Related provisions for SYSC 7.1.1
41 - 60 of 212 items.
If a coupon paid on an item of capital is initially set at a specified spread above an index (the initial index basis), and the coupon moves to being set relative to another index (the stepped up index basis), there will be an implied step-up (positive or negative) even if the specified spread does not change. This is because each index may itself include a spread relative to the risk free rate and this spread may differ between the two indexes. The deduction of the swap spread
A BIPRU firm calculating risk weighted exposure amounts under the IRB approach may include in its upper tier two capital resources positive amounts resulting from the calculation in BIPRU 4.3.8 R (Treatment of expected loss amounts), up to 0.6% of the risk weighted exposure amounts calculated under that approach.
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)
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)
The interest rate PRR calculation divides the interest rate risk into the risk of loss from a general move in market interest rates, and the risk of loss from an individual debt security's price changing for reasons other than a general move in market interest rates. These are called general market risk and specific risk respectively.
(1) A firm must calculate the specific risk portion of the interest rate PRR for each debt security by multiplying the market value of the individual net position (ignoring the sign) by the appropriate position risk adjustment from the table in BIPRU 7.2.44R or as specified by BIPRU 7.2.45R - BIPRU 7.2.48L R or by BIPRU 7.11.13 R - BIPRU 7.11.17 R.33(2) Notional positions in zero-specific-risk securities do not attract specific risk.(3) For the purpose of (1), a firm may cap the
3BIPRU 7.2.43 R includes both actual and notional positions. However, notional positions in a zero-specific-risk security do not attract specific risk. For example:(1) interest-rate swaps, foreign-currency swaps, FRAs, interest-rate futures, foreign-currencyforwards, foreign-currencyfutures, and the cash leg of repurchase agreements and reverse repurchase agreements create notional positions which will not attract specific risk; while(2) futures, forwards and swaps which are based
(1) 3Subject to (3), a firm must calculate the specific risk portion of the interest rate PRR for each securitisation and resecuritisationposition by multiplying the market value of the individual net position (ignoring the sign) by the appropriate position risk adjustment from the table in BIPRU 7.2.48D R or BIPRU 7.2.48E R, or in accordance with BIPRU 7.2.48F R, as applicable.(2) In calculating the specific risk capital charge of an individual net securitisation or resecuritisation
(1) 3Where a firm holds a position in the correlation trading portfolio, it must calculate:(a) The total specific risk capital charges that would apply just to the net long positions of the correlation trading portfolio; and(b) The total specific risk capital charges that would apply just to the net short positions of the correlation trading portfolio.(2) The higher of (1)(a) and (1)(b) will be the specific risk capital charge for the correlation trading portfolio.(3) In calculating
To demonstrate that the issuer and the proposed owner will comply with Regulation 17, and Regulations 23 and 24 of the RCB Regulations (capability of the asset pool to cover claims), the issuer should set out what it considers to be the risks of the regulation not being complied with and show how those risks have been adequately mitigated by reference to the tests and provisions set out in the covered bond or programme documentation.
Regulations 17(2)(d) (requirements on issuer relating to the asset pool) and 23(2) (requirements on owner relating to the asset pool) require the issuer of a regulated covered bond and the owner of the relevant asset pool to make arrangements so that the asset pool is of sufficient quality to give investors confidence that in the event of the failure of the issuer there will be a low risk of default in the timely payment by the owner of claims attaching to a regulated covered
The FCA will:(1) expect the issuer to demonstrate that it has in place appropriate systems, controls, procedures and policies, including in relation to risk management, underwriting, arrears and valuation; (2) expect the issuer to demonstrate that the cash-flows generated by the assets would be sufficient to meet the payments due in a timely manner including under conditions of economic stress and in the event of the failure of the issuer;(3) take account of any over collateralisation
The risk factors which the FCA will take into account in assessing the issuer's and owner's compliance with Regulations 17(2)(d) (general requirements on issuer in relation to the asset pool) and 23(2) (requirements on owner relating to the asset pool) will include credit risk of the assets, concentration risk, market risk and counterparty risk.
Concentration risk is the risk of loss from exposures being limited in number or variety. The relevant factors the FCA may consider include:(1) the level of granularity of the asset pool (i.e. what is the number and size distribution of assets in the pool); (2) whether the borrowers or collateral is unduly concentrated in a particular industry, sector, or geographical region.
