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Dubai Financial Services Authority (DFSA): Contents

Dubai Financial Services Authority (DFSA)
Laws
Rulebook Modules
Prudential — Investment, Insurance Intermediation and Banking Module (PIB) [VER33/02-19]
PIB App4 Credit Risk
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Dec 9 2012 onwards

PIB A4.10.1

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The definitive version of DFSA handbook text is the PDF version as that is the text of the instrument as made and published by the DFSA.

To view past versions of this module in PDF format, please visit the Archive.

An Authorised FirmG which is an OriginatorG or a SponsorG of a Traditional SecuritisationG may exclude securitised ExposuresG from the calculation of Credit RWAG amounts only if all of the following conditions have been complied with:

(a) except as provided in (g), (i) and (k), significant Credit RiskG associated with the securitised ExposuresG has been transferred from the OriginatorG to third parties;
(b) the Authorised FirmG does not maintain effective or indirect control over the underlying ExposuresG ;
(c) the assets are legally isolated from the Authorised FirmG in order to ensure the assets are beyond the reach of the Authorised FirmG in the event of bankruptcy or receivership;
(d) the SecuritiesG issued are not the obligations of the Authorised FirmG ;
(e) the SecuritiesG are issued pursuant to the securitisation by an SPE and the holders of the beneficial interests in that entity have the right to pledge or exchange them without restriction;
(f) where a securitisation includes a Clean-Up CallG , Clean-Up CallsG must satisfy the conditions set out in PIB Rule A4.10.3.
(g) the documentation of the securitisation does not contain any clauses that:
(i) require the Authorised FirmG systematically to alter the underlying ExposuresG such that the pool's weighted average credit quality is improved unless this is achieved by selling ExposuresG to independent and unaffiliated third parties which are not ConnectedG to the Authorised FirmG or Related PersonsG of the Authorised FirmG in accordance with PIB Rule 4.4.6 at market prices;
(ii) allow for increases in a retained First Loss PositionG or Credit EnhancementG provided by the Authorised FirmG after the securitisation's inception;
(iii) other than step-up features incorporated in relation to the underlying ExposuresG of the securitisation, increase the yield payable to parties other than the Authorised FirmG , such as investors and third-party providers of Credit EnhancementsG , in response to deterioration in the credit quality of the underlying ExposuresG in the pool; or
(iv) other than Clean-Up CallsG , oblige the Authorised FirmG to repurchase any of the underlying ExposuresG , at any time, except where that obligation arises from the exercise of a representation or warranty given by the Authorised FirmG . The Authorised FirmG may give a representation or warranty solely in respect of the nature or existing state of facts of any underlying ExposureG , that is capable of being verified, at the time of its transfer.
(h) the transfer of the underlying ExposuresG or the transfer of risk through sub-participation does not contravene the terms and conditions of any underlying agreement in respect of the underlying ExposuresG and where applicable, all the necessary consents for the transfer or sub-participation have been obtained;
(i) the documentation of the securitisation specifies that, if cash flows relating to the underlying ExposuresG are rescheduled or renegotiated, the SPE to which the ExposuresG have been transferred and not the Authorised FirmG , would be subject to the rescheduled or renegotiated terms;
(j) the Authorised FirmG receives a fixed amount of consideration for the underlying ExposuresG ;
(k) the Authorised FirmG holds not more than 20% of the aggregate original amount of all SecuritiesG issued by the SPE, except where such holdings comprise entirely of SecuritiesG that have a Credit Quality GradeG of 1 as set out in RulesG in sections PIB 4.11 and PIB 4.12, and all transactions with the SPE are conducted at arm's length and on market terms and conditions;
(l) where the assets relate to the Islamic Financial BusinessG of an Authorised FirmG , a written confirmation from the appointed Shari'a Supervisory BoardG that the securitisation complies with Shari'a; and
(m) each of the points (a) to (l) must be evidenced and confirmed by a legal opinion from a qualified legal counsel.
Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]