Related provisions for BIPRU 3.4.31
21 - 40 of 94 items.
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
If a firm is using or is applying to use the advanced IRB approach for some or all of its exposures in the sovereign, institution and corporate IRB exposure class, then specialised lending exposures treated under BIPRU 4.5.8 R (Slotting) must be treated as being dealt with under the advanced IRB approach for the purposes of the calculations in BIPRU 4.2.30 R and BIPRU 4.2.31 R. If a firm is not using or applying to use the advanced IRB approach for any of its exposures in the
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)
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)]
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)]
The originator of a traditional securitisation may exclude securitised exposures from the calculation of risk weighted exposure amounts and expected loss amounts if either of the following conditions is fulfilled:(1) 2significant credit risk associated with the securitised exposures is considered to have been transferred to third parties; or(2) 2the originator applies a 1250% risk weight to all securitisation positions it holds in the securitisation or deducts these securitisation
Where there is a clean-up call option, the following conditions must be satisfied:(1) the clean-up call option is exercisable at the discretion of the originator;(2) the clean-up call option may only be exercised when 10% or less of the original value of the exposuressecuritised remains unamortised; and(3) the clean-up call option is not structured to avoid allocating losses to credit enhancement positions or other positions held by investors and is not otherwise structured to
The securitisation documentation must not contain clauses that:(1) other than in the case of early amortisation provisions, require positions in the securitisation to be improved by the originator including but not limited to altering the underlying credit exposures or increasing the yield payable to investors in response to a deterioration in the credit quality of the securitised exposures; or(2) increase the yield payable to holders of positions in the securitisation in response
For the purposes of BIPRU 9.4.7 R, an originator will be considered to have maintained effective control over the transferred exposures if it has the right to repurchase from the transferee the previously transferred exposures in order to realise their benefits or if it is obligated to re-assume transferred risk. The originator's retention of servicing rights or obligations in respect of the exposures does not of itself constitute indirect control of the exposures.[Note:BCD Annex
2Significant credit risk will be considered to be transferred for an originator in the following cases:(1) 2the risk weighted exposure amounts of the mezzanine securitisation positions held by the originator in the securitisation do not exceed 50% of the risk weighted exposure amounts of all mezzanine securitisation positions existing in this securitisation;(2) 2where there are no mezzanine securitisation positions in a given securitisation and the originator can demonstrate that
2An originator must notify the appropriate regulator that it is relying on the deemed transfer of significant credit risk under BIPRU 9.4.11R within a reasonable period before or after a relevant transfer, not being later than one month after the date of the transfer. The notification must include the following information:(1) 2the risk weighted exposure amount of the securitised exposures and retained securitisation positions; (2) 2the exposure value of the securitised exposures
2In the event that the appropriate regulator decides that the possible reduction in risk weighted exposure amounts which the originator would achieve by the securitisation referred to in BIPRU 9.4.11R is not justified by a commensurate transfer of credit risk to third parties, it will use its powers under section 55J (Variation etc on the Authority's own initiative) of the Act to require the firm to increase its risk weight exposure amount to an amount commensurate with the appropriate
Subject to BIPRU 9.11.5 R, the risk weighted exposure amount of a rated securitisation position or resecuritisation position2 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 .2[Note:BCD Annex IX Part 4 point 6]2
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)
(1) This provision contains guidance on the requirement in BIPRU 9.11.6 R (1) that the composition of the pool of exposuressecuritised must be known at all times.(2) The composition should be known sufficiently at the time of purchase for the firm to be able accurately to calculate the risk weighted exposure amounts of the pool under the standardised approach.(3) Thereafter, any change to the composition of the pool during the life of the transaction that would lead to an increase
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
When the conditions in this paragraph have been met, and in order to determine its exposure value, a conversion figure of 50% may be applied to the nominal amount of a liquidity facility. The risk weight to be applied is the highest risk weight that would be applied to any of the securitised exposures under the standardised approach by a firm holding the exposures. Those conditions are as follows:11(1) the liquidity facility documentation must clearly identify and limit the circumstances
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]
