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Dubai Financial Services Authority (DFSA): Contents

Dubai Financial Services Authority (DFSA)
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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 A4.10.2

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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 Synthetic SecuritisationG may recognise the credit protection obtained through the Synthetic SecuritisationG in its calculation of Credit RWAG amounts only if all of the following conditions have been complied with:

(a) significant Credit RiskG associated with the underlying ExposuresG has been transferred from the OriginatorG to third parties;
(b) the instrument used to transfer the underlying Credit RisksG must not contain terms or conditions that limit in any way the amount of Credit RiskG transferred, including, but not limited to, clauses that:
(i) materially limit the credit protection or Credit RiskG transference (e.g. significant materiality thresholds below which credit protection is deemed not to be triggered even if a credit event occurs or those that allow for the termination of the protection due to deterioration in the credit quality of the underlying ExposuresG );
(ii) require the Authorised FirmG to alter the underlying ExposuresG to improve the weighted average credit quality of the pool;
(iii) increase the cost of credit protection to the Authorised FirmG in response to deterioration in the credit quality of the underlying ExposuresG ;
(iv) increase the yield payable to parties other than the Authorised FirmG , such as investors and third-party providers of Credit EnhancementsG , in response to a deterioration in the credit quality of the underlying ExposuresG ; or
(v) provide for increases in a retained First Loss PositionG or Credit EnhancementG provided by the originating bank after the transaction's inception.
(c) an Authorised FirmG must provide an external legal opinion from a qualified legal counsel that confirms each of the points (i-v) and the enforceability of the contracts in all relevant jurisdictions;
(d) 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;
(e) where the securitisation includes a Clean-Up CallG it must meet the requirements of PIB Rule A4.10.3;
(f) in the case where the risks associated with the underlying ExposuresG are transferred to an SPE:
(i) the SecuritiesG issued by the SPE are not obligations of the Authorised FirmG ;
(ii) the holders of the beneficial interests in that SPE have the right to pledge or exchange their interests without restriction; and
(iii) the Authorised FirmG holds not more than 20% of the aggregate original amount of all SecuritiesG issued by the SPE, except where such holdings consist entirely of SecuritiesG that have a Credit Quality GradeG of 1 in accordance with 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;
(g) the Authorised FirmG has, on an on-going basis, a comprehensive understanding of the risk characteristics of its individual securitisation ExposuresG , whether on- or off-balance sheet, as well as the risk characteristics of the pools underlying its securitisation ExposuresG ;
(h) the Authorised FirmG is able to access performance information on the underlying ExposuresG on an on-going basis in a timely manner. Such information may include, as appropriate, ExposureG type, percentage of loans 30, 60 and 90 days past due, default rates, prepayment rates, loans in foreclosure, property type, occupancy, average credit score or other measures of creditworthiness, average loan-to-value ratio, and industry and geographic diversification. For Re-securitisationsG , the Authorised FirmG should have information not only on the underlying securitisation tranches, such as the Issuers'G names and credit quality, but also on the characteristics and performance of the pools underlying the securitisation tranches; and
(i) the Authorised FirmG has a thorough understanding of all structural features of a securitisation transaction that would materially impact the performance of the transaction, such as the contractual waterfall and waterfall-related triggers, Credit EnhancementsG , liquidity enhancements, market value triggers, and deal-specific definitions of default.
Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]