Related provisions for BIPRU 3.2.7
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(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
1Significant credit risk will be considered to have been transferred for originators in the following cases:(1) the risk weighted exposure amounts of the mezzanine securitisation positions held by the originator in the securitisation do not exceed 50% of the risk weighted exposure amounts of all mezzanine securitisation positions existing in this securitisation;(2) where there are no mezzanine securitisation positions in a given securitisation and the originator can demonstrate
1An originator's application for a waiver of the requirements in BIPRU 9.3.7R and BIPRU 9.3.8R must demonstrate that the following conditions are satisfied:(1) it has policies and methodologies in place which ensure that the possible reduction of capital requirements which the originator achieves by the securitisation is justified by a commensurate transfer of credit risk to third parties; and(2) that such transfer of credit risk to third parties is also recognised for the purposes
1Subject to BIPRU 9.3.22G, BIPRU 9.15.9R and BIPRU 9.15.10R, where the originator or sponsor of a securitisation fails to meet any of the requirements in BIPRU 9.3.18R to BIPRU 9.3.20R (disclosure requirements) in any material respect by reason of its negligence or omission, the FSA will use its powers under section 45 (Variation etc on the Authority's own initiative) of the Act to impose an additional risk weight of no less than 250% (capped at 1250%) of the risk weight that
1When calculating the additional risk weight it will impose, the FSA will take into account the exemption of certain securitisations from the scope of BIPRU 9.15.3R under BIPRU 9.15.9R and BIPRU 9.15.10R and, if those exemptions are relevant, reduce the risk weight it would otherwise impose.[Note:BCD, Article 122a, paragraph 5]
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]
In the opinion of the European Commission (and in the wording of the Single Market Directives) "only activities carried on within the territory of another Member State should be the subject of prior notification" (Commission interpretative communication: Freedom to provide services and the interests of the general good in the Second Banking Directive (97/C 209/04)). In determining, for the purposes of notification, whether a service is to be provided 'within' another EEA State,
Where, however, a credit institution or MiFID investment firm:22(1) intends to send a member of staff or a temporarily authorised intermediary to the territory of another EEA State on a temporary basis to provide financial services; or(2) provides advice, of the type that requires notification under either MiFID or the Banking Consolidation Directive2, to customers in another EEA State;2 the firm should make a prior notification under the freedom to provide services.
The key distinction in relation to temporary activities is whether a firm should make its notification under the freedom of establishment in a Host State, or whether it should notify under the freedom to provide services into a Host State. It would be inappropriate to discuss such a complex issue in guidance of this nature. It is recommended that, where a firm is unclear on the distinction, it should seek appropriate advice. In either case, where a firm is carrying on activities
The FSA considers that, in order to comply with Principle 3:Management and control (see PRIN 2.1.1 R), a firm should have appropriate procedures to monitor the nature of the services provided to its customers. Where a UK firm has non-resident customers but has not notified the EEA State in which the customers are resident that it wishes to exercise its freedom to provide services, the FSA would expect the firm's systems to include appropriate controls. Such controls would include
(1) A firm must2 not use a credit assessment of an eligible ECAI to determine the risk weight of a securitisation position in accordance with BIPRU 9.9 unless it complies with the principles of credibility and transparency as elaborated in (2) to (6).222(2) There must be no mismatch between the types of payments reflected in the credit assessment and the types of payment to which the firm is entitled under the contract giving rise to the securitisation position in question.(3)
2Where BIPRU 9.7.2R (5) applies to securitisation positions in an ABCP programme, the firm may be granted a waiver which allows it to use the risk weight assigned to a liquidity facility in order to calculate the risk weighted exposure amount for the positions in the ABCP programme, provided that the liquidity facility ranks pari passu with the positions in the ABCP programme so that they form overlapping positions and 100% of the commercial paper issued by the ABCP programme
