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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

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

    Alternative Standardised Approach The manner in which the Operation Risk Capital Requirement is calculated in accordance with sections PIB 6.11 and PIB A6.3.
    Annual Audited Expenditure The expenditure calculated in accordance with PIB Rule 3.7.3.
    Asset-Backed Commercial Paper (ABCP) Programme A programme that predominately issues commercial paper with an Original Maturity of one year or less that is backed by assets or other Exposures held in a bankruptcy-remote SPE.
    AT1 Additional tier 1
    AT1 Capital Has the meaning given in PIB section 3.14.
    Available Stable Funding (ASF) The amount, calculated in accordance with PIB Rule A9.4.1, representing the relative stability of an Authorised Firm's available funding sources.
    ASF Category The applicable category, listed in the table to PIB Rule A9.4.1, to which the carrying value of a liability or capital instrument of an Authorised Firm is assigned.
    ASF Factor The applicable factor, listed in the table to PIB Rule A9.4.1, used to multiply the carrying value of a liability or capital instrument of an Authorised Firm.
    Base Capital Requirement Has the meaning given in PIB section 3.6.
    Basel Committee The Basel Committee on Banking Supervision.
    Basic Indicator Approach The manner in which the Operational Risk Capital Requirement is calculated in accordance with sections PIB 6.11 and PIB A6.1.
    Capital Buffer In relation to an Authorised Firm, means the sum of the following (to the extent applicable to the firm):
    (a) Capital Conservation Buffer;
    (b) Countercyclical Capital Buffer; and
    (c) HLA Capital Buffer.
    Capital Buffer Requirement Means a requirement to maintain any one or more of the following:
    (a) Capital Conservation Buffer;
    (b) Countercyclical Capital Buffer; or
    (c) an HLA Capital Buffer.
    Capital Conservation Buffer The Capital Buffer that an Authorised Firm must maintain under section 3.9.
    Capital Conservation Buffer Requirement The requirement to maintain a Capital Conservation Buffer under section 3.9.
    Capital Requirement The amount of capital an Authorised Firm must hold, calculated in accordance with sections PIB 3.3, PIB 3.4, PIB 3.5, PIB 3.9, PIB 3.9A or PIB 3.9B as applicable.
    Capital Resources The total Capital Resources of an Authorised Firm calculated in accordance with PIB section 3.11.
    Category A prudential grouping of Authorised Firms which determines the application of the Rules in this Module.
    CCF Credit conversion factor
    CCP Central Counterparty
    CEA Credit equivalent amount
    CET1 Common equity tier 1
    CET1 Capital Has the meaning given in PIB section 3.13.
    Clean-Up Call An option that permits the SE Exposures (e.g. asset-backed Securities) to be called before all of the underlying Exposures or SE Exposures have been repaid. In the case of Traditional Securitisations, this is generally accomplished by repurchasing the remaining SE Exposures once the pool balance or outstanding Securities have fallen below some specified level. In the case of a synthetic Exposure, the Clean-Up Call may take the form of a clause that extinguishes the credit protection.
    Close Links A Person (Person A) has Close Links with a Person (Person B) if:
    (a) Person B:
    (i) is a Holding Company of Person A;
    (ii) is a Subsidiary of Person A;
    (iii) is a Holding Company of the Subsidiary of Person A;
    (iv) is a Subsidiary of a Holding Company of Person A; or
    (v) owns and controls 20% or more of the voting rights or shares of Person A; or
    (b) Person A owns and controls 20% or more of the voting rights or shares of Person B.
    Closely Related Has the meaning given in PIB Rule A4.11.5.
    Collateral Any form of asset, guarantee, or indemnity which is held or controlled by an Authorised Firm and is subject to a security interest or arrangement in favour of that firm.
    Collective Investment Fund Risk Capital Requirement A component of Market Risk Capital Requirement calculated in accordance with PIB section 5.9.
    Commodities Risk Capital Requirement A component of the Market Risk Capital Requirement 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 Risk The risk faced by an Authorised Firm arising out of its Large Exposures.
    Connected In relation to a Person (A), a Person which has or has at any relevant time had the following relationship to A:
    (a) a member of A's Group;
    (b) a Controller 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 Counterparties 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 Amortisation Early Amortisation that meets the conditions in PIB Rule 4.14.58.
    Countercyclical Capital Buffer (CCyB) The countercyclical capital buffer that an Authorised Firm must maintain under section 3.9A.
