Related provisions for BIPRU 5.4.29
1 - 20 of 35 items.
(1) Residential real estate property which is or will be occupied or let by the owner or the beneficial owner in the case of personal investment companies and commercial real estate property, that is offices and other commercial premises, may be recognised as eligible collateral where the conditions set out in the remaining provisions of this paragraph are met.(2) The value of the property must not materially depend upon the credit quality of the obligor. This requirement does
A firm may also recognise as eligible collateral shares in Finnish housing companies operating in accordance with the Finnish Housing Company Act of 1991 or subsequent equivalent legislation as commercial real estate collateral, provided that the conditions in BIPRU 4.10.6 R are met.[Note: BCD Annex VIII Part 1 point 15]
For the recognition of real estate collateral: the minimum requirements in BIPRU 3.4.64 R - BIPRU 3.4.73 R must be met with the following adjustments:(1) those provisions apply to all real estate collateral eligible under BIPRU 4.10; and(2) the minimum frequency of valuation as referred to in BIPRU 3.4.66 R is once every year for commercial real estate.[Note: BCD Annex VIII Part 2 point 8 (as it applies to the IRB approach)]
Amounts receivable linked to a commercial transaction or transactions with an original maturity of less than or equal to one year may be recognised as eligible collateral. Eligible receivables do not include those associated with securitisations, sub-participations or credit derivatives or amounts owed by affiliated parties.[Note: BCD Annex VIII Part 1 point 20]
(1) For the recognition of receivables as collateral the requirements in this paragraph must be met.(2) The legal mechanism by which the collateral is provided must be robust and effective and ensure that the lender has clear rights over the proceeds.(3) A firm must take all steps necessary to fulfil local requirements in respect of the enforceability of security interests. There must be a framework which allows the lender to have a first priority claim over the collateral subject
A firm may recognise as eligible collateral a physical item of a type other than those types indicated in BIPRU 4.10.6 R - BIPRU 4.10.12 R (Eligibility of real estate collateral) if its IRB permission provides that the firm may treat collateral of that type as eligible and if the firm is able to demonstrate the following:(1) the existence of liquid markets for disposal of the collateral in an expeditious and economically efficient manner;(2) the existence of well-established,
If a firm wishes to recognise other types of collateral in accordance with BIPRU 4.10.16 R (whether as part of its application for an IRB permission or under a variation of its IRB permission) it should demonstrate to the FSA how the criteria in BIPRU 4.10.16 R (1) - BIPRU 4.10.16 R (3) have been met with respect to that type of collateral.
(1) If a type of other physical collateral referred to in BIPRU 4.10.16 R is potentially eligible under a firm'sIRB permission a firm must only recognise it as eligible if the minimum requirements in (2) to (10) are met.(2) The collateral arrangement must be legally effective and enforceable in all relevant jurisdictions and must enable the firm to realise the value of the property within a reasonable timeframe.(3) With the sole exception of permissible prior claims referred to
(1) Where the requirements set out in this paragraph are met, exposures arising from transactions whereby a firm leases property to a third party must be treated the same as loans collateralised by the type of property leased.(2) For the exposures arising from leasing transactions to be treated as collateralised by the type of property leased, the following conditions must be met:(a) the conditions set out or referred to in BIPRU 4.10.13 R or BIPRU 4.10.18 R as appropriate for
Physical collateral recognised as eligible as described in BIPRU 4.10.16 R must be valued for the purpose of calculating the effect of credit risk mitigation at its market value. Market value is the estimated amount for which the property would exchange on the date of valuation between a willing buyer and a willing seller in an arm's-length transaction.[Note: BCD Annex VIII Part 3 point 67]
Where the ratio of the value of the collateral (C) to the exposure value (E) is below a threshold level of C* (the required minimum collateralisation level for the exposure) as laid down in BIPRU 4.10.28 R, LGD* must be the LGD laid down in the other sections of BIPRU 4 for uncollateralised exposures to the counterparty.[Note: BCD Annex VIII Part 3 point 69]