As part of its business planning and risk management obligations under SYSC, a firm must reverse stress test its business plan; that is, it must carry out stress tests and scenario analyses that test its business plan to failure. To that end, the firm must:(1) identify a range of adverse circumstances which would cause its business plan to become unviable and assess the likelihood that such events could crystallise; and(2) where those tests reveal a risk of business failure that
Reverse stress testing should be appropriate to the nature, size and complexity of the firm's business and of the risks it bears. Where reverse stress testing reveals that a firm's risk of business failure is unacceptably high, the firm should devise realistic measures to prevent or mitigate the risk of business failure, taking into account the time that the firm would have to react to these events and implement those measures. As part of these measures, a firm should consider
(1) The FSAappropriate regulator may request a firm to submit the design and results of its reverse stress tests and any subsequent updates as part of its ARROW risk assessment. (2) In the light of the results of a firm's reverse stress tests, the FSAappropriate regulator may require the firm to implement specific measures to prevent or mitigate the risk of business failure where that risk is not sufficiently mitigated by the measures adopted by the firm in accordance with SYSC
(1) A Chief Risk Officer should:(a) be accountable to the firm'sgoverning body for oversight of firm-wide risk management;(b) be fully independent of a firm's individual business units;(c) have sufficient authority, stature and resources for the effective execution of his responsibilities; (d) have unfettered access to any parts of the firm's business capable of having an impact on the firm's risk profile; (e) ensure that the data used by the firm to assess its risks are fit for
(1) The appropriate regulator considers that, while the firm'sgoverning body is ultimately responsible for risk governance throughout the business, firms should consider establishing a governing body risk committee to provide focused support and advice on risk governance.(2) Where a firm has established a governing body risk committee, its responsibilities will typically include:(a) providing advice to the firm'sgoverning body on risk strategy, including the oversight of current
In carrying out their risk governance responsibilities, a firm'sgoverning body and governing body risk committee should have regard to any relevant advice from its audit committee or internal audit function concerning the effectiveness of its current control framework. In addition, they should remain alert to the possible need for expert advice and support on any risk issue, taking action to ensure that they receive such advice and support as may be necessary to meet their responsibilities
(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
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
(1) A firm must under the standardised approach calculate risk weighted exposure amounts for repurchase transactions and/or securities or commodities lending or borrowing transactions and/or other capital market-driven transactions covered by master netting agreements under this rule.(2) E* as calculated under BIPRU 5.6.5 R to BIPRU 5.6.25 R must be taken as the exposure value of the exposure to the counterparty arising from the transactions subject to the master netting agreement
The criteria which the appropriate regulator must apply when assessing ECAIs for recognition for exposurerisk weighting purposes are set out in Regulation 22 and Schedule 1 to the Capital Requirements Regulations 2006. In making an assessment against those criteria and in carrying out the mapping process described in BIPRU 3.3.7 G to BIPRU 3.3.9 G the appropriate regulator will have regard to the approach set out in the Committee of European Banking Supervisors' "Guidelines on
The list of eligible ECAIs includes those who have been recognised as eligible for exposurerisk weighting purposes by a competent authority of another EEA State and are subsequently recognised as eligible ECAIs by the appropriate regulator without carrying out its own evaluation process under Regulation 22(2) of the Capital Requirements Regulations 2006.
Under Regulation 22(3) of the Capital Requirements Regulations 2006 the appropriate regulator 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.
This section has rules requiring a firm to identify and assess risks to its ability to meet its liabilities as they fall due, how it intends to deal with those risks, and the amount and nature of financial resources that the firm considers necessary. IFPRU 2.2.43 R (Documentation of risk assessment) provides that a firm should document that assessment. The FCA will review that assessment as part of its own assessment of the adequacy of a firm's capital under its supervisory review
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)
A firm must be able to satisfy the appropriate regulator that it has systems in place to manage potential concentration of risk arising from the firm's use of guarantees and credit derivatives. The firm must be able to demonstrate how its strategy in respect of its use of credit derivatives and guarantees interacts with its management of its overall risk profile.[Note: BCD Annex VIII Part 2 point 15]
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
Where a firm transfers a part of the risk of a loan in one or more tranches, BIPRU 9 applies. Materiality thresholds on payments below which no payment shall be made in the event of loss are considered to be equivalent to retained first loss positions and to give rise to a tranched transfer of risk.[Note: BCD Annex VIII Part 3 point 86]
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]
An AIFM must establish, implement and maintain remuneration policies and practices for AIFM Remuneration Code staff that are consistent with, and promote, sound and effective risk management and do not encourage risk-taking which is inconsistent with the risk profile of the instrument constituting the fund of the AIFs it manages.[Note: article 13(1) of AIFMD]
