Related provisions for SYSC 7.1.1
41 - 60 of 141 items.
The risks arising from securitisation transactions in relation to which a firm is originator or sponsor must be evaluated and addressed through appropriate policies and procedures, to ensure in particular that the economic substance of the transaction is fully reflected in the risk assessment and management decisions.[Note:BCD Annex V point 8]
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.
In respect of a securitisation position in respect of which a 1250% risk weight is assigned, a firm may, as an alternative to including the position in its calculation of risk weighted exposure amounts, deduct from its capital resources the exposure value of the position. For these purposes, the calculation of the exposure value may reflect eligible funded protection in a manner consistent with BIPRU 9.14.[Note:BCD Annex IX Part 4 points 35, 74 and 75(b)]
Where a firm applies BIPRU 9.10.2 R, 12.5 times the amount deducted in accordance with that paragraph must, for the purposes of BIPRU 9.11.5 R and BIPRU 9.12.8 R, be subtracted from the amount specified in whichever of those rules applies as the maximum risk weighted exposure amount to be calculated by a firm to which one of those rules applies.[Note:BCD Annex IX Part 4 point 36 and point 76]
For an originator or sponsor, the risk weighted exposure amounts calculated in respect of its positions in a securitisation may be limited to the risk weighted exposure amounts which would be calculated for the securitised exposures had they not been securitised subject to the presumed application of a 150% risk weight to all past due items and items belonging to regulatory high risk categories (see BIPRU 3.4.104 R and BIPRU 3 Annex 3 R) amongst the securitised exposures.[Note:BCD
(1) A firm having an unratedsecuritisation position may apply the treatment set out in this paragraph for calculating the risk weighted exposure amount for that position provided the composition of the pool of exposuressecuritised is known at all times.(2) A firm may apply the weighted-average risk weight that would be applied to the securitised exposures referred to in (1) under the standardised approach by a firm holding the exposures multiplied by a concentration ratio.(3)
IT systems include the computer systems and infrastructure required for the automation of processes, such as application and operating system software; network infrastructure; and desktop, server, and mainframe hardware. Automation may reduce a firm's exposure to some 'people risks' (including by reducing human errors or controlling access rights to enable segregation of duties), but will increase its dependency on the reliability of its IT systems.
A firm should establish and maintain appropriate systems and controls for the management of its IT system risks, having regard to:(1) its organisation and reporting structure for technology operations (including the adequacy of senior management oversight);(2) the extent to which technology requirements are addressed in its business strategy;(3) the appropriateness of its systems acquisition, development and maintenance activities (including the allocation of responsibilities
Operating processes and systems at separate geographic locations may alter a firm's operational risk profile (including by allowing alternative sites for the continuity of operations). A firm should understand the effect of any differences in processes and systems at each of its locations, particularly if they are in different countries, having regard to:(1) the business operating environment of each country (for example, the likelihood and impact of political disruptions or
The management report required by DTR 4.1.8 R must also give an indication of:(1) any important events that have occurred since the end of the financial year;(2) the issuer's likely future development;(3) activities in the field of research and development;(4) the information concerning acquisitions of own shares prescribed by Article 22 (2) of Directive 77/91/EEC;(5) the existence of branches of the issuer; and(6) in relation to the issuer's use of financial instruments and where
(1) Responsibility statements must be made by the persons responsible within the issuer.(2) The name and function of any person who makes a responsibility statement must be clearly indicated in the responsibility statement.(3) For each person making a responsibility statement, the statement must set out that to the best of his or her knowledge:(a) the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the
Schedule to the Recognition Requirements Regulations, paragraph 3
(1) |
The [UK RIE] must ensure that the systems and controls used in the performance of its [relevant functions] are adequate, and appropriate for the scale and nature of its business. |
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(2) |
Sub-paragraph (1) applies in particular to systems and controls concerning - |
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(a) |
the transmission of information; |
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(b) |
the assessment and management of risks to the performance of the [UK RIE'srelevant functions]; |
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(c) |
the effecting and monitoring of transactions on the [UK RIE]; |
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(d) |
the operation of the arrangements mentioned in paragraph 4(2)(d); and |
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(e) |
(where relevant) the safeguarding and administration of assets belonging to users of the [UK RIE's] facilities.1 |
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The following paragraphs set out other matters to which the FSA may have regard in assessing the systems and controls used for the transmission of information, risk management, the effecting and monitoring of transactions, the operation of settlement arrangements (the matters covered in paragraphs 4(2)(d) and 19(2)(b) of the Schedule to the Recognition Requirements Regulations) and the safeguarding and administration of assets .
