Directive 2006/48/EC of the European Parliament and of the council (repealed)Show full title

PART 2 U.K. Minimum requirements for recognition of significant credit risk transfer and calculation of risk-weighted exposure amounts and expected loss amounts for securitised exposures

1. MINIMUM REQUIREMENTS FOR RECOGNITION OF SIGNIFICANT CREDIT RISK TRANSFER IN A TRADITIONAL SECURITISATION U.K.

[F1 1. The originator credit institution 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: U.K.

(a)

significant credit risk associated with the securitised exposures is considered to have been transferred to third parties;

(b)

the originator credit institution applies a 1 250 % risk weight to all securitisation positions it holds in this securitisation or deducts these securitisation positions from own funds according to Article 57 (r).]

Textual Amendments

F1 Substituted by Commission Directive 2009/83/EC of 27 July 2009 amending certain Annexes to Directive 2006/48/EC of the European Parliament and of the Council as regards technical provisions concerning risk management (Text with EEA relevance).

[F2 1a. Unless the competent authority decides in a specific instance that the possible reduction in risk weighted exposure amounts which the originator credit institution would achieve by this securitisation is not justified by a commensurate transfer of credit risk to third parties, significant credit risk shall be considered to have been transferred in the following cases: U.K.

(a)

the risk-weighted exposure amounts of the mezzanine securitisation positions held by the originator credit institution in this securitisation do not exceed 50 % of the risk weighted exposure amounts of all mezzanine securitisation positions existing in this securitisation;

(b)

where there are no mezzanine securitisation positions in a given securitisation and the originator can demonstrate that the exposure value of the securitisation positions that would be subject to deduction from own funds or a 1 250 % risk weight exceeds a reasoned estimate of the expected loss on the securitised exposures by a substantial margin, the originator credit institution does not hold more than 20 % of the exposure values of the securitisation positions that would be subject to deduction from own funds or a 1 250 % risk weight.

Textual Amendments

F2 Inserted by Commission Directive 2009/83/EC of 27 July 2009 amending certain Annexes to Directive 2006/48/EC of the European Parliament and of the Council as regards technical provisions concerning risk management (Text with EEA relevance).

1b. For the purposes of point 1a, mezzanine securitisation positions mean securitisation positions to which a risk weight lower than 1 250 % applies and that are more junior than the most senior position in this securitisation and more junior than any securitisation position in this securitisation to which: U.K.

(a)

in the case of a securitisation position subject to points 6 to 36 of part 4 a credit quality step 1; or

(b)

in the case of a securitisation position subject to points 37 to 76 of part 4 a credit quality step 1 or 2 is assigned under Part 3.

1c. As an alternative to points 1a and 1b significant credit risk may be considered to have been transferred if the competent authority is satisfied that a credit institution has policies and methodologies in place, ensuring 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. The competent authorities shall only be satisfied if the originator credit institution can demonstrate that such transfer of credit risk to third parties is also recognised for purposes of the credit institution’s internal risk management and its internal capital allocation. U.K.

1d. In addition to points 1 to 1c, all the following conditions shall be met:] U.K.

(a)

The securitisation documentation reflects the economic substance of the transaction;

(b)

The securitised exposures are put beyond the reach of the originator credit institution and its creditors, including in bankruptcy and receivership. This shall be supported by the opinion of qualified legal counsel;

(c)

The securities issued do not represent payment obligations of the originator credit institution;

(d)

The transferee is a securitisation special-purpose entity (SSPE);

(e)

The originator credit institution does not maintain effective or indirect control over the transferred exposures. An originator shall 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 credit institution's retention of servicing rights or obligations in respect of the exposures shall not of itself constitute indirect control of the exposures;

(f)

Where there is a clean-up call option, the following conditions are satisfied:

(i)

The clean-up call option is exercisable at the discretion of the originator credit institution;

(ii)

The clean-up call option may only be exercised when 10 % or less of the original value of the exposures securitised remains unamortised; and

(iii)

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 provide credit enhancement; and

(g)

The securitisation documentation does not contain clauses that

(i)

other than in the case of early amortisation provisions, require positions in the securitisation to be improved by the originator credit institution 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

(ii)

increase the yield payable to holders of positions in the securitisation in response to a deterioration in the credit quality of the underlying pool.

2. MINIMUM REQUIREMENTS FOR RECOGNITION OF SIGNIFICANT CREDIT RISK TRANSFER IN A SYNTHETIC SECURITISATION U.K.

[F1 2. An originator credit institution of a synthetic securitisation may calculate risk-weighted exposure amounts, and, as relevant, expected loss amounts, for the securitised exposures in accordance with points 3 and 4, if either of the following is met: U.K.

(a)

significant credit risk is considered to have been transferred to third parties either through funded or unfunded credit protection;

(b)

the originator credit institution applies a 1 250 % risk weight to all securitisation positions he holds in this securitisation or deducts these securitisation positions from own funds according to Article 57 (r).]

[F2 2a. Unless the competent authority decides on a case- by-case basis that the possible reduction in risk weighted exposure amounts which the originator credit institution would achieve by this securitisation is not justified by a commensurate transfer of credit risk to third parties, significant credit risk shall be considered to have been transferred if either of the following conditions is met: U.K.

