CAPI 3.1.5 What are qualifying letters of credit?

(1) A letter of credit is a qualifying letter of credit if—
(a) it meets the requirements in subrule (2); and
(b) the Regulatory Authority allows, under rule 3.1.2 (2) (a), that it be included as eligible capital.
(2) A letter of credit meets the requirements of this subrule if—
(a) it is unconditional and irrevocable; and
(b) it does not contain a subordination clause; and
(c) it is, under subrule (3), legally enforceable in the QFC, Qatar or a zone 1 country; and
(d) it cannot be cancelled or amended without the consent of all parties; and
(e) it is for a fixed amount; and
(f) it is renewable annually; and
(g) the terms of the agreement between the bank and the firm do not require the firm to give collateral to the bank for issuing the letter of credit; and

Note Nothing in this paragraph prevents the parent entity of a firm from giving collateral to the bank for issuing the letter of credit.
(h) the bank that provides the letter of credit is, at the time of issue, and afterwards—
(i) rated at least BBB+ by Standard & Poor's or the equivalent by another rating agency; and
(ii) regulated in Qatar or a zone 1 country.
(3) For subrule (2) (c), a letter of credit is, or is taken to be, legally enforceable in the QFC, Qatar or a zone 1 country if—
(a) it is issued by a bank regulated in Qatar; or
(b) it is issued by a bank regulated in a zone 1 country and the firm has an appropriate legal opinion that the letter of credit is enforceable in the QFC, Qatar or that country.

Note Under FSR, article 16, the Regulatory Authority may, in appropriate circumstances, waive or modify any or all of the requirements for qualifying letters of credit.
(4) If a letter of credit ceases to be a qualifying letter of credit, the firm must—
(a) immediately tell the Regulatory Authority in writing; and
(b) take the necessary steps to ensure that the firm continues to meet its minimum capital requirement (for example, by obtaining replacement qualifying letters of credit).

Note Writing is defined in the glossary.
Derived from QFCRA RM/2011-1 (as from 1st July 2011)