Related provisions for BIPRU 5.7.18
21 - 40 of 87 items.
Eligible funded protection is limited to that which is eligible for the calculation of risk weighted exposure amounts under the standardised approach as laid down under BIPRU 5 and recognition is subject to compliance with the relevant minimum requirements as laid down under BIPRU 5.[Note:BCD Annex IX Part 4 point 60]
Eligible unfunded credit protection and unfunded protection providers are limited to those which are eligible under BIPRU 5 (Credit risk mitigation) and BIPRU 4.10 (Credit risk mitigation under the IRB approach) and recognition is subject to compliance with the relevant minimum requirements laid down under those provisions.[Note:BCD Annex IX Part 4 point 61]
Where risk weighted exposure amounts are calculated using the ratings based method, the exposure value and/or the risk weighted exposure amount for a securitisation position in respect of which credit protection has been obtained may be modified in accordance with the provisions of BIPRU 5 (Credit risk mitigation) as they apply for the calculation of risk weighted exposure amounts under the standardised approach set out in BIPRU 3.[Note:BCD Annex IX Part 4 point 62]
In the case of funded credit protection, the risk weighted exposure amount of the securitisation position must be calculated by multiplying the funded protection-adjusted exposure amount of the position (E*, as calculated under BIPRU 5.4.28 R (3), taking the amount of the securitisation position to be E) by the effective risk weight.[Note:BCD Annex IX Part 4 point 64]
In the case of unfunded credit protection, the risk weighted exposure amount of the securitisation position must be calculated by multiplying GA (the amount of the protection adjusted for any currency mismatch and maturity mismatch in accordance BIPRU 5.7.23 R (2)) by the risk weight of the protection provider; and adding this to the amount arrived at by multiplying the amount of the securitisation position minus GA by the effective risk weight.[Note:BCD Annex IX Part 4 point
In other cases the firm must treat the securitisation position as two or more positions with the uncovered portion being the position with the lower credit quality. For the purposes of calculating the risk weighted exposure amount for this position, the provisions in BIPRU 9.12.22 R to BIPRU 9.12.24 G apply subject to the modifications that T is adjusted to e* in the case of funded credit protection; and to T-g in the case of unfunded credit protection, where e* denotes the ratio
The technique used to provide the credit protection together with the actions and steps taken and procedures and policies implemented by a lending firm must be such as to result in credit protection arrangements which are legally effective and enforceable in all relevant jurisdictions.[Note: BCD Article 92(1)]
In the case of funded credit protection:(1) to be eligible for recognition the assets relied upon must be sufficiently liquid and their value over time sufficiently stable to provide appropriate certainty as to the credit protection achieved having regard to the approach used to calculate risk weighted exposure amounts and to the degree of recognition allowed; eligibility is limited to the assets set out in the CRM eligibility conditions; and(2) the lending firm must have the
In the case of unfunded credit protection:(1) to be eligible for recognition the party giving the undertaking must be sufficiently reliable, and the protection agreement legally effective and enforceable in the relevant jurisdictions, to provide appropriate certainty as to the credit protection achieved having regard to the approach used to calculate risk weighted exposure amounts and to the degree of recognition allowed; and(2) eligibility is limited to the protection providers
Notwithstanding the presence of credit risk mitigation taken into account for the purposes of calculating risk weighted exposure amounts and as relevant expected loss amounts, a firm must continue to undertake full credit risk assessment of the underlying exposure and must be in a position to demonstrate to the FSA the fulfilment of this requirement. In the case of repurchase transactions and/or securities or commodities lending or borrowing transactions the underlying exposure
Subject to BIPRU 5.8, BIPRU 5.9 and BIPRU 5.7.27 R to BIPRU 5.7.28 R, where the CRM eligibility conditions and the CRM minimum requirements are satisfied, the calculation of risk weighted exposure amounts under the standardised approach may be modified in accordance with the provisions of BIPRU 5.[Note: BCD Annex VIII Part 3 point 1]
Each of the following is a financial derivative instrument:(1) an interest-rate contract, being:(a) a single-currency interest rate swap;(b) a basis-swap;(c) a forward rate agreement;(d) an interest-rate future;(e) a purchased interest-rate option; and(f) other contracts of similar nature.(2) a foreign currency contract or contract concerning gold, being:(a) a cross-currency interest-rate swap;(b) a forward foreign currency contract;(c) a currency future;(d) a currency option
