BIPRU 9.4 Traditional securitisation

The originator of a traditional securitisation may exclude securitised exposures from the calculation of risk weighted exposure amounts and expected loss amounts if either of the following conditions is fulfilled:

1. (1)

   2significant credit risk associated with the securitised exposures is considered to have been transferred to third parties; or

2. (2)

   2the originator applies a 1250% risk weight to all securitisation positions it holds in the securitisation or deducts these securitisation positions from capital resources according to GENPRU 2.2.237 R;

2and the transfer complies with the conditions in BIPRU 9.4.2R BIPRU 9.4.14R.

[Note: BCD Annex IX Part 2 point 1, paragraph 12]

The securitisation documentation must reflect the economic substance of the transaction.

[Note: BCD Annex IX Part 2 point 1 (part)]

The securitised exposures must be put beyond the reach of the originator and its creditors, including in bankruptcy and receivership. This must be supported by the opinion of qualified legal counsel.

[Note: BCD Annex IX Part 2 point 1 (part)]

The securities issued must not represent payment obligations of the originator.

[Note: BCD Annex IX Part 2 point 1 (part)]

The transferee must be a securitisation special purpose entity.

[Note: BCD Annex IX Part 2 point 1 (part)]

The originator must not maintain effective or indirect control over the transferred exposures.

[Note: BCD Annex IX Part 2 point 1 (part)]

Where there is a clean-up call option, the following conditions must be satisfied:

1. (1)

   the clean-up call option is exercisable at the discretion of the originator;

2. (2)

   the clean-up call option may only be exercised when 10% or less of the original value of the exposures securitised remains unamortised; and

3. (3)

   the clean-up call option is not structured to avoid allocating losses to credit enhancement positions or other positions held by investors and is not otherwise structured to provide credit enhancement.

   [Note: BCD Annex IX Part 2 point 1 (part)]

The securitisation documentation must not contain clauses that:

1. (1)

   other than in the case of early amortisation provisions, require positions in the securitisation to be improved by the originator including but not limited to altering the underlying credit exposures or increasing the yield payable to investors in response to a deterioration in the credit quality of the securitised exposures; or

2. (2)

   increase the yield payable to holders of positions in the securitisation in response to a deterioration in the credit quality of the underlying pool.

   [Note: BCD Annex IX Part 2 point 1 (part)]

For the purposes of BIPRU 9.4.7 R, an originator will be considered to have maintained effective control over the transferred exposures if it has the right to repurchase from the transferee the previously transferred exposures in order to realise their benefits or if it is obligated to re-assume transferred risk. The originator's retention of servicing rights or obligations in respect of the exposures does not of itself constitute indirect control of the exposures.

[Note: BCD Annex IX Part 2 point 1 (part)]

2Significant credit risk will be considered to be transferred for an originator in the following cases:

1. (1)

   2the 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. (2)

   2where 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.

2An originator must notify the appropriate regulator that it is relying on the deemed transfer of significant credit risk under BIPRU 9.4.11R 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. (1)

   2the risk weighted exposure amount of the securitised exposures and retained securitisation positions;

2. (2)

   2the exposure value of the securitised exposures and the retained securitisation positions;

3. (3)

   2details of the securitisation positions, including rating, exposure value broken down by securitisation positions sold and retained;

4. (4)

   2a 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. (5)

   2any relevant supporting documents, for example, a summary of the transaction.