BIPRU 9.1 Application and purpose

The purpose of BIPRU 9 is to implement:

1. (1)

   Articles 94 to 96, paragraphs (1) and (5) of Article 97 , Article 99, Article 100(1) and Article 101;

2. (2)

   Points 8 and 9 of Annex V; and

3. (3)

   Parts 2, 3 (in part) and 4 of Annex IX;

of the Banking Consolidation Directive.

A firm should apply the securitisation framework set out in this chapter for determining regulatory capital requirements on exposures arising from traditional securitisations and from synthetic securitisations and from structures that contain features of both.

Since transactions may be structured in many different ways, the capital treatment of a position should be determined on the basis of its economic substance rather than merely its legal form. A firm should look to the economic substance of a transaction to determine whether the securitisation framework is applicable for purposes of determining regulatory capital. A firm should consult the FSA when there is uncertainty about whether a given transaction should be considered a securitisation.

A firm that is a party to a securitisation should fully understand the risks it has assumed or retained. In particular it should do so in order that it can correctly determine in accordance with BIPRU 9 the capital effects of the securitisation.

The FSA expects an originator to continue to monitor any risks that it may be subject to when it has excluded the securitised exposures from its calculation of risk weighted exposure amounts. The originator should consider capital planning implications where risks may return and the impact that securitisation has on the quality of the remaining exposures held by the originator.

1. (1)

   The FSA expects firms to conduct regular stress testing in relation to their securitisation activities and off-balance sheet exposures. The stress tests should consider the firm-wide impact of those activities and exposures in stressed market conditions and the implications for other sources of risk, for example, credit risk, concentration risk, counterparty risk, market risk, liquidity risk and reputational risk. Stress testing of securitisation activities should take into account both existing securitisations and pipeline transactions, as there is a risk that these would not be completed in a stressed market scenario.2

2. (2)

   The frequency and extent of the stress testing should be determined by the materiality of the firm's securitisation activities and off-balance sheet exposures.2

3. (3)

   A firm should have procedures in place to assess and respond to the results produced from the stress testing and these should be taken into account under the overall Pillar 2 rule.2

BIPRU 9 deals with:

1. (1)

   requirements for investors,3 originators and sponsors of securitisations of non-trading book exposures;

   3
2. (2)

   the calculation of risk weighted exposure amount for securitisation positions for the purposes of calculating either the credit risk capital component or the counterparty risk capital component; and3

3. (3)

   the requirements that investors, originators and sponsors of securitisations in the trading book will have to meet (BIPRU 9.3.1AR, BIPRU 9.3.15R to BIPRU 9.3.20R and BIPRU 9.15R).3

BIPRU 7 sets out the calculation of the market risk capital requirement for securitisation positions held in the trading book.