The following parties may be recognised as eligible providers of unfunded credit protection:(1) central governments and central banks;(2) regional governments or local authorities;(3) multilateral development banks;(4) international organisationsexposures which are assigned a 0% risk weight under the standardised approach;(5) public sector entities, claims on which are treated as claims on institutions or central governments under the standardised approach;(6) institutions;(7)
When a firm conducts an internal hedge using a credit derivative – i.e. hedges the credit risk of an exposure in the non-trading book with a credit derivative booked in the trading book – in order for the protection to be recognised as eligible for the purposes of BIPRU 4.10 or BIPRU 5 the credit risk transferred to the trading book must be transferred out to a third party or parties. In such circumstances, subject to the compliance of such transfer with the requirements for the
Subject to BIPRU 5.7.9 R, for the credit protection deriving from a guarantee or credit derivative to be recognised the following conditions must be met:(1) the credit protection must be direct;(2) the extent of the credit protection must be clearly defined and incontrovertible;(3) the credit protection contract must not contain any clause, the fulfilment of which is outside the direct control of the lender, that:(a) would allow the protection provider unilaterally to cancel the
Where an exposure is protected by a guarantee which is counter-guaranteed by a central government or central bank, a regional government or local authority or a public sector entity claims on which are treated as claims on the central government in whose jurisdiction they are established under the standardised approach, a multilateral development bank or an international organisation,1to which a 0% risk weight is assigned under or by virtue of the standardised approach, or a public
The treatment of BIPRU 5.7.9 R applies, also, to an exposure which is not counter-guaranteed by an entity listed in that rule if the exposure's counter-guarantee is in its turn directly guaranteed by one of the listed entities and the conditions listed in BIPRU 5.7.9 R are satisfied.[Note: BCD Annex VIII Part 2 point 17]
(1) The value of unfunded credit protection (G) is the amount that the protection provider has undertaken to pay in the event of the default or non-payment of the borrower or on the occurrence of other specified credit events.(2) In the case of credit derivatives which do not include as a credit event restructuring of the underlying obligation involving forgiveness or postponement of principal, interest or fees that result in a credit loss event (e.g. value adjustment, the making
Where unfunded credit protection is denominated in a currency different from that in which the exposure is denominated (a currency mismatch) the value of the credit protection must be reduced by the application of a volatility adjustment HFX as follows:G* = G x (1-HFX)where:(1) G is the nominal amount of the credit protection;(2) G* is G adjusted for any foreign currency risk; and(3) Hfx is the volatility adjustment for any currency mismatch between the credit protection and the
For the purposes of BIPRU 3.2.20 R to BIPRU 3.2.26 R, g shall be the risk weight to be assigned to an exposure, the exposure value (E) of1 which is fully protected by unfunded credit protection (GA), where:(1) g is the risk weight of exposures to the protection provider as specified under the standardised approach; 1(2) GA is the value of G* as calculated under BIPRU 5.7.17 R further adjusted for any maturity mismatch as laid down in BIPRU 5.8; and1(3) 1E is the exposure value
Where the protected amount is less than the exposure value and the protected and unprotected portions are of equal seniority – i.e.1 the firm and the protection provider share losses on a pro-rata basis, proportional regulatory capital relief is afforded. For the purposes of BIPRU 3.2.20 R to BIPRU 3.2.26 Rrisk weighted exposure amounts must be calculated in accordance with the following formula:(E-GA) x r + GA x gwhere:1(1) E is the exposure value; according to BIPRU 3.2.1 R
A firm may apply the treatment provided for in BIPRU 3.4.5 R to BIPRU 3.4.7 R to exposures or parts of exposures guaranteed by the central government or central bank, where the guarantee is denominated in the domestic currency of the borrower and the exposure is funded in that currency.[Note: BCD Annex VIII Part 3 point 89]
Where a firm obtains credit protection for a number of exposures under terms that the first default among the exposures will trigger payment and that this credit event will terminate the contract, the firm may modify the calculation of the risk weighted exposure amount and, as relevant, the expected loss amount of the exposure which would in the absence of the credit protection produce the lowest risk weighted exposure amount under the standardised approach or the IRB approach
Where the nth default among the exposures triggers payment under the credit protection provided by a credit derivative, a firm purchasing the protection may only recognise the protection for the calculation of risk weighted exposure amounts and, as relevant, expected loss amounts if protection has also been obtained for defaults 1 to n-1 or when n-1 defaults have already occurred. In such cases the methodology must follow that set out in BIPRU 5.7.27 R for first-to-default derivatives