Long settlement transaction means a transaction where a counterparty undertakes to deliver a security, a commodity, or a foreign currency amount against cash, other financial instruments, or commodities, or vice versa, at a settlement or delivery date that is contractually specified as more than the lower of the market standard for this particular transaction and five business days after the date on which the firm enters into the transaction.[Note: BCD Annex III Part 1 point
A firm must calculate the exposure value of a long settlement transaction in accordance with either:(1) BIPRU 13; or(2) the master netting agreement internal models approach, if it has a master netting agreement internal models approachwaiver which permits it to apply that approach.[Note: BCD Article 78(2) second sentence, in respect of long settlement transaction]
A firm may determine exposures arising from long settlement transactions using any of the CCR mark to market method, the CCR standardised method and the CCR internal model method, regardless of the methods chosen for treating financial derivatives instruments and repurchase transactions, securities or commodities lending or borrowing transactions, and margin lending transactions. In calculating capital requirements for long settlement transactions, a firm that uses the IRB approach
Under the CCR mark to market method, the CCR standardised method and the CCR internal model method, a firm must determine the exposure value for a given counterparty as equal to the sum of the exposure values calculated for each netting set with that counterparty.[Note: BCD Annex III Part 2 point 5]
The combined use of the CCR mark to market method, the CCR standardised method and the CCR internal model method is not permitted. The combined use of the CCR mark to market method and the CCR standardised method is permitted where one of the methods is used for the cases set out in BIPRU 13.5.9 R to BIPRU 13.5.10 R.[Note: BCD Annex III Part 2 point 1(part)]
Notwithstanding BIPRU 13.3.1 R and BIPRU 13.3.5 R, a firm may determine the exposure value of a credit risk exposure outstanding with a central counterparty in accordance with BIPRU 13.3.13 R, provided that the central counterparty'scounterparty credit riskexposure with all participants in its arrangements are fully collateralised on a daily basis.[Note: BCD Article 78(4) in respect of financial derivatives and long settlement transactions]
A firm may attribute an exposure value of zero for CCR to derivative contracts and long settlement transactions, or to other exposures arising in respect of those contracts or transactions (but excluding an exposure arising from collateral held to mitigate losses in the event of the default of other participants in the central counterparty's arrangements) where they are outstanding with a central counterparty and have not been rejected by the central counterparty.[Note: BCD Annex
When a firm purchases credit derivative protection against a non-trading book ,exposure or against a CCRexposure, it must compute its capital requirement for the hedged asset in accordance with:(1) BIPRU 5.7.16 R to BIPRU 5.7.25 R and BIPRU 4.10.49 R (4) to (6) (Unfunded credit protection: Valuation and calculation of risk-weighted exposure amounts and expected loss amounts);(2) BIPRU 4.4.79 R (Double default); or(3) BIPRU 4.10.40 R to BIPRU 4.10.48 R (Unfunded credit protection:
A firm's systems for the management and rating of credit risk exposures must be sound and implemented with integrity and, in particular, they must meet the following standards in accordance with the minimum IRB standards:(1) the firm'srating systems provide for a meaningful assessment of obligor and transaction characteristics, a meaningful differentiation of risk and accurate and consistent quantitative estimates of risk;(2) internal ratings and default and loss estimates used
Where an EEA parent institution3 and its subsidiary undertakings or an EEA parent financial holding company3 and its subsidiary undertakings use the IRB approach on a unified basis, the question whether the minimum IRB standards are met is answered by considering the parent undertaking and its subsidiary undertakings together unless the firm'sIRB permission specifies otherwise.[Note: BCD Article 84(2) (part)]33
(1) This guidance sets out the basis on which a firm may rely upon a rating system or data provided by another member of its group.(2) A firm may rely upon a rating system or data provided by another member of its group if the following conditions are satisfied:(a) the firm only does so to the extent that it is appropriate, given the nature and scale of the firm's business and portfolios and the firm's position within the group;(b) the group is an EEA banking and investment group;(c)
A firm must be able to demonstrate that it has been using for the IRB exposure classes in question rating systems that were broadly in line with the minimum IRB standards for internal risk measurement and management purposes for at least three years prior to the date of its IRB permission.[Note:BCD Article 84(3)]
