BIPRU 9.3 Requirements for originators and sponsors1
- (1)
Where significant credit risk associated with securitised exposures has been transferred from the originator in accordance with the terms of BIPRU 9.4 or BIPRU 9.5, that originator may:
- (a)
in the case of a traditional securitisation, exclude from its calculation of risk weighted exposure amounts and, as relevant, expected loss amounts, the exposures which it has securitised; and
- (b)
in the case of a synthetic securitisation, calculate risk weighted exposure amounts and, as relevant, expected loss amounts in respect of such exposures, in accordance with the provisions of BIPRU 9.5.
- (a)
- (2)
Where (1) applies, the originator must calculate the risk weighted exposure amounts prescribed in this chapter for the positions it may hold in the securitisation.
- (3)
Where the originator fails to transfer significant credit risk in accordance with (1), it need not calculate risk weighted exposure amounts for any positions it may hold in the securitisation in question.
[Note: BCD Article 95]
1The provisions of BIPRU 9.3.15R to BIPRU 9.3.20R apply with respect to:
- (1)
new securitisations issued on or after 1 January 2011; and
- (2)
from 31 December 2014, to existing securitisations where new underlying exposures are added or substituted after that date.
[Note: BCD, Article 122a, paragraph 8]
An originator should not adjust its assessment of the transfer of risk in order to reflect uncertainties related to the effectiveness of a securitisation under BIPRU 9.4 or BIPRU 9.5. Instead the originator should treat the terms of BIPRU 9.4 or BIPRU 9.5 as not having been satisfied.
1Significant credit risk will be considered to have been transferred for originators in the following cases:
- (1)
the risk weighted exposure amounts of the mezzanine securitisation positions held by the originator in the securitisation do not exceed 50% of the risk weighted exposure amounts of all mezzanine securitisation positions existing in this securitisation;
- (2)
where there are no mezzanine securitisation positions in a given securitisation and the originator can demonstrate that the exposure value of the securitisation positions that would be subject to deduction from capital resources or a 1250% risk weight exceeds a reasoned estimate of the expected loss on the securitised exposures by a substantial margin, the originator does not hold more than 20% of the exposure values of the securitisation positions that would be subject to deduction from capital resources or a 1250% risk weight.
[Note: BCD, Annex IX, Part 2, Point 1, paragraph 1a and Point 2 paragraph 2a]
1An originator must notify the FSA that it is relying on the deemed transfer of significant credit risk under BIPRU 9.3.7R within a reasonable period before or after a relevant transfer, not being later than one month after the date of the transfer. The notification must include the following information:
- (1)
the risk weighted exposure amount of the securitised exposures and retained securitisation positions;
- (2)
the exposure value of the securitised exposures and the retained securitisation positions;
- (3)
details of the securitisation positions, including rating, exposure value broken down by securitisation positions sold and retained;
- (4)
a statement that sets out why the firm is satisfied that the reduction in risk weighted exposure amounts is justified by a commensurate transfer of credit risk to third parties;
- (5)
any relevant supporting documents, for example, a summary of the transaction.
1In the event that the FSA decides that the possible reduction in risk weighted exposure amounts which the originator would achieve by the securitisation referred to in BIPRU 9.3.7R is not justified by a commensurate transfer of credit risk to third parties, it will use its powers under section 45 of the Act (Variation etc on the Authority's own initiative) to require the firm to increase its risk weighted exposure amount to an amount commensurate with the FSA's assessment of the transfer of credit risk to third parties.
1An originator may be granted a waiver of the requirements in BIPRU 9.3.7R and BIPRU 9.3.8R.
1An originator's application for a waiver of the requirements in BIPRU 9.3.7R and BIPRU 9.3.8R must demonstrate that the following conditions are satisfied:
- (1)
it has policies and methodologies in place which ensure that the possible reduction of capital requirements which the originator achieves by the securitisation is justified by a commensurate transfer of credit risk to third parties; and
- (2)
that such transfer of credit risk to third parties is also recognised for the purposes of the originator's internal risk management and its internal capital allocation.
[Note: BCD, Annex IX, Part 2, Point 1, paragraph 1c and Point 2 paragraph 2c]
1BIPRU 1.3.10 G sets out the FSA's approach to the granting of waivers. The conditions in BIPRU 9.3.11D are minimum requirements. Satisfaction of those does not automatically mean the FSA will grant the relevant waiver. The FSA will in addition also apply the tests in section 148 (Modification or waiver of rules) of the Act.
1When considering an application for a waiver of the requirements in BIPRU 9.3.7R and BIPRU 9.3.8R, the FSA may undertake a visit to the firm in order to examine the firm's risk management and governance arrangements. Before such a visit, the FSA may request information from the firm additional or supplementary to that provided in the waiver application.
1An originator should clearly state the scope of the waiver of the requirements in BIPRU 9.3.7R and BIPRU 9.3.8R it is seeking in its application. For example, residential mortgage backed securities may be subdivided into prime and sub-prime with only one sub-category within the scope of the waiver. Relevant asset classes may therefore be defined according to a firm's internal usage of terms.
Origination criteria
1Subject to BIPRU 9.3.22G, BIPRU 9.15.9R and BIPRU 9.15.10R, where the originator or sponsor of a securitisation fails to meet any of the requirements in BIPRU 9.3.18R to BIPRU 9.3.20R (disclosure requirements) in any material respect by reason of its negligence or omission, the FSA will use its powers under section 45 (Variation etc on the Authority's own initiative) of the Act to impose an additional risk weight of no less than 250% (capped at 1250%) of the risk weight that would otherwise apply to the relevant securitisation positions under the rules in BIPRU 9.11 to BIPRU 9.14. The additional risk weight imposed will be progressively increased with each relevant, subsequent infringement of the requirements in BIPRU 9.3.18R to BIPRU 9.3.20R.
[Note: BCD, Article 122a, paragraph 5]
1When calculating the additional risk weight it will impose, the FSA will take into account the exemption of certain securitisations from the scope of BIPRU 9.15.3R under BIPRU 9.15.9R and BIPRU 9.15.10R and, if those exemptions are relevant, reduce the risk weight it would otherwise impose.
[Note: BCD, Article 122a, paragraph 5]