A firm must disclose the following information regarding compliance with BIPRU 3, BIPRU 4, BIPRU 6, BIPRU 7, BIPRU 10 and the overall Pillar 2 rule:(1) a summary of the firm's approach to assessing the adequacy of its internal capital to support current and future activities;(2) for a firm calculating risk weighted exposure amounts in accordance with the standardised approach to credit risk, 8% of the risk weighted exposure amounts for each of the standardised credit risk exposure
For retail exposures, the requirement under BIPRU 11.5.4 R (3) applies to each of the following categories:(1) exposures to retail SMEs;(2) retail exposures secured by real estate collateral;(3) qualifying revolving retail exposures; and(4) other retail exposures.[Note: BCD Annex XII Part 2 point 4(part)]
For equity exposures, the requirement under BIPRU 11.5.4 R (3) applies to:(1) each of the approaches ( the simple risk weight approach, the PD/LGD approach and the internal models approach) provided for in BIPRU 4.7.5 R to BIPRU 4.7.6 R, BIPRU 4.7.9 R to BIPRU 4.7.11 R, BIPRU 4.7.14 R to BIPRU 4.7.16 R, BIPRU 4.7.24 R to BIPRU 4.7.25 R;(2) exchange traded exposures, private equity exposures in sufficiently diversified portfolios, and other exposures;(3) exposures subject to supervisory
A firm must disclose the following information regarding its exposure to counterparty credit risk:(1) a discussion of the methodology used to assign internal capital and credit limits for counterparty credit exposures;(2) a discussion of policies for securing collateral and establishing credit reserves;(3) a discussion of policies with respect to wrong-way riskexposures;(4) a discussion of the impact of the amount of collateral the firm would have to provide given a downgrade
A firm must disclose the following information regarding its exposure to credit risk and dilution risk:(1) the definitions for accounting purposes of past due and impaired;(2) a description of the approaches and methods adopted for determining value adjustments and provisions;(3) the total amount of exposures after accounting offsets and without taking into account the effects of credit risk mitigation, and the average amount of the exposures over the period broken down by different
The information to be disclosed under BIPRU 11.5.8 R (9) must comprise:(1) a description of the type of value adjustments and provisions;(2) the opening balances;(3) the amounts taken against the provisions during the period;(4) the amounts set aside or reversed for estimated probable losses on exposures during the period, any other adjustments including those determined by exchange rate differences, business combinations, acquisitions and disposals of subsidiary undertakings,
For a firm calculating risk weighted exposure amounts in accordance with the standardised approach to credit risk, the following information must be disclosed for each of the standardised credit risk exposure classes;(1) the names of the nominated ECAIs and export credit agencies and the reasons for any changes;(2) the standardised credit risk exposure classes for which each ECAI or export credit agency is used;(3) a description of the process used to transfer the issuer and issue
A firm calculating risk weighted exposure amounts for specialised lending exposures in accordance with BIPRU 4.5.8 R to BIPRU 4.5.10 R or equity exposures in accordance with BIPRU 4.7.9 R to BIPRU 4.7.10 R (the simple risk weight approach) must disclose the exposures assigned:(1) to each category of the table in BIPRU 4.5.9 R; or(2) to each risk weight mentioned in BIPRU 4.7.9 R to BIPRU 4.7.10 R.[Note: BCD Annex XII Part 2 point 8]
A firm must disclose the following information regarding the exposures in equities not included in the trading book:(1) the differentiation between exposures based on their objectives, including for capital gains relationship and strategic reasons, and an overview of the accounting techniques and valuation methodologies used, including key assumptions and practices affecting valuation and any significant changes in these practices;(2) the balance sheet value, the fair value and,
A firm must disclose the following information on its exposure to interest rate risk on positions not included in the trading book:(1) the nature of the interest rate risk and the key assumptions (including assumptions regarding loan prepayments and behaviour of non-maturity deposits), and frequency of measurement of the interest rate risk; and(2) the variation in earnings, economic value or other relevant measure used by the management for upward and downward rate shocks according
A firm calculating risk weighted exposure amounts in accordance with BIPRU 9 or capital resource requirements according to BIPRU 7.2.48A R to BIPRU 7.2.48K R4 must disclose the following information, where relevant separately for its trading book and non-trading book:4(1) a description of the firm's objectives in relation to securitisation activity;(1A) the nature of other risks, including liquidity risk inherent in securitised assets;4(1B) the type of risks in terms of seniority
For contracts that are structured to settle outstanding exposure following specified payment dates and where the terms are reset such that the market value of the contract is zero on these specified dates, a firm must treat the residual maturity as equal to the time until the next reset date.[Note: BCD Annex III Part 3, Table 1 footnote 27 (part)]
For the purpose of calculating the potential future credit exposure in accordance with BIPRU 13.4.3 R a firm may apply the percentages in the table in BIPRU 13.4.11 R instead of those prescribed in the table in BIPRU 13.4.5 R provided that it makes use of the commodity extended maturity ladder approach for contracts relating to commodities other than gold.
