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).