In assessing a UK recognised body's systems and controls for assessing and managing risk, the FSA may also have regard to the extent to which these systems and controls enable the UK recognised body to:(1) identify all the general, operational, legal and market risks wherever they arise in its activities;(2) measure and control the different types of risk;(3) allocate responsibility for risk management to persons with appropriate knowledge and expertise; and(4) provide sufficient,
For the corporate exposure class there is a separate sub-class of specialised lending exposure. A firm may calculate risk weights for these exposures, where it is able to do so, in the same way as it does for the rest of its corporate exposure class, i.e. using the foundation IRB approach or the advanced IRB approach. Where a firm is not able to use this approach it may calculate risk weights for specialised lending exposures by slotting them into predetermined risk weights.
(1) The FSA will only grant an IRB permission if it is satisfied that the firm's systems for the management and rating of credit risk exposures are sound and implemented with integrity and, in particular, that they meet the standards in BIPRU 4.2.2 R in accordance with the minimum IRB standards.(2) Under BIPRU 4.2.11 R, a firm applying for an IRB permission is required to demonstrate that it has been using for the IRB exposure classes in question rating systems that were broadly
By modifying GENPRU 2.1.51 R to allow the firm to use the IRB approach to calculate all or part of its risk weighted exposure amounts, the FSA is treating it like an application rule. The modification means that the provisions of BIPRU relating to the IRB approach supersede the rules relating to the standardised approach for exposures coming within the scope of the IRB permission.
SYSC 4.1.1 R requires
a common platform firm to have effective processes to
identify, manage, monitor and report risks and internal control mechanisms.
Except in relation to those functions described in SYSC 8.1.5 R, where a firm relies on a third party for the performance
of operational functions which are not critical or important for the performance
of relevant services and activities (see SYSC 8.1.1 R (1)) on a continuous
and satisfactory basis, it should take into account,
A common platform firm must in particular
take the necessary steps to ensure that the following conditions are satisfied:(1) the service provider must have
the ability, capacity, and any authorisation required
by law to perform the outsourced functions,
services or activities reliably and professionally;(2) the service provider must carry
out the outsourced services
effectively, and to this end the firm must
establish methods for assessing the standard of performance of the service
provider;(3)
1A common platform firm must establish, implement and maintain adequate policies and procedures sufficient to ensure compliance of the firm including its managers, employees and appointed representatives with its obligations under the regulatory system and for countering the risk that the firm might be used to further financial crime.2[Note: article 13(2) of MiFID]22
A common platform firm must, taking in toaccount the nature, scale and complexity of its business, and the nature and range of investment services and activities undertaken in the course of that business, establish, implement and maintain adequate policies and procedures designed to detect any risk of failure by the firm to comply with its obligations under the regulatory system, as well as associated risks, and put in place adequate measures and procedures designed to minimise
1(1) GENPRU 3.1 applies to every firm that is a member of a financial conglomerate other than:(a) an incoming EEA firm;(b) an incoming Treaty firm;(c) a UCITS qualifier; and(d) an ICVC.(2) GENPRU 3.1 does not apply to a firm with respect to a financial conglomerate of which it is a member if the interest of the financial conglomerate in that firm is no more than a participation.(3) GENPRU 3.1.25 R (Capital adequacy requirements: high level requirement), GENPRU 3.1.26 R (Capital
GENPRU 3.1.35 R implements Article 7(4) and Article 8(4) of the Financial Groups Directive, which provide that where a financial conglomerate is headed by a mixed financial holding company, the sectoral rules regarding risk concentration and intra-group transactions of the most important financial sector in the financial conglomerate, if any, shall apply to that sector as a whole, including the mixed financial holding company.
Articles 7(3) (Risk concentration) and 8(3) (Intra-group transactions) and Annex II (Technical application of the provisions on intra-group transactions and risk concentration) of the Financial Groups Directive say that Member States may apply at the level of the financial conglomerate the provisions of the sectoral rules on risk concentrations and intra-group transactions. GENPRU 3.1 does not take up that option, although the FSA may impose such obligations on a case by case
Afirm must ensure that the sectoral rules regarding risk concentration and intra-group transactions of the most important financial sector in the financial conglomerate referred to in GENPRU 3.1.34 R are complied with with respect to that financial sector as a whole, including the mixed financial holding company. The FSA'ssectoral rules for these purposes are those identified in the table in GENPRU 3.1.36 R.