Where the ratio of the value of the collateral to the exposure value exceeds a second, higher threshold level of C** (i.e. the required level of collateralisation to receive full LGD recognition) as laid down in BIPRU 4.10.28 R, LGD* must be that prescribed in that table.[Note: BCD Annex VIII Part 3 point 70]
Table: Minimum LGD for secured portion of exposures
This table belongs to BIPRU 4.10.24 R - BIPRU 4.10.27 R
LGD* for senior claims or contingent claims |
LGD* for subordinated claims or contingent claims |
Required minimum collateralisation level of the exposure (C*) |
Required minimum collateralisation level of the exposure (C**) |
|
Receivables |
35% |
65% |
0% |
125% |
Residential real estate/commercial real estate |
35% |
65% |
30% |
140% |
Other collateral |
40% |
70% |
30% |
140% |
[Note: BCD Annex VIII Part 3 point 72 (part)]
(1) Where:(a) risk weighted exposure amounts and expected loss amounts are calculated under the IRB approach; and(b) an exposure is collateralised by both financial collateral and other eligible collateral;LGD* to be taken as the LGD for the purposes of the IRB approach must be calculated in accordance with this rule.(2) A firm must subdivide the volatility-adjusted value of the exposure (i.e. the value after the application of the volatility adjustment as set out in BIPRU 5.4.28
(1) This rule sets out the calculation of risk weighted exposure amounts2 and expected loss2 amounts under the financial collateral comprehensive method2 for a firm using the IRB approach.222(2) LGD* (the effective loss given default) calculated as set out in this paragraph must be taken as the LGD for the purposes of BIPRU 4.(3) LGD* = LGD x (E*/E) where:(a) LGD is the loss given default that would apply to the exposure under the IRB approach if the exposure was not collateralised;(b)
The low correlation conditions referred to in BIPRU 5.4.9 R (1) are as follows:(1) (a) the credit quality of the obligor and the value of the collateral must not have a material positive correlation; and(b) securities issued by the obligor, or any related group entity are not eligible.(2) notwithstanding (1)(b), the obligor's own issues of covered bonds falling within the terms of BIPRU 3.4.107 R to BIPRU 3.4.109 R may be recognised as collateral for repurchase transactions, provided
The legal certainty conditions referred to in BIPRU 5.4.9 R (2) are as follows:(1) a firm must fulfil any contractual and statutory requirements in respect of, and take all steps necessary to ensure, the enforceability of the collateral arrangements under the law applicable to its interest in the collateral;(2) in accordance with the general principle in BIPRU 5.2.2 R, a firm must have conducted sufficient legal review confirming the enforceability of the collateral arrangements
The operational requirements referred to in BIPRU 5.4.9 R (3) are as follows:(1) the collateral arrangements must be properly documented, with a clear and robust procedure for the timely liquidation of collateral;(2) a firm must employ robust procedures and processes to control risks arising from the use of collateral – including risks of failed or reduced credit protection, valuation risks, risks associated with the termination of the credit protection, concentration risk arising
The risk weight that would be assigned under the standardised approach to credit risk if the lending firm had a direct exposure to the collateral instrument must be assigned to those portions of claims collateralised by the market value of recognised collateral. The risk weight of the collateralised portion must be a minimum of 20% except as specified in BIPRU 5.4.19 R to BIPRU 5.4.21 R. The remainder of the exposure receives the risk weight that would be applied to an unsecured
A risk weight of 0% must be assigned to the collateralised portion of the exposure arising from transactions which fulfil the criteria enumerated in BIPRU 5.4.62 R or BIPRU 5.4.65 R. If the counterparty to the transaction is not a core market participant a risk weight of 10% must be assigned.[Note:BCD Annex VIII Part 3 point 27]
In valuing financial collateral for the purposes of the financial collateral comprehensive method, volatility adjustments must be applied to the market value of collateral, as set out in BIPRU 5.4.30 R to BIPRU 5.4.65 R, in order to take account of price volatility.[Note:BCD Annex VIII Part 3 point 30]
In the case of a firm using the financial collateral comprehensive method, where an exposure takes the form of securities or commodities sold, posted or lent under a repurchase transaction or under a securities or commodities lending or borrowing transaction, and margin lending transactions the exposure value must be increased by the volatility adjustment appropriate to such securities or commodities as prescribed in BIPRU 5.4.30 R to BIPRU 5.4.65 R.[Note: BCD Article 78(1), third
