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Dubai Financial Services Authority (DFSA): Contents

Dubai Financial Services Authority (DFSA)
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Prudential — Investment, Insurance Intermediation and Banking Module (PIB) [VER33/02-19]
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PIB 1.2.1



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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.

Past version: effective from Jan 1 2015 - Dec 31 2017.
To view other versions open the versions tab on the right.

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

The following terms and abbreviations bear the following meanings for the purpose of this module:

Alternative Standardised ApproachG The manner in which the Operation RiskG Capital RequirementG is calculated in accordance with sections PIB 6.11 and PIB A6.3.
Annual Audited ExpenditureG The expenditure calculated in accordance with PIB Rule 3.7.3.
Asset-Backed Commercial PaperG (ABCPG ) Programme A programme that predominately issues commercial paper with an Original MaturityG of one year or less that is backed by assets or other ExposuresG held in a bankruptcy-remote SPE.
AT1 Additional tier 1
AT1 Capital Has the meaning given in PIB section 3.14.
Base Capital RequirementG Has the meaning given in PIB section 3.6.
Basic Indicator ApproachG The manner in which the Operational RiskG Capital RequirementG is calculated in accordance with sections PIB 6.11 and PIB A6.1.
Capital RequirementG The amount of capital an Authorised FirmG must hold, calculated in accordance with sections PIB 3.3, PIB 3.4 or PIB 3.5, as applicable.
Capital ResourcesG The total Capital ResourcesG of an Authorised FirmG calculated in accordance with PIB section 3.11.
CategoryG A prudential grouping of Authorised FirmsG which determines the application of the RulesG in this Module.
CCF Credit conversion factor
CCP Central CounterpartyG
CEAG Credit equivalent amountG
CET1 Common equity tier 1
CET1 Capital Has the meaning given in PIB section 3.13.
Clean-Up CallG An option that permits the SE ExposuresG (e.g. asset-backed SecuritiesG ) to be called before all of the underlying ExposuresG or SE ExposuresG have been repaid. In the case of Traditional SecuritisationsG , this is generally accomplished by repurchasing the remaining SE ExposuresG once the pool balance or outstanding SecuritiesG have fallen below some specified level. In the case of a synthetic ExposureG , the Clean-Up CallG may take the form of a clause that extinguishes the credit protection.
Close LinksG A PersonG (PersonG A) has Close LinksG with a PersonG (PersonG B) if:
(a) PersonG B:
(i) is a Holding CompanyG of PersonG A;
(ii) is a SubsidiaryG of PersonG A;
(iii) is a Holding CompanyG of the SubsidiaryG of PersonG A;
(iv) is a SubsidiaryG of a Holding CompanyG of PersonG A; or
(v) owns and controls 20% or more of the voting rights or shares of PersonG A; or
(b) PersonG A owns and controls 20% or more of the voting rights or shares of PersonG B.
Closely RelatedG Has the meaning given in PIB Rule A4.11.5.
CollateralG Any form of asset, guarantee, or indemnity which is held or controlled by an Authorised FirmG and is subject to a security interest or arrangement in favour of that firm.
Collective Investment FundG Risk Capital RequirementG A component of Market Risk Capital RequirementG calculated in accordance with PIB section 5.9.
Commodities Risk Capital RequirementG A component of the Market Risk Capital RequirementG to cover the risk of holding or taking positions in commodities, including precious metals, but excluding gold, calculated in accordance with PIB section 5.7.
Concentration RiskG The risk faced by an Authorised FirmG arising out of its Large ExposuresG .
ConnectedG In relation to a PersonG (A), a PersonG which has or has at any relevant time had the following relationship to A:
(a) a member of A's GroupG ;
(b) a ControllerG of A;
(c) a member of a partnership of which A is a member;
(d) an employee or former employee of A;
(e) if A is a company:
(i) an officer or manager of A or of a parent of A;
(ii) an agent of A or of a parent of A;
(f) if A is a partnership is or has been a member, manager or agent of A; or
(g) if A is an unincorporated association of persons which is not a partnership, is or has been an officer, manager or agent of A.
Connected CounterpartiesG Has the meaning given in PIB Rule A4.11.7.
Contingency Funding Plan (CFP) The plan referred to in PIB Rule 9.2A.6.
Controlled Early AmortisationG Early AmortisationG that meets the conditions in PIB Rule 4.14.58.
CounterpartyG Means any person with or for whom an Authorised FirmG carries on, or intends to carry on, any regulated business or associated business. In this context, CounterpartyG includes an individual, unincorporated body, company, government, local authority or other public body.