The illustration must include under the heading "Risks - important things you must consider" statements and warnings on the following:(1) a brief statement of the specific circumstances in which the mortgage lender is able to repossess the property;(2) a statement of how the mortgage lender will treat any negative equity arising during the life of the lifetime mortgage7 and at the time the amount borrowed under the lifetime mortgage7 is due to be repaid in full;77(3) a statement
Under the heading "Risks - important things you must consider" the illustration must also include the following if they apply:(1) for drawdown mortgages where there is a monthly (or such other frequency as may apply) cash sum payable, a statement that inflation can erode the value of the cash sum over time; (2) where:(a) the lifetime mortgage7 is linked to an investment; and7(b) the payments required on the lifetime mortgage7 will be deducted from the income from the investment;
8The illustration must include under the heading "Risks - important things you must consider" brief statements and warnings on all material risks involving a home reversion plan, including:(1) prominently at the beginning of the section: "A home reversion is a complex property transaction. You should seek legal advice to ensure that you fully understand all of the implications for you and your home and for anyone who might otherwise inherit the property.";(2) the effect of the
8Under the heading "Risks - important things you must consider" the illustration must also include the following if they apply:(1) for an instalment reversion plan, a statement that if the customer dies in the early years of the plan, income payments will cease and therefore the full expected benefits of the plan will not be obtained;(2) (a) for an instalment reversion plan where there is a regular cash sum payable; and(b) where:(i) the home reversion plan is linked to an investment;
If the liquidation period used by a firm in its day-to-day risk management process is longer than that set out in BIPRU 5.4 for the type of transaction in question, the firm's volatility adjustments must be scaled up in accordance with the square root of time formula set out in BIPRU 5.4.52 R.[Note: BCD Annex VIII Part 3 point 54]
A firm must have established procedures for monitoring and ensuring compliance with a documented set of policies and controls for the operation of its system for the estimation of volatility adjustments and for the integration of such estimations into its risk management process.[Note:BCD Annex VIII Part 3 point 55]
An independent review of a firm's system for the estimation of volatility adjustments must be carried out regularly in the firm's own internal auditing process. A review of the overall system for the estimation of volatility adjustments and for integration of those adjustments into the firm's risk management process must take place at least once a year and must specifically address, at a minimum:(1) the integration of estimated volatility adjustments into daily risk management;(2)
A firm with portfolios concentrated in a particular market segment and range of default risk must have enough obligor grades within that range to avoid undue concentrations of obligors in a particular grade. Significant concentrations within a single grade must be supported by convincing empirical evidence that the obligor grade covers a reasonably narrow PD band and that the default risk posed by all obligors in the grade falls within that band.[Note:BCD Annex VII Part 4 point
Separate exposures to the same obligor must be assigned to the same obligor grade, irrespective of any differences in the nature of each specific transaction. Exceptions, where separate exposures are allowed to result in multiple grades for the same obligor are:(1) country transfer risk, this being dependent on whether the exposures are denominated in local or foreign currency;(2) where the treatment of associated guarantees to an exposure may be reflected in an adjusted assignment
For all off-balance sheet items other than mentioned in BIPRU 4.4.37 R, BIPRU 4.4.45 R, BIPRU 4.4.71 R - BIPRU 4.4.78 R, BIPRU 4.6.44 R, BIPRU 4.8.28 R and BIPRU 4.8.29 R, the exposure value must be the following percentage of its value:(1) 100% if it is a full risk item;(2) 50% if it is a medium risk item;(3) 20% if it is a medium/low risk item; and(4) 0% if it is a low risk item.For the purposes of this rule the off-balance sheet items must be assigned to risk categories as
Subject to BIPRU 4.4.59 R to BIPRU 4.4.60 R, BIPRU 4.5.6 R, BIPRU 4.5.8 R - BIPRU 4.5.10 R (Risk weights for specialised lending), BIPRU 4.8.16 R, BIPRU 4.8.17 R (Risk weights for corporate exposure purchased receivables) and BIPRU 4.9.3 R (Securitisation: provision of credit protection), risk weighted exposure amounts must be calculated according to the formulae in the table in BIPRU 4.4.58 R and the adjustment formula in BIPRU 4.4.79 R (Double default).[Note:BCD Annex VII Part
Behaviour
of the type referred to in APER 4.6.3 E includes, but is not limited to:(1) permitting transactions without a sufficient understanding
of the risks involved;(2) permitting
expansion of the business without reasonably assessing the potential risks
of that expansion;(3) inadequately
monitoring highly profitable transactions or
business practices or unusual transactions or
business practices;(4) accepting
implausible or unsatisfactory explanations from subordinates without
(1) It
is important for the approved person performing
a significant influence function to
understand the business for which he is responsible (APER 4.6.4 E).
An approved person performing
a significant influence function is
unlikely to be an expert in all aspects of a complex financial services business.
However, he should understand and inform himself about the business sufficiently
to understand the risks of its trading, credit or other business activities.(2) It
is important
In accordance with BIPRU 3.2.1 R (2) and BIPRU 3.2.2 R, a firm must:(1) assign an off-balance sheet item listed in the table in BIPRU 3.7.2 R to the risk category indicated in column 1 of that table; and(2) determine the exposure value of that item as the percentage of its value for the appropriate risk category as set out in column 3 of the table in BIPRU 3.7.2 R.
