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).