This table belongs to BIPRU 13.4.10 R
Residual maturity |
Precious metals (except gold) |
Base metals |
Agricultural products (softs) |
Other, including energy products |
One year or less |
2% |
2,5% |
3% |
4% |
Over one year, not exceeding five years |
5% |
4% |
5% |
6% |
Over five years |
7.5% |
8% |
9% |
10% |
[Note: BCD Annex III Part 3, Table 2]
In application of the CCR mark to market method:(1) in BIPRU 13.4.2 R a firm may obtain the current replacement cost for the contracts included in a netting agreement by taking account of the actual hypothetical net replacement cost which results from the agreement; in the case where netting leads to a net obligation for the firm calculating the net replacement cost, the current replacement cost is calculated as "0"; and(2) in BIPRU 13.4.3 R a firm may reduce the figure for potential
For the calculation of the potential future credit exposure according to the formula in BIPRU 13.4.17 R perfectly matching contracts included in the netting agreement may be taken into account as a single contract with a notional principal equivalent to the net receipts.[Note: BCD Annex III Part 7 point c(ii) (part)]
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]
(1) Where a firm has two or more overlapping positions in a securitisation the firm must, to the extent that the positions overlap, include in its calculation of risk weighted exposure amounts only the position, or portion of a position, producing the higher risk weighted exposure amounts. The firm may also recognise such an overlap between capital charges for specific risk in relation to positions in the trading book and capital charges for positions in the non-trading book,
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)]
Table: Calculation of net underwriting exposure
This table belongs to BIPRU 7.8.34R
Time |
Reduction factor to be applied to net underwriting position |
100% |
|
100% |
|
90% |
|
75% |
|
75% |
|
50% |
|
25% |
|
Working day 6 onwards |
0% |
A firm must take reasonable steps to establish and maintain such systems and controls to monitor and manage its underwriting and sub-underwriting business as are appropriate to the nature, scale and complexity of its underwriting and sub-underwriting business. In particular, a firm must have systems to monitor and control its underwritingexposures between the time of the initial commitment and working day one in the light of the nature of the risks incurred in the markets in
A firm should take reasonable steps to:(1) allocate responsibility for the management of its underwriting and sub-underwriting business;(2) allocate adequate resources to monitor and control its underwriting and sub-underwriting business;(3) satisfy itself that its systems to monitor exposure to counterparties will calculate, revise and update its exposure to each counterparty arising from its underwriting or sub-underwriting business;(4) satisfy itself of the suitability of each
(1) An originator of a synthetic securitisation may calculate risk weighted exposure amounts1, 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 either of the following conditions is fulfilled:1(a) 1significant credit risk is considered to have been transferred to third parties, either through funded or unfunded credit protection; or(b) 1the originator applies a 1250% risk weight to all securitisation
1In the event that the appropriate regulator decides that the possible reduction in risk weighted exposure amounts which the originatorcredit institution would achieve by the securitisation referred to in BIPRU 9.5.1R (6) is not justified by a commensurate transfer of credit risk to third parties, it will use its powers under section 55J (Variation etc on the Authority's own initiative) of the Act to require the firm to increase its risk weight exposure amount to an amount commensurate
(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
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
Where BIPRU 13.8.2 R does not apply, a firm must use one of the following approaches to determine the exposure value of a securities financing transaction, as appropriate:(1) if the transaction is covered by a master netting agreement which satisfies the requirements for recognition set out in BIPRU 5.6.1 R to BIPRU 5.6.3 R, a firm may calculate the exposure value under the master netting agreement method set out in BIPRU 5.6.5 R to BIPRU 5.6.11 R (Calculation of the fully adjusted
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
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 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
E* must be calculated according to the following formula:E* = max {0, [(∑(E) -∑ (C)) + ∑ (|net position in each security| x Hsec) + (∑|Efx| x Hfx)]}where:(1) (where risk weighted exposure amounts are calculated under the standardised approach) E is the exposure value for each separate exposure under the agreement that would apply in the absence of the credit protection;(2) C is the value of the securities or commodities borrowed, purchased or received or the cash borrowed or received
