlled early amortisation provision if:
      (a) the banking business firm concerned has appropriate capital and liquidity plans to ensure that it has sufficient capital and liquidity if the provision is triggered; and
      (b) throughout the life of the securitisation (including the amortisation period) there is the same pro-rata sharing of interest, principal, expenses, losses and recoveries based on the firm's and investors' relative shares of the receivables outstanding at the beginning of each month.
      (3) An early amortisation provision that fails to meet either requirement in subrule (2) is a non-controlled early amortisation provision.
      Inserted by QFCRA RM/2017-2 (as from 1st April 2017).

    • BANK 4.6.38 Operational requirements for securitisations with early amortisation provisions

      (1) A securitisation involving revolving exposures that is originated or sponsored by a banking business firm is taken to fail the operational requirements set out in rule 4.6.14 (for traditional securitisations) or rule 4.6.15 (for synthetic securitisations) if the securitisation has an early amortisation provision (or a similar provision) that, if triggered, will:
      (a) subordinate the firm's senior or equal interest in the underlying revolving credit facilities to the interest of other investors;
      (b) subordinate the firm's subordinated interest to an even greater degree relative to the interests of other parties; or
      (c) increase in any other way the firm's exposure to losses associated with the underlying revolving credit facilities.
      (2) A banking business firm that is the originator or sponsor of a securitisation that does not involve revolving exposures may exclude the underlying exposures from the calculation of risk-weighted assets if:
      (a) the securitisation is a replenishment structure; and
      (b) the securitisation has an early amortisation provision that ends the ability of the firm to add new exposures.
      (3) A banking business firm that is the originator or sponsor of a securitisation involving revolving exposures may exclude the underlying exposures from the calculation of risk-weighted assets if:
      (a) the securitisation meets the operational requirements set out in rule 4.6.14 (for traditional securitisations) or rule 4.6.15 (for synthetic securitisations); and
      (b) the securitisation has an early amortisation provision of the kind described in any of the following subparagraphs:
      (i) the securitisation relates to revolving credit facilities that themselves have early amortisation features that mimic term structures (that is, where the risk on the underlying exposures does not return to the firm) and the early amortisation provision in the securitisation, if triggered, would not effectively result in subordination of the firm's interest;
      (ii) the firm securitises 1 or more revolving credit facilities and investors remain fully exposed to future drawdowns by borrowers even after an early amortisation event has occurred;
      (iii) the early amortisation provision is solely triggered by events not related to the performance of the securitised assets or of the firm (such as material changes in tax laws or regulations).
      (4) The firm must still hold regulatory capital against any securitisation exposures that it retains in relation to the securitisation.
      Inserted by QFCRA RM/2017-2 (as from 1st April 2017).

    • BANK 4.6.39 Capital charges for securitisation involving revolving exposures with early amortisation

      (1) A banking business firm that is an originator or sponsor of a securitisation involving revolving exposures that has an early amortisation provision must calculate an additional capital charge to cover the possibility that the firm's credit risk exposure may increase if the provision is triggered. The charge must be calculated for the total exposure related to the securitisation (that is, for both drawn and undrawn balances related to the securitised exposures).

      Note For the calculation of the capital charge if the early amortisation provision is controlled, see rule 4.6.40. For the calculation of the capital charge if the early amortisation provision is non-controlled, see rule 4.6.44.
      (2) If the underlying pool of a securitisation is made up of both revolving exposures and term exposures, the firm must apply the amortisation treatment in this Division only to the portion of the underlying pool made up of those revolving exposures.
      Inserted by QFCRA RM/2017-2 (as from 1st April 2017).