ANNEX IX U.K.SECURITISATION

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

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).]

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 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.

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).

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.