The master netting agreement internal models approach1 is an alternative to using the supervisory volatility adjustments approach or the own estimates of volatility adjustments approach in calculating volatility adjustments for the purpose of calculating the ‘fully adjusted exposure value’ (E*) resulting from the application of an eligible master netting agreement covering repurchase transactions, securities or commodities lending or borrowing transactions and/or other capital
A firm may use the master netting agreement internal models approach independently of the choice it has made between the standardised approach and the IRB approach for the calculation of risk weighted exposure amounts. However, if a firm uses the master netting agreement internal models approach, it must do so for all counterparties and securities, excluding immaterial portfolios where it may use the supervisory volatility adjustments approach or the own estimates of volatility
(1) A firm must be able to satisfy the appropriate regulator that the firm's risk management system for managing the risks arising on the transactions covered by the master netting agreement is conceptually sound and implemented with integrity and that, in particular, the minimum qualitative standards in (2) – (11) are met.(2) The internal risk-measurement model used for calculation of potential price volatility for the transactions is closely integrated into the daily risk-management
2This paragraph provides guidance in relation to BIPRU 5.6.19R (8). In carrying out the stress testing programme, a firm should evaluate the simultaneous impact of individual stress scenarios on its counterparty exposures, its positions and the aggregate amount of margin calls that it would receive. A firm's stress scenarios should take into account the possibility that the liquidation period may be substantially longer than 5 days for repurchase transactions and securities lending
The fully adjusted exposure value (E*) for a firm using the master netting agreement internal models approach must be calculated according to the following formula:E* = max {0, [(∑E -∑C) + (VaR output of the internal models)]}where(1) (where risk weighted exposure amounts are calculated under the standardised approach) E is the exposure value for each separate exposure under the agreement that would apply in the absence of the credit protection;(2) C is the value of the securities
If the calculation of the amount of an exposure or of a combination of exposures under BIPRU 13 would materially understate the amount of the counterparty credit risk the firm must increase the amount of the credit risk capital requirement by an amount sufficient to compensate for that understatement.
If a firm in relation to an exposure covered by BIPRU 13:(1) has an exposure of a non-standard type; or(2) an exposure that is part of a non-standard arrangement; or(3) has an exposure that, taken together with other exposures (whether or not they are subject to BIPRU 13), gives rise to a non-standard counterparty credit risk; or(4) is subject to the rule in BIPRU 13.2.1 R;it must notify the appropriate regulator as soon as practicable of that fact, the counterparty involved,
A firm must judge the question of what is non-standard for the purposes of BIPRU 13.2.2 R by reference to the standards:(1) prevailing at the time the rule is being applied; and(2) of firms generally who carry on business which might give rise to exposures covered by BIPRU 13 rather than merely by reference to the firm's own business.
The appropriate regulator 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.
(1) The appropriate regulator expects firms to conduct regular stress testing in relation to their securitisation activities and off-balance sheet exposures. The stress tests should consider the firm-wide impact of those activities and exposures in stressed market conditions and the implications for other sources of risk, for example, credit risk, concentration risk, counterparty risk, market risk, liquidity risk and reputational risk. Stress testing of securitisation activities
BIPRU 9 deals with:(1) requirements for investors,3originators and sponsors of securitisations of non-trading bookexposures;3(2) the calculation of risk weighted exposure amount for securitisation positions for the purposes of calculating either the credit risk capital component or the counterparty risk capital component; and3(3) the requirements that investors, originators and sponsors of securitisations in the trading book will have to meet (BIPRU 9.3.1AR, BIPRU 9.3.15R to BIPRU
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% |
This section (BIPRU 3.5) sets out a simplified approach to calculating risk weights. This approach is only relevant to an exposure class for which risk weights are determined by the ratings of a nominated ECAI or an export credit agency. For other exposure classes a firm should use the normal approach under the standardised approach.