A firm that has applied for the use of own estimates of LGDs and/or conversion factors must be able to demonstrate to the FSA that it has been estimating and employing own estimates of LGDs and/or conversion factors in a manner that was broadly consistent with the minimum IRB standards for use of own estimates of those parameters for at least three years prior to the date of its IRB permission or of a variation of its IRB permission that, in either case, entitled the firm to use
To the extent that a firm'sIRB permission permits this, implementation may be carried out sequentially across the different IRB exposure classes within the same business unit, across different business units in the same group or for the use of own estimates of LGDs or conversion factors for the calculation of risk weights for the sovereign, institution and corporate IRB exposure class.3[Note:BCD Article 85(1) (part)]
(1) Implementation of the IRB approach as referred to in BIPRU 4.2.18 R must be carried out within a reasonable period of time as set out in the IRB permission.(2) The implementation must be carried out subject to strict conditions determined by the FSA and set out in the IRB permission.(3) A firm must not use the flexibility under BIPRU 4.2.18 R selectively with the purpose of achieving reduced minimum capital requirements in respect of those IRB exposure classes or business
Subject to BIPRU 4.2.17 R - BIPRU 4.2.20 R, BIPRU 4.2.22 R and BIPRU 4.2.26 R, a firm that has an IRB permission must not use the standardised approach for the calculation of risk weighted exposure amounts for the exposures to which the IRB approach applies under the IRB permission.[Note:BCD Article 85(4)]1
Subject to BIPRU 4.2.17 R - BIPRU 4.2.22 R and BIPRU 4.2.26 R, a firm whose IRB permission provides for the use of the advanced IRB approach for the calculation of LGDs and conversion factors for the sovereign, institution and corporate IRB exposure class must not use the LGD values and conversion factors applicable to the foundation IRB approach for the exposures to which the advanced IRB approach applies under the IRB permission.[Note:BCD Article 85(5)]
(1) To the extent that its IRB permission permits this, a firm permitted to use the IRB approach in the calculation of risk weighted exposure amounts and expected loss amounts3 for one or more IRB exposure classes may apply the standardised approach in accordance with this rule.3(2) A firm may apply the standardised approach to the IRB exposure class referred to in BIPRU 4.3.2 R (1) (Sovereigns) where the number of material counterparties is limited and it would be unduly burdensome
For the purposes of BIPRU 4.2.26 R (4), the equity exposureIRB exposure class of a firm must be considered material if its aggregate value, excluding equity exposures incurred under legislative programmes as referred to in BIPRU 4.2.26 R (8), exceeds, on average over the preceding year, 10% of the firm'scapital resources. If the number of those equity exposures is less than 10 individual holdings, that threshold is 5% of the firm'scapital resources.[Note:BCD Article 89(2)]
Subject to BIPRU 9.11.5 R, the risk weighted exposure amount of a ratedsecuritisation position must be calculated by applying to the exposure value the risk weight associated with the credit quality step with which the credit assessment has been determined to be associated, as prescribed in BIPRU 9.11.2 R or BIPRU 9.11.3 R.[Note:BCD Annex IX Part 4 point 6]
Table: Positions other than ones with short-term credit assessments
This table belongs to BIPRU 9.11.1 R
1 |
2 |
3 |
4 |
5 and below |
|
20% |
50% |
100% |
350% |
1250% |
[Note: For mapping of the credit quality step to the credit assessments of eligible ECAIs, refer to: www.fsa.gov.uk/pubs/international/ecais_securitisation.pdf ]
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)
Subject to the availability of a more favourable treatment by virtue of the provisions concerning liquidity facilities in BIPRU 9.11.10 RBIPRU 9.11.12 R, a firm may apply to securitisation positions meeting the conditions set out in BIPRU 9.11.9 R a risk weight that is the greater of:(1) 100%, or(2) the highest of the risk weights that would be applied to any of the securitised exposures under the standardised approach by a firm holding the exposures.[Note:BCD Annex IX Part 4
For the treatment in BIPRU 9.11.8 R to be available,:(1) the securitisation position must be in an ABCP programme;(2) the securitisation position must be in a tranche which is economically in a second loss position or better in the securitisation and the first loss tranche must provide meaningful credit enhancement to the second loss tranche;(3) the securitisation position must be of a quality the equivalent of investment grade or better; and(4) the firm in question must not hold
When the conditions in this paragraph have been met, and in order to determine its exposure value, a conversion figure of 20% may be applied to the nominal amount of a liquidity facility with an original maturity of one year or less and a conversion figure of 50% may be applied to the nominal amount of a liquidity facility with an original maturity of more than one year. The risk weight to be applied is the highest risk weight that would be applied to any of the securitised exposures