In relation to a firm, intra-group exposures that are exempt under a non-core large exposures group waiver may be excluded when calculating the limits in BIPRU 10.5 (Limits on exposures) that apply to the UK consolidation group or non-EEA sub-group, provided that the total amount of such exposures and the other exposures which are exempt under a non-core large exposures group waiver do not exceed the limit in BIPRU 10.9A.7 R (Non-trading book backstop large exposure limit for
In the case where a firm calculating risk weighted exposure amounts under the standardised approach has more than one form of credit risk mitigation covering a single exposure (e.g. a firm has both collateral and a guarantee partially covering an exposure), the firm must subdivide the exposure into parts covered by each type of credit risk mitigation tool (e.g. a part covered by collateral and a portion covered by guarantee) and the risk weighted exposure amount for each portion
Subject to BIPRU 13.8.3 R, in respect of a securities financing transaction, if a firm:(1) has a CCR internal model method permission which covers the transaction; or(2) has a master netting agreement internal models approach permission which covers the transaction;then the firm must use the CCR internal model method approach or the master netting agreement internal models approach, as applicable, to calculate the exposure value for that transaction unless an exception in BIPRU
Notwithstanding BIPRU 13.8.2 R, a firm must determine the exposure value of a credit risk exposure outstanding with a central counterparty in accordance with BIPRU 13.8.8 R1, provided that the central counterparty'scounterparty credit riskexposures with all participants in its arrangements are fully collateralised on a daily basis.[Note: BCD Article 78(4) in respect of SFTs]
A firm may attribute an exposure value of zero for CCR to a securities financing transaction or to any other exposures in respect of that transaction (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) which is outstanding with a central counterparty and has not been rejected by the central counterparty.[Note: BCD Annex III Part 2 point 6 in respect of SFTs]
In carrying out the calculations for the purposes of this chapter a firm must only include the relevant proportion of an undertaking that is a member of the UK consolidation group or non-EEA sub-group:(1) by virtue of a consolidation Article 12(1) relationship;(2) by virtue of an Article 134 relationship; or(3) because the group holds a participation in it.
In BIPRU 8.5.5 R, the relevant proportion is either:(1) (in the case of a participation) the proportion of shares issued by the undertaking held by the UK consolidation group or the non-EEA sub-group; or(2) (in the case of a consolidation Article 12(1) relationship or an Article 134 relationship), such proportion (if any) as stated in the Part IV permission of the firm.
Article 73(1) of the Banking Consolidation Directive allows the FSA to decide to exclude an institution, financial institution, asset management company or ancillary services undertaking that is a subsidiary undertaking in, or an undertaking in which a participation is held by, the UK consolidation group or non-EEA sub-group for the purposes of this chapter in the following circumstances:(1) where the head office of the undertaking concerned is situated in a country outside the
An originator which, in respect of a securitisation in the non-trading book,1 has made use of BIPRU 9.3.1 R in the calculation of risk weighted exposure amounts, or a sponsor, must not, with a view to reducing potential or actual losses to investors, provide support to the securitisation beyond its contractual obligations.[Note: BCD Article 101(1)]
1An originator which has sold instruments in its trading book to an SSPE and no longer holds market risk capital requirements for these instruments, or a sponsor, must not, with a view to reducing potential or actual losses to investors, provide support to the securitisation beyond its contractual obligations.[Note: BCD Article 101(1)]
If an originator or sponsor fails to comply with BIPRU 9.6.1 R or BIPRU 9.6.1A R1 in respect of a securitisation, it must:(1) hold capital against all of the securitised exposures associated with the securitisation transaction as if they had not been securitised; and(2) disclose publicly:(a) that it has provided non-contractual support;1 and(b) the regulatory capital impact of doing so.[Note: BCD Article 101(2)]
A UK firm should be aware that the guidance is the FSA's interpretation of the Single Market Directives, the Act and the legislation made under the Act. The guidance is not exhaustive and is not a substitute for firms consulting the legislation or taking their own legal advice in the United Kingdom and in the relevant EEA States.