An AIFM must ensure that its remuneration policy is consistent with, and promotes, sound and effective risk management and does not encourage risk-taking which is inconsistent with the risk profiles of the instrument constituting the fund of the AIFs it manages.[Note: paragraph 1(a) of Annex II of AIFMD]
(1) An AIFM that is significant in terms of its size, internal organisation and the nature, the scope and the complexity of its activities must establish a remuneration committee. (2) The remuneration committee must be constituted in a way that enables it to exercise competent and independent judgment on remuneration policies and practices, and the incentives created for managing risk.(3) The chairman and the members of the remuneration committee must be members of the governing
An AIFM must ensure the remuneration of the senior officers in the risk management and compliance functions is directly overseen by the remuneration committee, or, if such a committee has not been established, by the governing body in its supervisory function.[Note: paragraph 1(f) of Annex II of AIFMD]
An AIFM must ensure that the assessment of performance is set in a multi-year framework appropriate to the life-cycle of the AIFs managed by the AIFM to ensure that:(1) the assessment process is based on longer term performance; and(2) the actual payment of performance-based components of remuneration is spread over a period which takes account of the redemption policy of the AIFs it manages and their investment risks.[Note: paragraph 1(h) of Annex II of AIFMD]
(1) This rule applies to a firm that is unable to comply with the Remuneration Code because of an obligation it owes to a Remuneration Code staffmember under a provision of an agreement made on or before 29 July 2010 (the "provision").(2) A firm must take reasonable steps to amend or terminate the provision referred to in (1) in a way that enables it to comply with the Remuneration Code at the earliest opportunity.(3) Until the provision referred to in (1) ceases to prevent the
(1) The aim of the Remuneration Code is to ensure that firms have risk-focused remuneration policies, which are consistent with and promote effective risk management and do not expose them to excessive risk. It expands upon the general organisational requirements in SYSC 4.(2) The Remuneration Code implements the main provisions of the 3CRD which relate to remuneration. The Committee of European Banking Supervisors published Guidelines on Remuneration Policies and Practices on
(1) The Remuneration Code does not contain specific notification requirements. However, general circumstances in which the appropriate regulator expects to be notified by firms of matters relating to their compliance with requirements under the regulatory system are set out in SUP 15.3 (General notification requirements). (2) In particular, in relation to remuneration matters such circumstances should take into account unregulated activities as well as regulated activities and
The FCA's policy on individual guidance is set out in SUP 9. Firms should in particular note the policy on what the FCA considers to be a reasonable request for guidance (see SUP 9.2.5 G). For example, where a firm is seeking guidance on a proposed remuneration structure the FCA will expect the firm to provide a detailed analysis of how the structure complies with the Remuneration Code, including the general requirement for remuneration policies, procedures and practices to be
Other futures, forwards, and swaps where a treatment is not specified in article 328 of the EU CRR ((Interest rate futures and forwards) should be treated as positions in zero specific risk securities, each of which:(1) has a zero coupon;(2) has a maturity equal to that of the relevant contract; and(3) is long or short according to the table in IFPRU 6.2.9 G.
Interest-rate swaps or foreign currency swaps with a deferred start should be treated as the two notional positions (one long, one short). The paying leg should be treated as a short position in a zero specific risk security with a coupon equal to the fixed rate of the swap. The receiving leg should be treated as a long position in a zero specific risk security, which also has a coupon equal to the fixed rate of the swap.
For interest-rate risk, a firm should treat a swap (such as an equity swap) with only one interest rate leg as a notional position in a zero specific risk security:(1) with a coupon equal to that on the interest rate leg;(2) with a maturity equal to the date that the interest rate will be reset; and(3) which is a long position if the firm is receiving interest payments and short if making interest payments.
The forward cash leg of a repurchase agreement or reverse repurchase agreement should be treated as a notional position in a zero specific risk security which:(1) is a short notional position in the case of a repurchase agreement and a long notional position in the case of a reverse repurchase agreement;(2) has a value equal to the market value of the borrowing or deposit;(3) has a maturity equal to that of the borrowing or deposit, or the next date the interest rate is reset
SYSC 4.1.1 R requires every firm, including a credit union, to have robust governance arrangements, which include a clear organisational structure with well-defined, transparent and consistent lines of responsibility, effective processes to identify, manage, monitor and report the risks it is or might be exposed to, and internal control mechanisms, including sound administrative and accounting procedures and effective control and safeguard arrangements for information processing
(1) The committee of management should decide what form this documentation should take, but the committee should have in mind the following points.(a) Documents should be comprehensive: they should cover all material aspects of the operations of the credit union.(b) Documents should be integrated: separate elements of the system should be cross-referred so that the system can be viewed as a whole.(c) Documents should identify risks and the controls established to manage those
The committee of management should consider the range of possible outcomes in relation to various risks. These risks are increased when a credit union provides ancillary services such as issuing and administering means of payment and money transmission, which result, in particular, in higher liquidity and operational risks.