    CCyB Authority
    (1) For the State, means the Central Bank; and
    (2) For any other jurisdiction, means the authority in that jurisdiction responsible for setting CCyB Rates.
    CCyB Rate A rate expressed as a percentage of Risk Weighted Assets that applies under PIB Rules 3.9A.7 to 3.9A.9.
    CCyB Requirement The requirement to maintain a Countercyclical Capital Buffer under PIB section 3.9A.
    Counterparty Means any person with or for whom an Authorised Firm carries on, or intends to carry on, any regulated business or associated business. In this context, Counterparty includes an individual, unincorporated body, company, government, local authority or other public body.
    Counterparty Risk The risk that an Authorised Firm's Counterparty does not perform its obligations under the terms of a contract.
    CR Exposure The Exposure value or amount for a Credit Risk Exposure.
    Credit Derivative Any contract which transfers the Credit Risk of a reference obligation or set of reference obligations from the protection buyer to the protection seller, such that the protection seller has an Exposure to the reference obligation(s).
    Credit Enhancement A contractual arrangement in which the Authorised Firm retains or assumes an SE Exposure and, in substance, provides some degree of added protection to other parties to the transaction.
    Credit Quality Grade A credit quality step in a credit quality assessment scale. A credit quality assessment scale is a scale onto the credit assessments of an ECAI or an expert credit agency are mapped.
    Credit Risk In relation to an Authorised Firm, the risk of loss if another party fails to perform on its financial obligation to the Authorised Firm.
    Credit Risk Capital Requirement (CRCOM) The requirement calculated in accordance with PIB section 4.6.
    Credit-Enhancing Interest-Only Strip 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 Exposure.
    CV Contracted value for delivery.
    Delta The measure of an Option's sensitivity to a change in value of the underlying investment, asset or property.
    Displaced Commercial Risk Capital Requirement The requirement calculated in accordance with IFR chapter 5.
    Domestic Systemically Important Bank (D-SIB) An Authorised Firm designated by the DFSA under PIB section 1.4 as a domestic systemically important bank.
    Duration Method A measure of General Market Risk calculated in accordance with PIB Rule A5.2.19.
    E An Exposure value or amount
    E* An Exposure value or amount adjusted in the manner provided in the relevant Rule
    EAE The Exposure value or amount for an Early Amortisation Exposure
    Early Amortisation 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 Amortisation provision will be considered either controlled or non-controlled.
    ECAI A CRA or an external credit rating agency approved by the DFSA for the purpose of this Module.
    Equity Risk Capital Requirement A component of Market Risk Capital Requirement 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 Spread 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 Minimum A Capital Requirement calculated in accordance with PIB section 3.7.
    Exposure The maximum loss that an Authorised Firm (and where applicable its PSIA holders) might suffer if:
    (a) a Counterparty or a group of Connected Counterparties fail to meet their obligations; or
    (b) it realises assets or off-balance sheet positions.
    An Exposure also includes any asset or off-balance sheet item, which could result in a potential loss to the Authorised Firm due to Market Risk or Operational Risk or any other risk factor.
    FCCA Financial Collateral Comprehensive Approach as described in PIB Rule 4.9.5.
    FCSA Financial Collateral Simplified Approach as described in PIB Rule 4.9.5.
    Financial Group A group of entities which includes an Authorised Firm and:
    (a) any Parent incorporated in the DIFC;
    (b) any Financial Institution subsidiaries (whether direct or indirect) of the Parent or Parents in (a) or of the Authorised Firm;
    (c) any Financial Institution in which the Parent or Parents in (a), the Financial Institution subsidiaries in (b) or the Authorised Firm (whether direct or indirect) hold 20% or more of the voting rights or capital; and
    (d) any entity which the DFSA directs the Authorised Firm to include in accordance with PIB Rule 8.1.2 or PIN Rule 8.1.2.
    Financial Group Capital Requirement The Capital Requirement of a Financial Group calculated in accordance with PIB Rule 8.3.3 or PIN Rule 8.3.3.
    Financial Group Capital Resources The Capital Resources of a Financial Group calculated in accordance with PIB Rule 8.3.4 or PIN 8.3.4.
    First Loss Position 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 Requirement A component of the Market Risk Capital Requirement and as calculated in accordance with PIB section 5.6.
    Gamma The measure of the rate of change of Delta.
    General Market Risk
    (1) For the purposes of the Interest Rate Risk Capital Requirement, means the risk that losses may arise from price changes in Securities 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 Requirement, 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.