The approach in this section is only likely to be relevant for a limited licence firm or a limited activity firm that has only incidental credit exposures and for whom it would be prohibitively costly to establish the systems needed to include the credit assessments of ECAIs and export credit agencies in its regulatory capital calculations. However the approach may be used by other firms if appropriate. A firm should notify the appropriate regulator if it adopts the approach in
Rather than risk weightingexposures individually, a firm eligible to apply the simplified approach should apply a single risk weight to all exposures in each exposure class. The simplified risk weight for exposures in a particular class will be the risk weighting for unrated entities for each exposure class in which the external credit assessments influence risk weights.
Table : Simplified method of calculating risk weights
This table belongs to BIPRU 3.5.4 G.
Exposure class |
Exposure sub-class |
Risk weights |
Comments |
Central government |
Exposures to United Kingdom government or Bank of England in sterling |
0% |
|
Exposures to United Kingdom government or Bank of England in the currency of another EEA State |
0% |
See Note 2. |
|
Exposures to EEA State's central government or central bank in currency of that state |
0% |
||
Exposures to EEA State's central government or central bank in the currency of another EEA State |
0% |
See Notes 2 and 3. |
|
Exposures to central governments or central banks of certain countries outside the EEA in currency of that country |
See next column |
The risk weight is whatever it is under local law. See BIPRU 3.4.6 R for precise details. |
|
Exposures to European Central Bank |
0% |
||
Other exposures |
100% |
||
Regional/local governments |
Exposures to the Scottish Parliament, National Assembly for Wales and Northern Ireland Assembly in sterling |
0% |
|
Exposures to the Scottish Parliament, National Assembly for Wales and Northern Ireland Assembly in the currency of another EEA State |
0% |
See Note 2. |
|
Exposures to EEA States' equivalent regional/local governments in currency of that state |
0% |
See BIPRU 3.4.17 R for details of type of local/regional government covered. |
|
Exposures to EEA States' equivalent regional/local governments in the currency of another EEA State |
0% |
See BIPRU 3.4.17 R for details of type of local/regional government covered. See Notes 2 and 3. |
|
Exposures to local or regional governments of certain countries outside the EEA in currency of that country |
0% |
See BIPRU 3.4.19 R for details of type of local/regional government covered. See Note 1. |
|
Exposures to United Kingdom or EEA States' local/regional government in currency of that state if the exposure has original effective maturity of 3 months or less |
20% |
||
Exposures to United Kingdom or EEA States' local/regional government in the currency of another EEA State if the exposure has original effective maturity of 3 months or less |
20% |
See Note 2. See Note 3 for local/regional government of an EEA State other than the United Kingdom |
|
Exposures to local or regional governments of countries outside the EEA in currency of that country if the exposure has original effective maturity of 3 months or less |
20% |
See Note 1. |
|
Other exposures |
100% |
||
Exposures to a PSE of the United Kingdom or of an EEA State if that PSE is guaranteed by its central government and if the exposure is be in currency of that PSE's state. |
0% |
BIPRU 3.4.24 R describes the United KingdomPSEs covered and BIPRU 3.4.25 R describes the EEAPSEs covered. |
|
Exposures to PSE of a country outside the EEA if that PSE is guaranteed by the country's central government and if the exposure is in currency of that country. |
0% |
See BIPRU 3.4.26 R and Note 1. |
|
Exposures to a PSE of the United Kingdom or of an EEA State in currency of that state if the exposure has original effective maturity of 3 months or less |
20% |
||
Exposures to a PSEof the United Kingdom or of an EEA State in the currency of another EEA State if the exposure has original effective maturity of 3 months or less |
20% |
See Notes 2 and 3. |
|
Exposures to PSE of a country outside the EEA in currency of that country if the exposure has original effective maturity of 3 months or less |
20% |
See Note 1. |
|
Other exposures |
100% |
||
Exposures to multilateral development banks listed in paragraph (1) of the Glossary definition |
0% |
Simplified approach does not apply. Normal rules apply. |
|
Other exposures |
Various |
Treated as an institution |
|
EU2, the International Monetary Fund and the Bank for International Settlements 2 |
0% |
Simplified approach does not apply. Normal rules apply. |
|
Exposures to United Kingdominstitution in sterling with original effective maturity of three months or less |
20% |
||
Exposures to United Kingdominstitution in the currency of another EEA State with original effective maturity of three months or less |
20% |
See Note 2. |
|
Exposures to institution whose head office is in another EEA State in the currency of that state with original effective maturity of three months or less |
20% |
||
Exposures to institution whose head office is in another EEA State in the currency of another EEA State with original effective maturity of three months or less |
20% |
See Notes 2 and 3. |
|
Exposures to institution with a head office in a country outside the EEA in the currency of that country with original effective maturity of three months or less |
20% |
See Note 1. |
|