The policy and procedures manual should cover all aspects of the credit union's operations, including matters such as:(1) cash handling and disbursements;(2) collection procedures;(3) lending, including large exposures (see CREDS 7.1 to CREDS 7.5);(4) arrears management (see CREDS 7.2.9 G to CREDS 7.2.10 G);(5) provisioning (see CREDS 7.5);(6) liquidity management (see CREDS 6);(7) financial risk management (see CREDS 3);(8) money laundering prevention (see SYSC 6.3);(9) internal
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
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) If a firm'sremuneration policy is not aligned with effective risk management it is likely that employees will have incentives to act in ways that might undermine effective risk management.(2) The Remuneration Code covers all aspects of remuneration that could have a bearing on effective risk management including salaries, bonuses, long-term incentive plans, options, hiring bonuses, severance packages and pension arrangements. In applying the Remuneration Code, a firm should
(1) The specific remuneration requirements in this chapter may apply only in relation to certain categories of employee. But the appropriate regulator would expect firms, in complying with the Remuneration Code general requirement, to apply certain principles on a firm-wide basis.(2) In particular, the appropriate regulator considers that firms should apply the principle relating to guaranteed variable remuneration on a firm-wide basis (Remuneration Principle 12(c); SYSC 19A.3.40
Article 363 of the EU CRR (Permission to use internal models) states that permission for an institution to use internal models to calculate own funds requirements is subject to competent authorities verifying compliance with:(1) the general requirements;(2) requirements particular to specific risk modelling; and(3) requirements for an internal model for incremental default and migration risk.
A firm should be able to demonstrate that it meets the risk management standards in article 368 of the EU CRR (Qualitative requirements) on a legal entity and business-line basis where appropriate. This is particularly important for a subsidiary in a group subject to matrix management where the business lines cut across legal entity boundaries.
SYSC 4.1.1 R requires
a firm to have effective processes to
identify, manage, monitor and report risks and internal control mechanisms.
Except in relation to those functions described in SYSC 8.1.5 R, where a firm relies on a third party for the performance
of operational functions which are not critical or important for the performance
of relevant services and activities (see SYSC 8.1.1 R (1)) on a continuous
and satisfactory basis, it should take into account, in a manner that
A common platform firm must in particular
take the necessary steps to ensure that the following conditions are satisfied:(1) the service provider must have
the ability, capacity, and any authorisation required
by law to perform the outsourced functions,
services or activities reliably and professionally;(2) the service provider must carry
out the outsourced services
effectively, and to this end the firm must
establish methods for assessing the standard of performance of the service
provider;(3)
6A management company must retain the necessary
resources and expertise so as to monitor effectively the activities carried
out by third parties on the basis of an arrangement with the firm, especially with regard to the management
of the risk associated with those arrangements.[Note: article 5(2) of the UCITS
implementing Directive]
1In deciding how they will satisfy and continue to satisfy the threshold conditions set out in paragraphs 2F and 3E of Schedule 6 to the Act, firms should consider matters including (but not limited to) the following:(1) the assumptions underlying the firm's business model and justification for it;(2) the rationale for the business the firm proposes to do or continues to do, its competitive advantage, viability and the longer-term profitability of the business;(3) the needs of
1Firms should consider scenarios which may negatively impact on the firm's business model with a view to ensuring the sustainability of the firm and, further, to consider the vulnerability of the business model to specific events and the risks and consequences that might arise. Where appropriate, this might include reverse stress-testing (see SYSC 20 ‘Reverse stress testing’). A firm should put in place a credible plan to minimise the risks that it identifies from, or in relation
1Firms should ensure that any adjustments to its business model:(1) are approved at an appropriate level in the business;(2) are considered in the light of any potential risks, impacts and consequences of the proposed changes; and(3) appropriately take into account the needs of and risks to clients and relevant consumers.
(1) This rule applies to a firm that is unable to comply with the BIPRU Remuneration Code because of an obligation it owes to a BIPRU Remuneration Code staff member under a provision of an agreement made on or before 29 July 2010. (2) A firm must take reasonable steps to amend or terminate the provision in (1) in a way that enables it to comply with the BIPRU Remuneration Code at the earliest opportunity.(3) Until the provision in (1) ceases to prevent the firm from complying
The FCA's policy on individual guidance is set out in SUP 9. Firms should particularly note the policy on what the FCA considers to be a reasonable request for guidance (see SUP 9.2.5 G). For example, where a firm is seeking guidance on a proposed remuneration structure, the FCA will expect the firm to provide a detailed analysis of how the structure complies with the BIPRU Remuneration Code, including the general requirement for remuneration policies, procedures and practices