To determine its exposure value, a conversion figure of 0% may be applied to the nominal amount of a liquidity facility that is unconditionally cancellable provided that the conditions set out at BIPRU 9.11.10 R are satisfied and that repayment of draws on the facility are senior to any other claims on the cash flows arising from the securitised exposures.[Note:BCD Annex IX Part 4 point 15]
Where a firm calculates the risk weighted exposure amount of a securitisation position under the standardised approach, where credit protection is obtained on a securitisation position, the calculation of risk weighted exposure amounts may be modified in accordance with BIPRU 5 (Credit risk mitigation).[Note:BCD Annex IX Part 4 point 34]
Within the corporate exposureIRB exposure class, a firm must separately identify as specialised lending exposures, exposures which possess the following characteristics:(1) the exposure is to an entity which was created specifically to finance and/or operate physical assets;(2) the contractual arrangements give the lender a substantial degree of control over the assets and the income that they generate; and(3) the primary source of repayment of the obligation is the income generated
A firm using the methods set out in BIPRU 4.5.8 R (Slotting) for assigning risk weights for specialised lending exposures is exempt from the requirement to have an obligor rating scale which reflects exclusively quantification of the risk of obligor default for these exposures. Notwithstanding BIPRU 4.4.7 R (Seven grades for exposures to sovereigns, institutions and corporates), a firm must have for these exposures four grades for non-defaulted obligors and one grade for defaulted
(1) A firm using the methods set out in BIPRU 4.5.8 R (Slotting) for assigning risk weights for specialised lending exposures must assign each of these exposures to a grade in accordance with BIPRU 4 Annex 1 R, taking into account the following factors:(a) financial strength;(b) political and legal environment;(c) transaction and/or asset characteristics;(d) strength of the sponsor and developer including any public private partnership income stream; and(e) security package.(2)
Table: Risk weights for specialised lending
This table belongs to BIPRU 4.5.8 R1
Remaining maturity |
Category 1 (Strong) |
Category 2 (Good) |
Category 3 (Satisfactory) |
Category 4 (Weak) |
Category 5 |
Less than 2.5 years |
50% |
70% |
115% |
250% |
0% |
Equal or more than 2.5 years |
70% |
90% |
115% |
250% |
0% |
The coverage of each of the categories is set out in BIPRU 4.5.6 R |
|||||
[Note:BCD Annex VII Part 1 point 6 (part)]
A firm may generally assign preferential risk weights of 50% to exposures in category 1, and a 70% risk weight to exposures in category 2 if:(1) its IRB permission allows this; and(2) the firm's underwriting characteristics and other risk characteristics are substantially strong for the relevant category.[Note:BCD Annex VII Part 1 point 6 (part)]
Table: Expected loss values for specialised lending
This table belongs to BIPRU 4.5.12 R
Remaining maturity |
Category 1 (Strong) |
Category 2 (Good) |
Category 3 (Satisfactory) |
Category 4 (Weak) |
Category 5 |
Less than 2.5 years |
0% |
0.4% |
2.8% |
8% |
50% |
Equal or more than 2.5 years |
0.4% |
0.8% |
2.8% |
8% |
50% |
The coverage of each of the categories is set out in BIPRU 4.5.6 R |
|||||
[Note:BCD Annex VII Part 1 point 31 (part)]
Where a firm'sIRB permission authorises it generally to assign preferential risk weights as outlined in BIPRU 4.5.10 R of 50% to exposures in category 1, and 70% to exposures in category 2, the EL value for exposures in category 1 must be 0%, and for exposures in category 2 must be 0.4%.[Note:BCD Annex VII Part 1 point 31 (part)]
(1) A firm which has an IRB permission must publicly disclose the information laid down in BIPRU 11.6.1 Rto BIPRU 11.6.4 R.(2) A firm which recognises credit risk mitigation in accordance with BIPRU 5 must publicly disclose the information laid down in BIPRU 11.6.5 R.(3) A firm using the advanced measurement approach for the calculation of its operational risk capital requirement1 must publicly disclose the information laid down in BIPRU 11.6.6 R.[Note: BCD Article 145(2), CAD
A firm may omit one or more items of information included in the disclosures listed in BIPRU 11.5 and BIPRU 11.6 if those items include information which, in the light of the criteria specified in BIPRU 11.4.2 R and BIPRU 11.4.3 R, is regarded as proprietary or confidential.[Note: BCD Article 146(2)]
In the exceptional cases referred to in BIPRU 11.3.6 R, a firm must:(1) state in its disclosures:(a) the fact that the specific items of information are not disclosed; and(b) the reason for non-disclosure; and(2) publish more general information about the subject matter of the disclosure requirement, except where these are to be classified as secret or confidential under the criteria set out in BIPRU 11.4.2 R and BIPRU 11.4.3 R.[Note: BCD Article 146(3)]
(1) A firm may determine the appropriate medium, location and means of verification to comply effectively with the disclosure requirements laid down in BIPRU 11.3.1 R to BIPRU 11.3.4 R.(2) To the degree feasible, a firm must provide all disclosures in one medium or location.(3) Equivalent disclosures made by a firm under accounting, listing or other requirements may be deemed to constitute compliance with BIPRU 11.3.1 R to BIPRU 11.3.4 R.(4) If disclosures are not included in