Exposures to United Kingdominstitution in sterling with original effective maturity of over three months |
50% |
||
Exposures to United Kingdominstitution in the currency of another EEA State with original effective maturity of over three months |
50% |
See Note 2. |
|
Exposures to an EEAinstitution with a head office in another EEA State in the currency of that state with original effective maturity of over three 1months |
50% |
||
Exposures to an EEAinstitution with a head office in another EEA State in the currency of another EEA State with original effective maturity of over three1 months |
50% |
See Notes 2 and 3. |
|
Exposures to institution with a head office in a country outside the EEA in the currency of that country with original effective maturity of over three1 months |
50% |
See Note 1. |
|
Other exposures |
100% |
||
100% |
|||
75% |
Simplified approach does not apply. Normal rules apply. |
||
Mortgages on residential or commercial property |
Various |
Simplified approach does not apply. Normal rules apply. |
|
Past due items |
Various |
Simplified approach does not apply. Normal rules apply. |
|
High risk items |
150% |
Simplified approach does not apply. Normal rules apply. |
|
Various |
Risk weights are based on the risk weight of issuer as described in BIPRU 3.4.110 R. The risk weight of the issuer for this purpose should be calculated under the simplified approach. |
||
Generally 1250%. May look through to underlying exposures if BIPRU 9 allows. |
Use the BIPRU 9rules for unrated exposures under the standardised approach |
||
Short term exposures with rating |
See BIPRU 3.4.112 R. Not applicable as uses ECAI ratings. |
||
May look through to underlying under BIPRU 3.4.123 R |
Various |
Simplified approach does not apply. Normal rules apply. May use simplified approach to underlying if simplified approach applies to underlying. |
|
May use average risk weight under BIPRU 3.4.124 R |
Various |
Simplified approach does not apply. Normal rules apply. May use simplified approach to underlyings if simplified approach applies to underlying. |
|
High risk under BIPRU 3.4.118 R |
150% |
Simplified approach does not apply. Normal rules apply. |
|
Others |
100% |
||
Other items under BIPRU 3.2.9 R (16) |
Various |
Simplified approach does not apply. Normal rules apply. |
|
Note 1: The risk weight should not be lower than the risk weight that applies for national currency exposures of the central government of the third country in question under BIPRU 3.5. That means that this risk weight only applies if the third country is one of those to which BIPRU 3.4.6 R (Preferential risk weight for exposures of the central government of countries outside the EEA that apply equivalent prudential standards) applies. |
|||
Note 2: This is a transitional measure. It lasts until 31 December 2012. |
|||
Note 3: The risk weight should not be lower than the risk weight that applies for exposures of the central government of the EEA State in question in the currency of another EEA State under BIPRU 3.5. |
|||
Table: Capital treatment for free deliveries
This table belongs to BIPRU 14.4.2 R.
Transaction Type |
Up to first contractual payment leg or delivery leg |
From first contractual payment leg or delivery leg up to four days after second contractual payment leg or delivery leg |
From 5 business days post second contractual payment leg or delivery leg until extinction of the transaction |
No capital charge in the trading book |
Treat as an exposure |
Deduct value transferred plus current positive exposure from capital resources |
[Note: CAD Annex II Table 2]
(1) In the case of the non-trading book, a firm must treat an exposure falling into columns 2 and 3 of the table in BIPRU 14.4.3 R in accordance with the relevant provisions of the standardised approach to credit risk or the IRB approach, as the case may be.(2) In the case of the trading book, a firm must apply the treatment set out in BIPRU 14.4.5 R.[Note: CAD Annex II point 3 (part)]
(1) In applying a risk weight to free deliveryexposures treated according to column 3 of the table in BIPRU 14.4.3 R, a firm using the IRB approach may assign PD to counterparties, for which they have no other non-trading bookexposure, on the basis of the counterparty's external rating.(2) A firm using own estimates of LGDs may apply the LGD set out in BIPRU 4.4.34 R to BIPRU 4.4.35 RBIPRU 4.4.35 R (IRB foundation approach: LGDs) to free deliveryexposures treated according to
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]
(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
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
The SPV referred to in GENPRU 2.2.124R (2)(a) must satisfy the following conditions:(1) it is controlled by the firm and may not operate independently of the firm;(2) the rights of investors in the SPV who do not belong to the group of the BIPRU firm in question are not such as to affect the ability of the firm to control the SPV;8(3) all or virtually all of its exposures (calculated by reference to the amount) consist of exposures to the firm or to that firm'sgroup; and8(4) 8it
A BIPRU firm calculating risk weighted exposure amounts under the IRB approach may not include in its capital resources value adjustments and provisions included in the calculation in BIPRU 4.3.8 R (Treatment of expected loss amounts under the IRB approach for trading bookexposures) or value adjustments and provisions for exposures that would otherwise have been eligible for inclusion in general/collective provisions other than in accordance with GENPRU 2.2.190 R.
