BANK 4.5.16 Capital relief from credit derivatives

(1) Capital relief is allowed if a banking business firm uses an eligible credit derivative. Each of the following is an eligible credit derivative if it satisfies subrule (2):
(a) a single-name credit-default swap;
(b) a total-rate-of-return swap for which the firm has recorded any deterioration in the value of the underlying exposure, in addition to recording the net payments received on the swap as net income;
(c) a cash-funded credit-linked note;
(d) a first and second-to-default credit derivative basket product.
(2) The credit derivative must not include a term or condition that terminates the credit protection, or increases the firm's costs for the protection, if the credit quality of the underlying exposure deteriorates.
(3) If a claim on a counterparty is protected by a credit derivative, the part of the claim that is protected may be weighted at the risk-weight applicable to the issuer of the credit derivative. The unprotected part of the claim must be weighted at the risk-weight applicable to the original counterparty.
Derived from QFCRA RM/2014-2 (as from 1st January 2015).