For the purpose of BIPRU 13.7:(1) counterparty means any entity (including natural persons) that has the power to conclude a contractual netting agreement; and(2) contractual cross product netting agreement means a written bilateral agreement between a firm and a counterparty which creates a single legal obligation covering all included bilateral master agreements and transactions belonging to different product categories.[Note: BCD Annex III Part 7 point (a) (part)]
For the purposes of cross product netting, the following are considered different product categories:(1) repurchase transactions, reverse repurchase transactions, securities or commodities lending or borrowing transactions;(2) margin lending transactions; and(3) financial derivative instruments.[Note: BCD Annex III Part 7 point (a) (part)]
A firm may recognise as risk-reducing the following types of contractual netting:(1) bilateral contracts for novation between a firm and its counterparty under which mutual claims and obligations are automatically amalgamated in such a way that this novation fixes one single net amount each time novation applies and thus creates a legally binding, single new contract extinguishing former contracts;(2) other bilateral agreements between a firm and its counterparty; and(3) a firm
A firm may treat contractual netting as risk-reducing only under the following conditions:(1) the firm must have a contractual netting agreement with its counterparty which creates a single legal obligation, covering all included transactions, such that, in the event of a counterparty's failure to perform owing to default, bankruptcy, liquidation or any other similar circumstance, the firm would have a claim to receive or an obligation to pay only the net sum of the positive and
A firm must not recognise as risk-reducing any contract containing a provision which permits a non-defaulting counterparty to make limited payments only, or no payments at all, to the estate of the defaulter, even if the defaulter is a net creditor (a "walkaway" clause).[Note: BCD Annex III Part 7 point (b) (part)]
In addition to the requirements in BIPRU 13.7.2 R to BIPRU 13.7.9 R, for contractual cross product netting agreements the following criteria must be met:(1) the net sum referred to in BIPRU 13.7.6 R (1) must be the net sum of the positive and negative close out values of any included individual bilateral master agreement and of the positive and negative mark-to-market value of the individual transactions (the Cross-Product Net Amount);(2) the written and reasoned legal opinions
The following must be calculated in accordance with BIPRU 9 (Securitisation):(1) risk-weighted exposure amounts for securitisedexposures and for exposures belonging to the IRB exposure class referred to in BIPRU 4.3.2 R (6) (securitisation positions); and(2) the expected loss amounts for securitisedexposures.[Note: BCD Article 87(10) and Article 88(3)]
Where a firm provides credit protection for a number of exposures under terms that the nth default among the exposures shall trigger payment and that this credit event shall terminate the contract, if the product has an external credit assessment from an eligible ECAI the risk weights set out in BIPRU 9 must be applied. If the product is not rated by an eligible ECAI, the risk weights of the exposures included in the basket must be aggregated, excluding n-1 exposures where the
The risk weighted exposure amounts must be calculated according to the formula:Risk-weighted exposure amount = 100% * exposure value except for when the exposure is a residual value in which case it should be provisioned for each year and will be calculated as follows:1/t * 100% * exposure value;where t is the number of years of the lease contract term.[Note: BCD Annex VII Part 1 point 27]
Where a firm has full recourse in respect of purchased receivables for default risk and for dilution risk, to the seller of the purchased receivables, BIPRU 4.8.21 R and BIPRU 4.8.30 R need not be applied. The exposure may instead be treated as a collateralised exposure.[Note: BCD Article 87(2) (part)]
(1) Where exposures in the form of a CIU meet the criteria set out in BIPRU 3.4.121 R to BIPRU 3.4.122 R (Conditions for look through treatment under the standardised approach) and the firm is aware of all of the underlying exposures of the CIU, the firm must look through to those underlying exposures in order to calculate risk weighted exposure amounts and expected loss amounts in accordance with the methods set out in BIPRU 4.(2) Where (1) applies but a firm does not meet the
(1) Where exposures in the form of a CIU do not meet the criteria set out in BIPRU 3.4.121 R to BIPRU 3.4.122 R (Conditions for look through treatment under the standardised approach) or the firm is not aware of all of the underlying exposures of the CIU, a firm must look through to the underlying exposures and calculate risk weighted exposure amounts and expected loss amounts in accordance with the approach set out in BIPRU 4.7.9 R - BIPRU 4.7.12 R (Simple risk weights). If,