Counterparty RiskG The risk that an Authorised Firm'sG CounterpartyG does not perform its obligations under the terms of a contract.
CR ExposureG The ExposureG value or amount for a Credit RiskG ExposureG .
Credit DerivativeG Any contract which transfers the Credit RiskG of a reference obligation or set of reference obligations from the protection buyer to the protection seller, such that the protection seller has an ExposureG to the reference obligation(s).
Credit EnhancementG A contractual arrangement in which the Authorised FirmG retains or assumes an SE ExposureG and, in substance, provides some degree of added protection to other parties to the transaction.
Credit Quality GradeG A credit quality step in a credit quality assessment scale. A credit quality assessment scale is a scale onto the credit assessments of an ECAIG or an expert credit agency are mapped.
Credit RiskG In relation to an Authorised FirmG , the risk of loss if another party fails to perform on its financial obligation to the Authorised FirmG .
Credit Risk Capital Requirement (CRCOM)G The requirement calculated in accordance with PIB section 4.6.
Credit-Enhancing Interest-Only StripG An on-balance sheet asset that:
(i) represents a valuation of cash flows related to future margin income; and
(ii) is subordinated.
CRW Credit risk weight for an ExposureG .
CV Contracted value for delivery.
DeltaG The measure of an Option'sG sensitivity to a change in value of the underlying investment, asset or property.
Displaced Commercial Risk Capital RequirementG The requirement calculated in accordance with IFR chapter 5.
Duration MethodG A measure of General Market RiskG calculated in accordance with PIB Rule A5.2.19.
E An ExposureG value or amount
E* An ExposureG value or amount adjusted in the manner provided in the relevant RuleG
EAE The ExposureG value or amount for an Early AmortisationG ExposureG
Early AmortisationG A mechanism that, once triggered, allows investors to be paid out prior to the originally stated maturity of the securities issued. For risk-based capital purposes, an Early AmortisationG provision will be considered either controlled or non-controlled.
ECAIG A CRA or an external credit rating agency approved by the DFSAG for the purpose of this Module.
Equity Risk Capital RequirementG A component of Market Risk Capital RequirementG and calculated in accordance with PIB section 5.5.
Evergreening Evergreening refers to the practice by some banks to roll over or renew their non-performing loans or potentially nonperforming loans, so that they can avoid recognising them as non-performing loans in their accounts and consequently avoid provisioning for them.
Excess SpreadG Gross finance charge collections and other income received by the trust or SPE minus certificate interest, servicing fees, charge-offs, and other senior trust or SPE expenses.
Expenditure Based Capital MinimumG A Capital RequirementG calculated in accordance with PIB section 3.7.
ExposureG The maximum loss that an Authorised FirmG (and where applicable its PSIAG holders) might suffer if:
(a) a CounterpartyG or a group of Connected CounterpartiesG fail to meet their obligations; or
(b) it realises assets or off-balance sheet positions.
An ExposureG also includes any asset or off-balance sheet item, which could result in a potential loss to the Authorised FirmG due to Market RiskG or Operational RiskG or any other risk factor.
FCCA Financial CollateralG Comprehensive Approach as described in PIB Rule 4.9.5.
FCSA Financial CollateralG Simplified ApproachG as described in PIB Rule 4.9.5.
Financial GroupG A group of entities which includes an Authorised FirmG and:
(a) any ParentG incorporated in the DIFCG ;
(b) any Financial InstitutionG subsidiaries (whether direct or indirect) of the ParentG or ParentsG in (a) or of the Authorised FirmG ;
(c) any Financial InstitutionG in which the ParentG or ParentsG in (a), the Financial InstitutionG subsidiaries in (b) or the Authorised FirmG (whether direct or indirect) hold 20% or more of the voting rights or capital; and
(d) any entity which the DFSAG directs the Authorised FirmG to include in accordance with PIB Rule 8.1.2 or PIN Rule 8.1.2.
Financial Group Capital RequirementG The Capital RequirementG of a Financial GroupG calculated in accordance with PIB Rule 8.3.3 or PIN Rule 8.3.3.
Financial Group Capital ResourcesG The Capital ResourcesG of a Financial GroupG calculated in accordance with PIB Rule 8.3.4 or PIN 8.3.4.
First Loss PositionG Represents the first level of support provided to the special purpose entity or vehicle that should bear all, or a significant part of, the risk associated with the items held by the special purpose entity or vehicle.
Foreign Exchange Risk Capital RequirementG A component of the Market Risk Capital RequirementG and as calculated in accordance with PIB section 5.6.
GammaG The measure of the rate of change of DeltaG .