(1) The volatility-adjusted value of the collateral to be taken into account is calculated as follows in the case of all transactions except those transactions subject to recognised master netting agreements to which the provisions set out in BIPRU 5.6.5 R to BIPRU 5.6.29 R are to be applied:CVA = C x (1-HC-HFX)(2) The volatility-adjusted value of the exposure to be taken into account is calculated as follows:EVA = E x (1+HE), and in the case of financial derivative instruments
A firm must take into account the illiquidity of lower-quality assets. The liquidation period must be adjusted upwards in cases where there is doubt concerning the liquidity of the collateral. A firm must also identify where historical data may understate potential volatility, e.g. a pegged currency. Such cases must be dealt with by means of a stress scenario.[Note:BCD Annex VIII Part 3 point 50]
(1) This section permits the generation of additional income for the benefit of the authorised fund, and hence for its investors, by entry into stock lending transactions for the account of the authorised fund.(2) The specific method of stock lending permitted in this section is in fact not a transaction which is a loan in the normal sense. Rather it is an arrangement of the kind described in section 263B of the Taxation of Chargeable Gains Act 1992, under which the lender transfers
(1) An ICVC, or the depositary at the request of the ICVC, or the trustee at the request of the manager, may enter into a repo contract, or a1stock lending arrangement of the kind described in section 263B of the Taxation of Chargeable Gains Act 1992 (without extension by section 263C), but only if:(a) all the terms of the agreement under which securities are to be reacquired by the depositary for the account of the ICVC or by the trustee, are in a form which is acceptable to
Where a stock lending arrangement is entered into, the scheme property remains unchanged in terms of value. The securities transferred cease to be part of the scheme property, but there is obtained in return an obligation on the part of the counterparty to transfer back equivalent securities. The depositary will also receive collateral to set against the risk of default in transfer, and that collateral is equally irrelevant to the valuation of the scheme property (because it is
(1) Collateral is adequate for the purposes of this section only if it is:(a) transferred to the depositary or its agent;(b) at least equal in value, at the time of the transfer to the depositary, to the value of the securities transferred by the depositary; and(c) in the form of one or more of:(i) cash; or(ii) [deleted]11(iii) a certificate of deposit; or(iv) a letter of credit; or(v) a readily realisable security; or11(vi) 1commercial paper with no embedded derivative content;
(1) 2The use of stock lending or the reinvestment of cash collateral should not result in a change of the scheme's declared investment objectives or add substantial supplementary risks to the scheme's risk profile.(2) Collateral taking the form of cash may only be invested in:(a) one of the investments coming within COLL 5.4.6 R (1) (c) (iii) to (vii) (Treatment of collateral); or(b) deposits, provided they:(i) are capable of being withdrawn within five business days, or such
Firms are reminded of the client's best interests rule, which requires the firm to act honestly, fairly and professionally in accordance with the best interests of their clients. An example of what is generally considered to be such conduct, in the context of stock lending activities involving retail clients is that:(1) the firm ensures that relevant collateral is provided by the borrower in favour of the client;(2) the current realisable value of the
financial instrument
and
The FSA will:(1) expect the issuer to demonstrate that it has in place appropriate systems, controls, procedures and policies, including in relation to risk management, underwriting, arrears and valuation; (2) expect the issuer to demonstrate that the cash-flows generated by the assets would be sufficient to meet the payments due in a timely manner including under conditions of economic stress and in the event of the failure of the issuer;(3) take account of any over collateralisation
Concentration risk is the risk of loss from exposures being limited in number or variety. The relevant factors the FSA may consider include:(1) the level of granularity of the asset pool (i.e. what is the number and size distribution of assets in the pool); (2) whether the borrowers or collateral is unduly concentrated in a particular industry, sector, or geographical region.