The expected loss amounts for exposures referred to in BIPRU 4.9.11 R - BIPRU 4.9.12 R must be calculated in accordance with the methods set out in BIPRU 4.4.61 R (Calculation of expected loss for sovereigns, institutions and corporates), BIPRU 4.5.12 R - BIPRU 4.5.14 R (Calculation of expected loss for specialised lending), BIPRU 4.6.47 R - BIPRU 4.6.48 R (Calculation of expected loss for retail exposures), BIPRU 4.7.12 R, BIPRU 4.7.17 R and BIPRU 4.7.26 R (Calculation of expected
Subject to BIPRU 9.8.5 R and BIPRU 9.8.6 R, a firm must not use an ECAI's credit assessments for its positions in some tranches and another ECAI's credit assessments for its positions in other tranches within the same structure that may or may not be rated by the first ECAI.[Note:BCD Annex IX Part 3 point 4]
(1) Where credit protection eligible under BIPRU 5 (Credit risk mitigation) and, if applicable, BIPRU 4.10 (Credit risk mitigation under the IRB approach) is provided directly to the SSPE, and that protection is reflected in the credit assessment of a position by a nominated ECAI, the risk weight associated with that credit assessment may be used.(2) If the protection is not eligible under BIPRU 5 (Credit risk mitigation) and, if applicable, BIPRU 4.10 (Credit risk mitigation
For the purposes of calculating risk weighted exposure amounts, a maturity mismatch occurs when the residual maturity of the credit protection is less than that of the protected exposure. Protection of less than three months residual maturity, the maturity of which is less than the maturity of the underlying exposure, must not be recognised.[Note: BCD Annex VIII Part 4 point 1]
Subject to a maximum of 5 years, the effective maturity of the underlying is the longest possible remaining time before the obligor is scheduled to fulfil its obligations. Subject to BIPRU 5.8.4 R, the maturity of the credit protection is the time to the earliest date at which the protection may terminate or be terminated.[Note: BCD Annex VIII Part 4 point 3]
Where there is an option to terminate the protection which is at the discretion of the protection seller, the maturity of the protection must be taken to be the time to the earliest date at which that option may be exercised. Where there is an option to terminate the protection which is at the discretion of the protection buyer and the terms of the arrangement at origination of the protection contain a positive incentive for the firm to call the transaction before contractual
Where a credit derivative is not prevented from terminating prior to expiration of any grace period required for a default on the underlying obligation to occur as a result of a failure to pay the maturity of the protection must be reduced by the amount of the grace period.[Note: BCD Annex VIII Part 4 point 5]
(1) The maturity of the credit protection and that of the exposure must be reflected in the adjusted value of the collateral according to the following formula:CVAM = CVA x (t-t*)/(T-t*)where:(a) CVA is the volatility adjusted value of the collateral as specified in BIPRU 5.4.28 R or the amount of the exposure, whichever is the lowest;(b) t is the number of years remaining to the maturity date of the credit protection calculated in accordance with BIPRU 5.8.3 R to BIPRU 5.8.5
(1) The maturity of the credit protection and that of the exposure must be reflected in the adjusted value of the credit protection according to the following formula:GA = G* x (t-t*)/(T-t*)where:(a) G* is the amount of the protection adjusted for any currency mismatch;(b) GA is G* adjusted for any maturity mismatch;(c) t is the number of years remaining to the maturity date of the credit protection calculated in accordance with BIPRU 5.8.3 R to BIPRU 5.8.5 R, or the value of
To calculate the risk weighted exposure amount of a securitisation position, the relevant risk weight must be assigned to the exposure value of the position in accordance with BIPRU 9.9 - BIPRU 9.14 based on the credit quality of the position.[Note:BCD Article 96(1) (part) and Annex IX1, Part 4 point 1]
(1) Where there is an exposure to different tranches in a securitisation, the exposure to each tranche must be considered a separate securitisation position.(2) The providers of credit protection to securitisation positions must be treated as holding positions in the securitisation.(3) securitisation positions include exposures to a securitisation arising from interest rate or currency derivative contracts.[Note:BCD Article 96(2)]
Subject to BIPRU 9.9.5 R,(1) where a firm calculates risk weighted exposure amounts under the standardised approach to securitisations outlined in BIPRU 9.11, the exposure value of an on-balance sheet securitisation position must be its balance sheet value;(2) where a firm calculates risk weighted exposure amounts under the IRB approach to securitisations outlined in BIPRU 9.12, the exposure value of an on-balance sheet securitisation position must be measured gross of value adjustments;(3)
Where a securitisation position is subject to funded credit protection, the exposure value of that position may be modified in accordance with and subject to the requirements of BIPRU 5 (Credit risk mitigation) as further specified in BIPRU 9.11.13 R and BIPRU 9.14.[Note:BCD Annex IX Part 4 point 4]