General Market RiskG
(1) For the purposes of the Interest Rate Risk Capital RequirementG , means the risk that losses may arise from price changes in SecuritiesG caused by parallel or non-parallel shifts in the yield curve or from price movements in the equity market for a given country;
(2) For the purposes of the Equity Risk Capital RequirementG , means the risk that losses may arise from a price movement in the equity market for a given country; or
(3) For the purposes of internal models, means both of the above risks.
GroupG Means a group of entities which includes an entity (the 'first entity') and:
(a) any ParentG of the first entity; and
(b) any subsidiaries (direct or indirect) of the ParentG or ParentsG in (a) or the first entity.
Group RiskG The risk of loss to the Authorised FirmG as a result of its membership of, or linkages within a GroupG .
High Quality Liquid Assets (HQLA) Liquid assets that meet the conditions in Rules PIB Rule A9.2.2 to PIB Rule A9.2.9 of App 9.
ICR Individual capital requirement
Implicit Support Arises when an Authorised FirmG provides support to a securitisation in excess of its predetermined contractual obligation.
Interest Rate Risk Capital RequirementG A component of Market Risk Capital RequirementG and calculated in accordance with PIB section 5.4.
Internal Capital Adequacy Assessment ProcessG (ICAAPG ) The internal capital adequacy assessment process prescribed in PIB chapter 10.
Internal Risk Assessment ProcessG (IRAPG ) The internal risk assessment process prescribed in PIB section 10.3.
Investment GradeG A credit rating which is a Credit Quality GradeG of 1, 2 or 3.
Large ExposureG An ExposureG , whether in an Authorised Firm'sG Non-Trading BookG or Trading BookG , or both, to a CounterpartyG or group of Closely RelatedG CounterpartiesG or a group of CounterpartiesG ConnectedG to the Authorised FirmG which in aggregate equals or exceeds 10% of the Authorised Firm'sG Capital ResourcesG .
LCR Requirement The LCR required to be maintained by an Authorised FirmG under PIB Rule 9.3.4 or, if applicable, under PIB Rule 9.3.6.
Leverage Ratio The amount expressed as a percentage that is calculated in accordance with the Rules in section PIB 3.18.
Liquidity Coverage Ratio (LCR) The amount expressed as a percentage that is calculated in accordance with PIB Rule 9.3.5 and section PIB A9.2 of App 9.
Liquidity RiskG The risk of loss to an Authorised FirmG as a result of inability to meet its obligations as they fall due.
Market RiskG The risk of loss that arises from fluctuations in the values of, or income from, assets or in interest or exchange rates.
Market Risk Capital RequirementG The requirement calculated in accordance with PIB Rule 5.3.1.
Matched PrincipalG Has the meaning described in PIB Rule 1.3.3(2).
Maturity LadderG A table that ordinally ranks the maturity time bands and assets and liabilities within them.
Maturity MethodG This is an advanced approach that an Authorised FirmG may use to measure the risk of holding or taking positions in debt SecuritiesG and other interest rate-related instruments, calculated in accordance with PIB Rule A5.2.17.
MDB Multilateral development bankG
Modified DurationG The time period calculation for the purposes of the Duration MethodG in accordance with PIB Rule A5.2.21.
MV Market value
NettingG A process by which the claims and obligations between two CounterpartiesG are offset against each other to leave a single net sum.
Non-Trading BookG Describes positions, ExposuresG and on-and off-balance sheet items, which are not in the Trading BookG .
NP Nominal principal amount.
Operational RiskG The risk of loss resulting from inadequate or failed internal processes, people and systems or from external events, including legal risk.
Operational RiskG Capital RequirementG The requirement calculated in accordance with PIB section 6.11.
Option Risk Capital RequirementG A component of the Market Risk Capital RequirementG and calculated in accordance with PIB section 5.8.
Original MaturityG
(1) The time period between the date an offer is made and the date it expires or lapses.
(2) In relation to DebenturesG , the interval between its issue date and the date on which it becomes due and payable.
OriginatorG
(a) an entity which, either itself or through related entities, directly or indirectly, creates the ExposureG being securitised; or
(b) any entity which purchases or advises or causes an SPE to purchase the ExposuresG of a third party, which are then used in a securitisation (for avoidance of doubt, selling credit protection such that the entity or the SPE has a long position in the Credit RiskG of the obligor is equivalent to purchasing ExposuresG );
Where an entity lends to an SPE with a view to enabling that SPE to make loans which are then used in a securitisation, the entity will generally be deemed to be acting as an OriginatorG .