If a BIPRU firm calculates risk weighted exposure amounts under the IRB approach for the purposes of BIPRU 14 (Capital requirements for settlement and counterparty risk) it must not include valuation adjustments referred to in BIPRU 14.2.18 R (1) (Treatment of expected loss amounts) in its capital resources except in accordance with that rule.
(1) Subject to (2) and (3), a material holding is:11(a) a BIPRU firm's holdings of shares and any other interest in the capital of an individual credit institution or financial institution (held in the non-trading book or the trading book or both) exceeding 10% of the share capital of the issuer, and, where this is the case, any holdings of subordinated debt of the same issuer are also included as a material holding; the full amount of the holding is a material holding; or11(b)
For the purpose of GENPRU 2.2.224 R, in relation to a person ("P") to which a bank has an exposure when P is acting on his own behalf and also an exposure to P when P acts in his capacity as a trustee, custodian or general partner of an investment trust, unit trust, venture capital or other investment fund, pension fund or similar fund (a "fund") the bank may choose to treat this latter exposure as an exposure to the fund, unless such treatment would be misleading.
A BIPRU firm calculating risk weighted exposure amounts under the IRB approach must deduct:(1) any negative amounts arising from the calculation in BIPRU 4.3.8 R (Treatment of expected loss amounts); and(2) any expected loss amounts2 calculated in accordance with BIPRU 4.7.12 R (Expected loss amounts under the simple risk weight approach to calculating risk weighted exposure amounts for exposures belonging to the equity exposureIRB exposure class) or BIPRU 4.7.17 R (Expected loss
A BIPRU firm calculating risk weighted exposure amounts under the IRB approach or the standardised approach to credit risk must deduct from its capital resources the following:1313(1) the exposure amount of securitisation positions which receive a risk weight of 1250% under BIPRU 9 (Securitisation), unless the firm includes the securitisation positions in its calculation of risk weighted exposure amounts (see BIPRU 9.10 (Reduction in risk-weighted exposure amounts)); and13(2)
A firm calculating risk weighted exposure amounts in accordance with the IRB approach must disclose the following information:(1) the scope of the firm'sIRB permission;(2) an explanation and review of:(a) the structure of internal rating systems and relation between internal and external ratings;(b) the use of internal estimates other than for calculating risk weighted exposure amounts in accordance with the IRB approach;(c) the process for managing and recognising credit risk
For the purposes of BIPRU 11.6.1 R (3), the description must include the types of exposure included in the IRB exposure class, the definitions, methods and data for estimation and validation of PD and, if applicable, LGD and conversion factors, including assumptions employed in the derivation of these variables, and the descriptions of material deviations from the definition of default, including the broad segments affected by such deviations.[Note: BCD Annex XII Part 3 point
For the purposes of BIPRU 11.6.1 R (4), where a firm uses its own estimates of LGDs or conversion factors for the calculation of risk weighted exposure amounts for exposures falling into the sovereign, institution and corporate IRB exposure class1, the firm must disclose those exposures separately from exposures for which it does not use such estimates.[Note: BCD Annex XII Part 3 point 1 (part)]
A firm applying credit risk mitigation techniques must disclose the following information:(1) the policies and processes for, and an indication of the extent to which the firm makes use of, on- and off-balance sheet netting;(2) the policies and processes for collateral valuation and management;(3) a description of the main types of collateral taken by the firm;(4) the main types of guarantor and credit derivative counterparty and their creditworthiness;(5) information about market