Where a securitisation position is subject to funded or unfunded credit protection the risk weight to be applied to that position may be modified in accordance with BIPRU 5 (Credit risk mitigation) and, if applicable, BIPRU 4.10 (Credit risk mitigation under the IRB approach) read in conjunction with BIPRU 9.14.[Note:BCD Article 96(3)]
Subject to the provisions of GENPRU that deal with the deduction of securitisation positions at stage M in the relevant capital resources table, the risk weighted exposure amount must be included in the firm's total of risk weighted exposure amounts for the purposes of the calculation of its credit risk capital requirement.[Note:BCD Article 96(4)]
(1) An originator of a synthetic securitisation may calculate risk weighted exposure amount, and, as relevant, expected loss amounts, for the securitised exposures in accordance with BIPRU 9.5.3 R and BIPRU 9.5.4 R, if significant credit risk has been transferred to third parties, either through funded or unfunded credit protection, and the transfer complies with the conditions in (2)-(5).(2) The securitisation documentation must reflect the economic substance of the transaction.(3)
(1) In calculating risk weighted exposure amounts for the securitised exposures, where the conditions in BIPRU 9.5.1 R are met, the originator of a synthetic securitisation must, subject to the treatment of maturity mismatches set out in BIPRU 9.5.6 R-BIPRU 9.5.8 R, use the relevant calculation methodologies set out in BIPRU 9.9-BIPRU 9.14and not those set out in BIPRU 3 (Standardised credit risk) or BIPRU 4 (IRB approach).(2) For firms calculating risk weighted exposure amounts
Subject to the treatment of maturity mismatches set out in BIPRU 9.5.6 R-BIPRU 9.5.8 R, the originator must calculate risk weighted exposure amounts in respect of all tranches in the securitisation in accordance with the provisions of BIPRU 9.9-BIPRU 9.14. For example, where a tranche is transferred by means of unfunded credit protection to a third party, the risk weight of that third party must be applied to the tranche in the calculation of the originatorsrisk weighted exposure
For the purposes of calculating risk weighted exposure amounts in accordance with BIPRU 9.5.3 R, any maturity mismatch between the credit protection by which the tranching is achieved and the securitised exposures must be taken into consideration in accordance with BIPRU 9.5.7 R-BIPRU 9.5.8 R.[Note:BCD Annex IX Part 2 point 5]
The maturity of the securitised exposures must be taken to be the longest maturity of any of those exposures subject to a maximum of five years. The maturity of the credit protection must be determined in accordance with BIPRU 5 (Credit risk mitigation) and, so far as relevant, BIPRU 4.10 (Credit risk mitigation under the IRB approach).[Note:BCD Annex IX Part 2 point 6]
(1) An originator must ignore any maturity mismatch in calculating risk weighted exposure amounts for tranches appearing pursuant to BIPRU 9.9-BIPRU 9.14 with a risk weight of 1250%. For all other tranches the maturity mismatch treatment prescribed in BIPRU 5.8 (Maturity mismatches) must be applied in accordance with the following formula:RW* is [RW(SP) x (t-t*)/(T-t*)] + [RW(Ass) x (T-t)/(T-t*)](2) The following apply for the purposes of the formula in (1):(a) RW* is risk weighted
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 the purposes of BIPRU 9.10.2 R (as it applies to the IRB approach):(1) the exposure value of the position may be derived from the risk weighted exposure amounts taking into account any reductions made in accordance with BIPRU 9.10.4 RBIPRU 9.10.6 R;(2) where the supervisory formula method is used to calculate risk weighted exposure amounts and L KIRBR and [L+T] > KIRBR the position may be treated as two positions with L equal to KIRBR for the more senior of the positions.[Note:BCD
Without prejudice to BIPRU 5.6.1 R, eligibility is limited to reciprocal cash balances between a firm and a counterparty. Only loans and deposits of the lending firm may be subject to a modification of risk weighted exposure amounts and, as relevant, expected loss amounts as a result of an on-balance sheet netting agreement.[Note: BCD Annex VIII Part 1 point 4]
For on-balance sheet netting agreements - other than master netting agreements covering repurchase transactions, securities or commodities lending or borrowing transactions and/or other capital market-driven transactions – to be recognised for the purposes of BIPRU 5 the following conditions must be satisfied:(1) they must be legally effective and enforceable in all relevant jurisdictions, including in the event of the insolvency or bankruptcy of a counterparty;(2) the firm must
(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
Where a firm or its group has been granted an Article 129 permission, each competent authority, including the lead competent authority, will need to take action to apply that Article 129 permission to the institutions that they authorise. Part 3 of the Capital Requirements Regulations 2006 governs how the FSA will take that action, whether or not the FSA is the lead competent authority.