(1) The FSA expects the report from the accountants to address at least the following matters:(a) that the level of over collateralisation meets the limits set out in the covered bond arrangements which are designed to ensure compliance with the requirement that the asset pool is capable of covering claims attaching to the bond in Regulation 17 (requirements on issuer in relation to the asset pool) of the RCB Regulations; and(b) that appropriate due diligence procedures have been
The conditions referred to in INSPRU 3.2.38R (1) are that the letter of credit is:(1) direct, explicit, unconditional and irrevocable; and(2) issued by an undertaking which is:(a) not a related undertaking of the counterparty; and(b) either an approved credit institution or a bank, or a branch of a bank, whether chartered by the federal government of the United States of America or a US state, that is supervised and examined by at least one of the following US federal banking
For the purposes of assessing adequate quality in INSPRU 3.2.38R (3), reference should be made to the criteria for credit risk loss mitigation set out in INSPRU 2.1.16 R. The valuation rules in GENPRU 1.3 apply for the purpose of determining the value of both collateral received, and the securities transferred, by the firm. In addition, where collateral takes the form of assets transferred, under the rules in GENPRU any such asset that is not an admissible asset (see GENPRU 2
For the purposes of INSPRU 3.2.36R (1)(c), collateral is sufficiently immediate only if:(1) it is transferred or, in the case of a letter of credit, issued before, or at the same time as, the transfer of the securities by the firm; or(2) it will be transferred or, in the case of a letter of credit, issued, at latest, by the close of business on the day of the transfer.
Collateral continues to be adequate only if its value is at all times at least equal to the value of the securities transferred by the firm. This will be satisfied in respect of collateral where the validity of the collateral or the firm's interest in the collateral is about to expire or has expired if sufficient collateral will again be transferred or issued at the latest by the close of business on the day of expiry.
For the determination of risk positions, a firm must treat collateral received from a counterparty like a claim on the counterparty under a derivative contract (long position) that is due today, while collateral posted must be treated as an obligation to the counterparty (short position) that is due today.[Note: BCD Annex III Part 5 point 10]
Where the conditions set out in BIPRU 5.5.5 R are satisfied, credit protection falling within the terms of BIPRU 5.5.4 R may be treated as a guarantee by the party providing the life insurance. The value of the credit protection recognised must be the surrender value of the life insurance policy.[Note: BCD Annex VIII Part 3 point 80]
If a firm calculates the exposure value of a securities financing transaction as its on-balance sheet value, in accordance with BIPRU 13.8.4 R (2), it may recognise the effects of financial collateral in the same way as for its other exposures, for example by using either the financial collateral simple method or the financial collateral comprehensive method. However firms should note that the financial collateral simple method is not available:(1) to a firm using the IRB approach
(1) The realisation or forfeiture of collateral may be taken as an indication of unlikeliness to pay for the purposes of the definition of default.(2) However, the realisation or forfeiture of collateral may not indicate unlikeliness to pay:(a) in the case of an exposure in a market (such as one that involves retail exposures involving margin lending) in which it is established practice for collateral to be sold if its value falls below a certain percentage of the exposure and
To the extent that LGD estimates take into account the existence of collateral, these estimates must not solely be based on the collateral's estimated market value. LGD estimates must take into account the effect of the potential inability of the firm expeditiously to gain control of its collateral and liquidate it.[Note:BCD Annex VII Part 4 point 77]