In some circumstances, a UK firm that is carrying on business which is outside the scope of the Single Market Directives has a right under the Treaty to carry on that business. For example, for1 an insurer carrying on both direct insurance and reinsurance business, the authorisationof reinsurance business 1is not covered by the Insurance Directives . The firm1may, however, have rights under the Treaty in respect of its reinsurance1 business. Such UK firms may wish to consult with
The risks arising from securitisation transactions in relation to which a firm is investor,3originator or sponsor, including reputational risks,3 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 risk assessment and management decisions.[Note:BCD Annex V point 8]3
This chapter applies to a UK firm, that is, a person whose head office is in the United Kingdom and which is entitled to carry on an activity in another EEA State subject to the conditions of a Single Market Directive. Such an entitlement is referred to in the Act as an EEA right and its exercise is referred to in the Handbook as passporting.1
This chapter also applies to a UK firm which wishes to establish a branch in, or provide cross border services into, Gibraltar. The Financial Services and Markets Act 2000 (Gibraltar) Order 2001 provides that a UK firm is to be treated as having an entitlement corresponding to its EEA right, to establish a branch in, or provide cross border services into, Gibraltar under any of the Single Market Directives. So, references in this chapter to an EEA State or an EEA right include
1This chapter applies to an incoming EEA firm other than an EEA pure reinsurer7 which has established a branch in, or is providing cross border services into, the United Kingdom under one of the Single Market Directives or the auction regulation8 and, therefore, qualifies for authorisation under Schedule 3 to the Act.
In addition, the chapter does not give guidance on the procedures for making an application for top-up permission, to carry on regulated activities in the United Kingdom which are outside the scope of the Single Market Directives and for which the firm cannot exercise Treaty rights. Incoming EEA firms seeking a top-up permission should refer to 3SUP 13A3.
An external credit assessment may be used to determine the risk weight of an exposure in accordance with BIPRU 3.2.20 R to BIPRU 3.2.26 R only if the ECAI which provides it is recognised by the FSA as an eligible ECAI for the purposes of the standardised approach to credit risk.[Note: BCD Article 81(1)]
Under Regulation 22(3) of the Capital Requirements Regulations 2006 the FSA is obliged to determine, taking into account the requirements set out in Schedule 2 to the Capital Requirements Regulations 2006, with which of the credit quality steps set out in Part 1 of Annex VI of the Banking Consolidation Directive the relevant credit assessments of an eligible ECAI are to be associated. Those determinations should be objective and consistent.
A firm'sUK consolidation group means a1 group that is identified as a UK consolidation group in accordance with the decision tree in BIPRU 8 Annex 1 R (Decision tree identifying a UK consolidation group); the members of that group are:111(1) 1where either Test 1A or Test 1B in BIPRU 8 Annex 1 R apply, the members of the consolidation group made up of the sub-group of the parent institution in a Member State identified in BIPRU 8 Annex 1 R together with any other person who is
BIPRU 8 Annex 1 (Decision tree identifying a UK consolidation group) shows that Articles 125 and 126 of the Banking Consolidation Directive are important in deciding whether the FSA is obliged to supervise a group or part of a group and hence whether that group or part of a group is a UK consolidation group. BIPRU 8 Annex 4 (Text of Articles 125 and 126 of the Banking Consolidation Directive) sets out these articles together with an explanation of how those articles should be
(1) 1This chapter applies to an EEA firm that wishes to exercise an entitlement to establish a branch in, or provide cross border services into, the United Kingdom under a Single Market Directive or the auction regulation7. (The Act refers to such an entitlement as an EEA right and its exercise is referred to in the Handbook as "passporting".) (See SUP App 3 (Guidance on passporting issues) for further guidance on passporting.)(2) This chapter also applies to:(a) a Treaty firm
(1) EEA firms should note that this chapter only addresses the procedures which the FSA will follow under the Act.So, an EEA firm should consider this guidance in conjunction with the requirements with which it will have to comply in its Home State. 6(2) The guidance in this chapter represents the FSA's interpretation of the Single Market Directives, the auction regulation,7 the Act and the secondary legislation made under the Act. The guidance is not exhaustive and should not
The purpose of this appendix is to give guidance:(1) to UK firms on some of the issues that arise when carrying on passported activities1(see SUP App 3.5and SUP App 3.6);111(2) to all firms on the relationship between regulated activities and activities passported under the Single Market Directives (see SUP App 3.9and SUP App 3.101).11