When an advanced measurement approach is intended to be used by an EEA parent institution and its subsidiary undertakings or the subsidiary undertakings of an EEAparent financial holding company, the application of a firm in accordance with BIPRU 1.3.14 D must include the elements listed in BIPRU 6.5.5 R (Minimum standards for the advanced measurement approach).[Note:BCD Article 105(2)]
When an advanced measurement approach is intended to be used by an EEA parent institution and its subsidiary undertakings or the subsidiary undertakings of an EEA parent financial holding company, the application of a firm must include a description of the methodology used for allocating operational risk capital between the different entities of the group.[Note:BCD annexX Part 3 point 30]
The following must comply with the obligations laid down in BIPRU 11.3 on an individual basis:(1) a firm which is neither a parent undertaking nor a subsidiary undertaking;(2) a firm which is excluded from a UK consolidation group or non-EEA sub-group pursuant to BIPRU 8.5; and[Note: BCD Article 68(3)](3) a firm which is part of a group which has been granted an investment firm consolidation waiver under BIPRU 8.4;[Note: CAD.Article 23]
A firm which is included within comparable disclosures provided on a consolidated basis by a parent undertaking whose head office is not in an EEA State may apply for a waiver from the relevant disclosure requirements in BIPRU 11.2.2 R - BIPRU 11.2.5 R. The FSA's approach to granting waivers is set out in the Supervision manual (see SUP 8).[Note: BCD Article 72(3)]
BIPRU 4 also implements Annex VIII of the Banking Consolidation Directive so far as it applies to the IRB approach. In particular, it implements (in part):(1) from Part 1 of that Annex, points 12-16, 19-22, 26(g)(ii) and 27;(2) from Part 2 of that Annex, points 8-11; and(3) from Part 3 of that Annex, points 1, 11, 20, 23-24, 58(h), 61, 64-79 and 90-93.
The IRB approach is an alternative to the standardised approach for calculating a firm's credit risk capital requirements. It may be applied to all a firm'sexposures or to some of them, subject to various limitations on partial use as set out in BIPRU 4.2. Under the IRB approach capital requirements are based on a firm's own estimates of certain parameters together with other parameters set out in the Banking Consolidation Directive.
The FSA recognises that the nature of IRB approaches will vary between firms. The scope of and the requirements and conditions set out in an IRB permission may therefore differ in substance or detail from BIPRU 4 in order to address individual circumstances adequately. However any differences will only be allowed if they are compliant with the Banking Consolidation Directive. An IRB permission will implement any such variation by modifying the relevant provisions of GENPRU and
If a provision of the Handbook relating to the IRB approach says that a firm may do something if its IRB permission allows it, a firm may do that thing unless its IRB permission expressly says that it may not do so except that:(1) BIPRU 4.2.18 R - BIPRU 4.2.19 R (Sequential implementation of IRB approach) and BIPRU 4.2.26 R (1)-BIPRU 4.2.26R (5) (Combined use of standardised approach with IRB approach) only apply if expressly permitted by a firm'sIRB permission;(2) a firm may
(1) A firm must regard information as proprietary information if sharing that information with the public would undermine its competitive position.(2) Proprietary information may include information on products or systems which, if shared with competitors, would render a firm's investments therein less valuable.[Note: BCD Annex XII Part 1 point 2]
(1) A firm must assess the need to publish some or all disclosures more frequently than annually in the light of the relevant characteristics of its business such as:(a) scale of operations;(b) range of activities;(c) presence in different countries;(d) involvement in different financial sectors;(e) participation in international financial markets; and(f) participation in payment, settlement and clearing systems.(2) In making its assessment under (1) a firm must pay particular