(a)

the risk-weighted exposure amounts of the mezzanine securitisation positions which are held by the originator credit institution in this securitisation do not exceed 50 % of the risk weighted exposure amounts of all mezzanine securitisation positions existing in this securitisation;

(b)

where there are no mezzanine securitisation positions in a given securitisation and the originator can demonstrate that the exposure value of the securitisation positions that would be subject to deduction from own funds or a 1 250 % risk weight exceeds a reasoned estimate of the expected loss on the securitised exposures by a substantial margin, the originator credit institution does not hold more than 20 % of the exposure values of the securitisation positions that would be subject to deduction from own funds or a 1 250 % risk weight.

2b. For the purposes of point 2a, mezzanine securitisation positions means securitisation positions to which a risk weight lower than 1 250 % applies and that are more junior than the most senior position in this securitisation and more junior than any securitisation positions in this securitisation to which: U.K.

(a)

in the case of a securitisation position subject to points 6 to 36 of part 4 a credit quality step 1; or

(b)

in the case of a securitisation position subject to points 37 to 76 of part 4 a credit quality step 1 or 2 is assigned under Part 3.

2c. As an alternative to points 2a and 2b, significant credit risk may be considered to have been transferred if the competent authority is satisfied that a credit institution has policies and methodologies in place to ensure that a possible reduction of capital requirements that the originator achieves by the securitisation is justified by a commensurate transfer of credit risk to third parties. The competent authorities shall only be satisfied if the originator credit institution can demonstrate that such transfer of credit risk to third parties is also recognised for purposes of the credit institutions internal risk management and its internal capital allocation. U.K.

2d. In addition, the transfer shall comply with the following conditions:] U.K.

(a)

The securitisation documentation reflects the economic substance of the transaction;

(b)

The credit protection by which the credit risk is transferred complies with the eligibility and other requirements under Articles 90 to 93 for the recognition of such credit protection. For the purposes of this point, special purpose entities shall not be recognised as eligible unfunded protection providers;

(c)

The instruments used to transfer credit risk do not contain terms or conditions that:

(i)

impose significant materiality thresholds below which credit protection is deemed not to be triggered if a credit event occurs;

(ii)

allow for the termination of the protection due to deterioration of the credit quality of the underlying exposures;

(iii)

other than in the case of early amortisation provisions, require positions in the securitisation to be improved by the originator credit institution;

(iv)

increase the credit institutions' cost of credit protection or the yield payable to holders of positions in the securitisation in response to a deterioration in the credit quality of the underlying pool; and

(d)

An opinion is obtained from qualified legal counsel confirming the enforceability of the credit protection in all relevant jurisdictions.

3. ORIGINATOR CREDIT INSTITUTIONS' CALCULATION OF RISK-WEIGHTED EXPOSURE AMOUNTS FOR EXPOSURES SECURITISED IN A SYNTHETIC SECURITISATION U.K.

3. In calculating risk-weighted exposure amounts for the securitised exposures, where the conditions in point 2 are met, the originator credit institution of a synthetic securitisation shall, subject to points 5 to 7, use the relevant calculation methodologies set out in Part 4 and not those set out in Articles 78 to 89. For credit institutions calculating risk-weighted exposure amounts and expected loss amounts under Articles 84 to 89, the expected loss amount in respect of such exposures shall be zero. U.K.

4. For clarity, point 3 refers to the entire pool of exposures included in the securitisation. Subject to points 5 to 7, the originator credit institution is required to calculate risk-weighted exposure amounts in respect of all tranches in the securitisation in accordance with the provisions of Part 4 including those relating to the recognition of credit risk mitigation. For example, where a tranche is transferred by means of unfunded credit protection to a third party, the risk weight of that third party shall be applied to the tranche in the calculation of the originator credit institution's risk-weighted exposure amounts. U.K.

3.1. Treatment of maturity mismatches in synthetic securitisations U.K.

5. For the purposes of calculating risk-weighted exposure amounts in accordance with point 3, any maturity mismatch between the credit protection by which the tranching is achieved and the securitised exposures shall be taken into consideration in accordance with points 6 to 7. U.K.

6. The maturity of the securitised exposures shall 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 shall be determined in accordance with Annex VIII . U.K.

7. An originator credit institution shall ignore any maturity mismatch in calculating risk-weighted exposure amounts for tranches appearing pursuant to Part 4 with a risk weighting of 1 250 %. For all other tranches, the maturity mismatch treatment set out in Annex VIII shall be applied in accordance with the following formula: U.K.

Where:

RW^* is Risk-weighted exposure amounts for the purposes of Article 75(a) ;

RW(Ass) is Risk-weighted exposure amounts for exposures if they had not been securitised, calculated on a pro-rata basis;

RW(SP) is Risk-weighted exposure amounts calculated under point 3 if there was no maturity mismatch;

T is maturity of the underlying exposures expressed in years;

t is maturity of credit protection. expressed in years; and

t^* is 0,25.