    Global Systemically Important Bank (G-SIB) An Authorised Firm designated by the DFSA under PIB section 1.4 as a global systemically important bank.
    Group Means a group of entities which includes an entity (the 'first entity') and:
    (a) any Parent of the first entity; and
    (b) any subsidiaries (direct or indirect) of the Parent or Parents in (a) or the first entity.
    Group Risk The risk of loss to the Authorised Firm as a result of its membership of, or linkages within a Group.
    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.
    HLA Capital Buffer A higher loss absorbency capital buffer that a SIB must maintain under PIB section 3.9B.
    HLA Capital Buffer Requirement The requirement to maintain a higher loss absorbency capital buffer under PIB section 3.9B.
    HLA Ratio In relation to a SIB, means the ratio determined by the DFSA under PIB Rule 3.9B.6 for that SIB.
    ICR (Individual Capital Requirement) Individual capital requirement
    Implicit Support Arises when an Authorised Firm provides support to a securitisation in excess of its predetermined contractual obligation.
    Individual Liquidity Requirement An individual liquidity requirement imposed by the DFSA under PIB Rule 9.3.6.
    Interest Rate Risk Capital Requirement A component of Market Risk Capital Requirement and calculated in accordance with PIB section 5.4.
    Internal Capital Adequacy Assessment Process (ICAAP) The internal capital adequacy assessment process prescribed in PIB chapter 10.
    Internal Risk Assessment Process (IRAP) The internal risk assessment process prescribed in PIB section 10.3.
    Investment Grade A credit rating which is a Credit Quality Grade of 1, 2 or 3.
    Large Exposure An Exposure, whether in an Authorised Firm's Non-Trading Book or Trading Book, or both, to a Counterparty or group of Closely Related Counterparties or a group of Counterparties Connected to the Authorised Firm which in aggregate equals or exceeds 10% of the Authorised Firm's Capital Resources.
    LCR Requirement The LCR required to be maintained by an Authorised Firm 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.
    Leverage Ratio Exposure Measure The value of an Authorised Firm's exposures calculated in accordance with PIB Rule 3.18.3 to detemine its Leverage Ratio.
    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 Risk The risk of loss to an Authorised Firm as a result of inability to meet its obligations as they fall due.
    Market Risk 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 Requirement The requirement calculated in accordance with PIB Rule 5.3.1.
    Matched Principal Has the meaning described in PIB Rule 1.3.3(2).
    Maturity Ladder A table that ordinally ranks the maturity time bands and assets and liabilities within them.
    Maturity Method This is an advanced approach that an Authorised Firm may use to measure the risk of holding or taking positions in debt Securities and other interest rate-related instruments, calculated in accordance with PIB Rule A5.2.17.
    MDB Multilateral development bank
    Modified Duration The time period calculation for the purposes of the Duration Method in accordance with PIB Rule A5.2.21.
    MV Market value
    Net Stable Funding Ratio (NSFR) The amount, expressed as a percentage, calculated in accordance with PIB Rule 9.3.12, or, if applicable, PIB Rule 9.3.6.
    Netting A process by which the claims and obligations between two Counterparties are offset against each other to leave a single net sum.
    Non-Financial Private Sector Credit Exposure A Credit Risk Exposure to a party other than:
    (a) a sovereign;
    (b) a regional, provincial or municipal government;
    (c) a public sector entity;
    (d) a multilateral development bank; or
    (e) a bank.
    Non-Trading Book Describes positions, Exposures and on-and off-balance sheet items, which are not in the Trading Book.
    NP Nominal principal amount.
    NSFR Requirement The requirement for an Authorised Firm to maintain a minimum NSFR under PIB Rule 9.3.12(1) or, if applicable, PIB Rule 9.3.6.
    OSB< Off-balance sheet.
    OBS Exposure An Exposure of an Authorised Firm that is off-balance sheet..
    OBS-RSF Category A category, listed in Table 2 to PIB Rule A9.4.2, to which carrying value of an OBS Exposure (or potential liquidity Exposure) is assigned..
    OBS-RSF Factor The factor, listed in Table 2 to PIB Rule A9.4.2, used to multiply the carrying value of an OBS Exposure (or a potential liquidity Exposure)..
    Operational Risk The risk of loss resulting from inadequate or failed internal processes, people and systems or from external events, including legal risk.
    Operational Risk Capital Requirement The requirement calculated in accordance with PIB section 6.11.
    Option Risk Capital Requirement A component of the Market Risk Capital Requirement and calculated in accordance with PIB section 5.8.