This table belongs to BIPRU 3.7.1 R
[Note: BCD Annex II]
Category |
Item |
Percentage |
Full risk |
Guarantees having the character of credit substitutes Credit derivatives Acceptances Endorsements on bills not bearing the name of another credit institution Transactions with recourse Irrevocable standby letters of credit having the character of credit substitutes Assets purchased under outright forward purchase agreements Forward deposits The unpaid portion of partly-paid shares and securities Asset sale and repurchase agreements as defined in Article 12(3) and (5) of the Bank Accounts Directive Other items also carrying full risk |
100% |
Medium risk |
Documentary credits issued and confirmed (see also medium/low risk). Warranties and indemnities (including tender, performance, customs and tax bonds) and guarantees not having the character of credit substitutes. Irrevocable standby letters of credit not having the character of credit substitutes. Undrawn credit facilities (agreements to lend, purchase securities, provide guarantees or acceptance facilities) with an original maturity of more than one year. Note issuance facilities (NIFs) and revolving underwriting facilities (RUFs). |
50% |
Medium/low risk |
Documentary credits in which underlying shipment acts as collateral and other self-liquidating transactions. Undrawn credit facilities (agreements to lend, purchase securities, provide guarantees or acceptance facilities) with an original maturity of up to and including one year which may not be cancelled unconditionally at any time without notice or that do not effectively provide for automatic cancellation due to deterioration in a borrower's creditworthiness. |
20% |
Low risk |
Undrawn credit facilities (agreements to lend, purchase securities, provide guarantees or acceptance facilities) which may be cancelled unconditionally at any time without notice, or that do effectively provide for automatic cancellation due to deterioration in a borrower's creditworthiness. Retail credit lines may be considered as unconditionally cancellable if the terms permit the firm to cancel them to the full extent allowable under consumer protection and related legislation. |
0% |
An actuary appointed to perform the actuarial function must, in respect of those classes of the firm's long-term insurance business which are covered by his appointment1:1(1) advise the firm's management, at the level of seniority that is reasonably appropriate, on1 the risks the firm runs in1 so far as they may have a material impact on the firm's ability to meet liabilities to policyholders in respect of long-term insurance contracts as they fall due and on the capital needed
SUP 4.3.13 R is not intended to be exhaustive of the professional advice that a firm should take whether from an actuary appointed under this chapter or from any other actuary acting for the firm. Firms should consider what systems and controls are needed to ensure that they obtain appropriate professional advice on financial and risk analysis; for example:11(1) risk identification, quantification and monitoring;1(2) stress and scenario testing;1(3) ongoing financial conditions;1(4)
1Firms should normally obtain advice, from the actuary appointed to perform the with-profits actuary function in respect of the affected class or classes of with-profits business, whenever they are preparing to make key decisions based on the exercise of discretion affecting their with-profits business. Firms should also have risk management processes in place to ensure that all relevant matters are referred to the actuary for advice.
(1) Threshold condition 4 (Adequate resources), requires the FSA to ensure that a firm has adequate resources in relation to the specific regulated activity or regulated activities which it seeks to carry on, or carries on.(2) In this context, the FSA will interpret the term 'adequate' as meaning sufficient in terms of quantity, quality and availability, and 'resources' as including all financial resources, non-financial resources and means of managing its resources; for example,
(1) When assessing whether a firm will satisfy and continue to satisfy threshold condition 4, the FSA will have regard to all relevant matters, whether arising in the United Kingdom or elsewhere.(2) Relevant matters may include but are not limited to:(a) whether there are any indications that the firm may have difficulties if the application is granted (see COND 2.4.6 G), at the time of the grant or in the future, in complying with any of the FSA'sprudential rules (see the relevant
For an originator subject to the capital requirement in BIPRU 9.13.1 R the total of the risk weighted exposure amounts in respect of its positions in the investors interest (as defined in BIPRU 9.13.4 R or BIPRU 9.13.6 R) and the risk weighted exposure amounts calculated under BIPRU 9.13.1 R must be no greater than the greater of:(1) the risk weighted exposure amounts calculated in respect of its positions in the investors interest (as so defined); and(2) the risk weighted exposure
The appointment of a skilled person to produce a report under section 166 of the Act (Reports by skilled persons) is one of the FSA's regulatory tools. The tool may be used:(1) for diagnostic purposes, to identify, assess and measure risks; (2) for monitoring purposes, to track the development of identified risks, wherever these arise;(3) in the context of preventative action, to limit or reduce identified risks and so prevent them from crystallising or increasing; and (4) for
The decision to require a report by a skilled person will normally be prompted by a specific requirement for information, analysis of information, assessment of a situation or expert advice or recommendations. It will usually be part of the risk mitigation programme applicable to a firm, or the result of an event or development relating or relevant to a firm, or prompted by a need for verification of information provided to the FSA