OTC Over the counter
Potential Future Credit ExposureG (PFCE) An amount calculated by multiplying the nominal principal amount of an OTC derivative contract by a specified percentage dependent on the nature and residual maturity of the contract.
PSE Public sector enterpriseG
PSIAG Profit sharing investment accountG .
Qualifying HoldingG Any holding in the capital of a non-financial UndertakingG of which the Authorised FirmG is a controller.
Related PersonG Has the meaning given in PIB Rule 4.4.6.
Relevant EntityG Means any of the following:
(a) another Authorised FirmG ;
(b) a Regulated Financial InstitutionG ;
(c) any unregulated Financial InstitutionG ; or
(d) any financial holding company.
Re-securitisationG Has the meaning given in PIB section 4.14.
Restricted PSIAG (PSIArG ) A PSIAG in respect of the investment account holder imposes certain restrictions as to where, how and for what purpose his funds are to be invested.
Revolving SecuritisationG A Traditional or Synthetic SecuritisationG in which the specified items consist of revolving assets such as loan facilities or credit card balances which permit borrowers to vary the drawn amount within an agreed limit, or the scheme itself is revolving.
RhoG The measure of an Option'sG sensitivity to a change in interest rates.
RWAG Risk weighted assets
SE ExposureG The ExposureG value or amount for a securitisation ExposureG .
SecuritiesG UnderwritingG Capital RequirementG A component of the Market Risk Capital RequirementG defined in PIB section 5.10.
ServicerG A PersonG that administers the securitised items.
SFT SecuritiesG financing transactions, such as repo, reverse repo, security lending and borrowing, and margin lending transactions.
Simplified ApproachG An alternative application of the provisions of PIB chapter 4 for an Authorised FirmG in CategoryG 2 and 3A, as described in sections PIB 4.7 and PIB A4.12.
Special Purpose Entity (SPE) A corporation, trust, or other entity organised for a specific purpose, the activities of which are limited to those appropriate to accomplish the purpose of the SPE, and the structure of which is intended to isolate the SPE from the Credit RiskG of an OriginatorG or seller of ExposuresG . SPEs are commonly used as financing vehicles in which ExposuresG are sold to a trust or similar entity in exchange for cash or other assets funded by debt issued by the trust.
Specific RiskG The risk that losses on an Authorised Firm'sG net long or short position in an individual equity or SecurityG may arise from a negative or positive price movement of that equity or SecurityG relative to the relevant market generally.
SponsorG An Authorised FirmG that repackages third party assets directly into a securitisation scheme. Where an Authorised FirmG repackages non-Investment GradeG third party assets, it may fall within the definition of an OriginatorG unless it originates or repackages no more than 10% of the scheme's total assets.
Standardised ApproachG The manner in which the Operational RiskG Capital RequirementG is calculated in accordance with sections PIB 6.11 and PIB A6.2.
Supervisory Review and Evaluation ProcessG (SREPG ) The supervisory review and evaluation process prescribed in PIB chapter 10.
Synthetic SecuritisationG Has the meaning given in PIB Rule 4.14.2(b).
T Trade date, which is the date on which a transaction is entered into.
T1 Tier 1
T1 Capital Has the meaning given in PIB Rule 3.12.1.
T2 Tier 2
T2 Capital Has the meaning given in PIB Rule 3.15.1.
ThetaG The ratio of the change in an OptionG price to the decrease in time to expiration. ThetaG can also be referred to as time decay.
Total Net Cash Outflow Has the meaning given in PIB Rule A9.2.13
Total Return SwapG A contract under which two parties exchange their positive or negative returns on a notional amount of a reference asset for a specified period of time.
Trading BookG The positions and ExposuresG including, on and off-balance sheet items eligible for inclusion in the Trading BookG , as described in PIB section 2.2.
Traditional SecuritisationG Has the meaning given in PIB Rule 4.14.2(a).
Unrestricted PSIAG (PSIAuG ) A PSIAG in respect of which the investment account holder authorises the Authorised FirmG to invest the account holder's funds in a manner which the Authorised FirmG deems appropriate without laying down any restrictions as to where, how and for what purpose the funds should be invested.
Unsettled TransactionG A transaction where delivery of an instrument is due to take place against the receipt of cash but remains outstanding.
VegaG The measure of the sensitivity of the value of the OptionG to a change in the volatility of the underlying asset.
Walkaway ClauseG A provision which permits a non-defaulting party to make payments, or no payments at all, to the estate of the defaulter, even if the defaulter is a net creditor.
Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
[Amended] DFSA RM148/2014 (Made 1st January 2015). [VER23/01-15]