    Original Maturity
    (1) The time period between the date an offer is made and the date it expires or lapses.
    (2) In relation to Debentures, the interval between its issue date and the date on which it becomes due and payable.
    Originator
    (a) an entity which, either itself or through related entities, directly or indirectly, creates the Exposure being securitised; or
    (b) any entity which purchases or advises or causes an SPE to purchase the Exposures 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 Risk of the obligor is equivalent to purchasing Exposures);
    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 Originator.
    OTC Over the counter
    Potential Future Credit Exposure (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 enterprise
    PSIA Profit sharing investment account.
    Qualifying Holding Any holding in the capital of a non-financial Undertaking of which the Authorised Firm is a controller.
    Related Person Has the meaning given in PIB Rule 4.4.6.
    Relevant Entity Means any of the following:
    (a) another Authorised Firm;
    (b) a Regulated Financial Institution;
    (c) any unregulated Financial Institution; or
    (d) any financial holding company.
    Required Stable Funding (RSF) The amount, calculated in accordance with PIB Rule A9.4.2, representing the stable funding required by an Authorised Firm.
    RSF Category A category, listed in Table 1 to PIB Rule A9.4.2, to which the carrying value of an Authorised Firm's asset is assigned.
    RSF Factor The applicable factor, listed in Table 1 to PIB Rule A9.4.2, used to multiply the carrying value of an asset of an Authorised Firm.
    Re-securitisation Has the meaning given in PIB section 4.14.
    Restricted PSIA (PSIAr) A PSIA 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 Securitisation A Traditional or Synthetic Securitisation 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.
    Rho The measure of an Option's sensitivity to a change in interest rates.
    Risk Capital Requirement Has the meaning given in PIB Rule 3.8.1A.
    Risk Weighted Assets (RWA) The risk weighted assets of an Authorised Firm calculated in accordance with PIB Rule 3.8.2.
    SE Exposure The Exposure value or amount for a securitisation Exposure.
    Securities Underwriting Capital Requirement A component of the Market Risk Capital Requirement defined in PIB section 5.10.
    Servicer A Person that administers the securitised items.
    SFT Securities financing transactions, such as repo, reverse repo, security lending and borrowing, and margin lending transactions.
    Simplified Approach An alternative application of the provisions of PIB chapter 4 for an Authorised Firm in Category 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 Risk of an Originator or seller of Exposures. SPEs are commonly used as financing vehicles in which Exposures are sold to a trust or similar entity in exchange for cash or other assets funded by debt issued by the trust.
    Specific Risk The risk that losses on an Authorised Firm's net long or short position in an individual equity or Security may arise from a negative or positive price movement of that equity or Security relative to the relevant market generally.
    Sponsor An Authorised Firm that repackages third party assets directly into a securitisation scheme. Where an Authorised Firm repackages non-Investment Grade third party assets, it may fall within the definition of an Originator unless it originates or repackages no more than 10% of the scheme's total assets.
    Standardised Approach The manner in which the Operational Risk Capital Requirement is calculated in accordance with sections PIB 6.11 and PIB A6.2.
    Supervisory Review and Evaluation Process (SREP) The supervisory review and evaluation process prescribed in PIB chapter 10.
    Synthetic Securitisation Has the meaning given in PIB Rule 4.14.2(b).
    Systemically Important Bank (SIB) An Authorised Firm designated by the DFSA under PIB section 1.4 to be either or both of the following:
    (a) a D-SIB; or
    (b) a G-SIB.
    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.
    Theta The ratio of the change in an Option price to the decrease in time to expiration. Theta can also be referred to as time decay.
    Total Net Cash Outflow Has the meaning given in PIB Rule A9.2.13
    Total Return Swap 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 Book The positions and Exposures including, on and off-balance sheet items eligible for inclusion in the Trading Book, as described in PIB section 2.2.
    Traditional Securitisation Has the meaning given in PIB Rule 4.14.2(a).
    Unrestricted PSIA (PSIAu) A PSIA in respect of which the investment account holder authorises the Authorised Firm to invest the account holder's funds in a manner which the Authorised Firm deems appropriate without laying down any restrictions as to where, how and for what purpose the funds should be invested.
    Unsettled Transaction A transaction where delivery of an instrument is due to take place against the receipt of cash but remains outstanding.
    Vega The measure of the sensitivity of the value of the Option to a change in the volatility of the underlying asset.
    Walkaway Clause 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]
    [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]