To the extent that LGD estimates take into account the existence of collateral, a firm must establish internal requirements for collateral management, legal certainty and risk management that are generally consistent with those set out in BIPRU 5 (Credit risk mitigation) as modified by BIPRU 4.10.[Note:BCD Annex VII Part 4 point 78]
In calculating the ‘fully adjusted exposure value’ (E*) for the exposures subject to an eligible master netting agreement covering repurchase transactions and/or securities or commodities lending or borrowing transactions and/or other capital market-driven transactions, a firm must calculate the volatility adjustments to be applied in the manner set out in BIPRU 5.6.6 R to BIPRU 5.6.11 R either using the supervisory volatility adjustments approach or the own estimates of volatility
A firm that makes use of collateral to mitigate its CCR must have internal procedures to verify that, prior to recognising the effect of collateral in its calculations, the collateral meets the legal certainty standards set out in BIPRU 5 as modified, where relevant, by BIPRU 4.10.[Note: BCD Annex III Part 6 point 41]
(1) The ICVC, or the depositary at the request of the ICVC, or the trustee at the request of the manager, may enter into a repo contract or a 2stock lending arrangement within section 263B of the Taxation of Chargeable Gains Act 1992 (without extension by section 263C).(2) The depositary must ensure that the value of any collateral, for the stock lending arrangement is at all times at least equal to the value of the securities transferred by the depositary.(3) In the case of the
Part II RAO Investments |
Part III RAO Investments |
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1. |
Reception and transmission of orders in relation to one or more financial instruments |
Article 252 |
Article 76-81, 83-85, 89 |
2. |
Execution of orders on behalf of clients |
Article 14, 21 |
A Article 76-81, 83-85, 89 |
3. |
Dealing on own account |
Article 14 |
Article 76-81, 83-85, 89 |
4. |
Portfolio management |
Article 37 (14, 21, 25 - see Note 1) 2 |
Article 76-81, 83-85, 89 |
5. |
Investment advice |
Article 53 |
Article 76-81, 83-85, 89 |
6. |
Underwriting of financial instruments and/or placing of financial instruments on a firm commitment basis |
Article 14, 21 |
Article 76-81, 83-85, 89 |
7. |
Placing of financial instruments without a firm commitment basis |
Article 21, 25 |
Article 76-81, 83-85, 89 |
8. |
Operation of Multilateral Trading Facilities |
Article 25B (see Note 2) |
Article 76-81, 83-85, 89 |
Ancillary services |
Part II RAO Activities |
Part III RAO Investments |
|
1. |
Safekeeping and administration of financial instruments for the account of clients, including custodianship and related services such as cash/collateral management |
Article 40, 45, 64 |
Article 76-81, 83-85, 89 |
2. |
Granting credits or loans to an investor to allow him to carry out a transaction in one or more of the relevant instruments where the firm granting the credit or loan is involved |
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3. |
Advice to undertakings on capital structure, industrial strategy and related matters and advice and services relating to mergers and the purchase of undertakings |
Article 14, 21, 25, 53, 64 |
Article 76-80, 83-85, 89 |
4. |
Foreign exchange services where these are connected with the provision of investment services |
Article 14, 21, 25, 53, 64 |
Article 83-85, 89 |
5. |
Investment research and financial analysis or other forms of general recommendation relating to transactions in financial instruments |
Article 53, 64 |
Article 76-81, 83-85, 89 |
6. |
Services related to underwriting |
Article 25, 53, 64 |
Article 76-81, 83-85, 89 |
7. |
Investment services and activities as well as ancillary services of the type included under Section A or B of Annex I related to the underlying of the derivatives included under Section C 5, 6, 7 and 10-where these are connected to the provision of investment or ancillary services. |
Article 14, 21, 25, 25B, 37, 53, 64 |
Article 83 and 84 |
Note 1. A firm may also carry on these other activities when it is managing investments.2 |
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Note 2. A firm operating an MTF under article 25B does not need to have a permission covering other regulated activities, unless it performs other regulated activities in addition to operating an MTF. |
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