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Dubai Financial Services Authority (DFSA): Contents

Dubai Financial Services Authority (DFSA)
Laws
Recognised Jurisdictions and Funds
Declaration Notices
Financial Markets Tribunal
Archive
Rulebook Modules
Prudential — Investment, Insurance Intermediation and Banking Module (PIB) [VER34/12-19]
Sourcebook Modules
Consultation Papers
Policy Statements
DFSA Codes of Practice
Amendments to Legislation
Media Releases
Notices

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  • Guarantees

    • PIB 4.13.9

      (1) An Authorised FirmG may recognise the effects of Credit RiskG mitigation of a guarantee only if it is provided by any of the following entities:
      (a) central government or Central BankG ;
      (b) MDB referred to in PIB Rule 4.12.8
      (c) International Organisations referred to in PIB Rule 4.12.9;
      (d) PSE;
      (e) banks and securities firms which qualify for inclusion in bank asset class; or
      (f) any other entity that has a Credit Quality GradeG "3" or above.
      (2) An Authorised FirmG must not recognise the effects of Credit RiskG mitigation of a guarantee unless all of the following requirements are complied with:
      (a) the guarantee is an explicitly documented obligation assumed by the guarantor;
      (b) the guarantee represents a direct claim on the guarantor;
      (c) the extent of the credit protection cover is clearly defined and incontrovertible;
      (d) other than in the event of non-payment by the Authorised FirmG of money due in respect of the guarantee if applicable, there is an irrevocable obligation on the part of the guarantor to pay out a predetermined amount upon the occurrence of a credit event, as defined under the guarantee;
      (e) the guarantee does not contain any clause, the fulfilment of which is outside the direct control of the Authorised FirmG , that:
      (i) would allow the guarantor to cancel the guarantee unilaterally;
      (ii) would increase the effective cost of the guarantee as a result of deteriorating credit quality of the underlying ExposureG ;
      (iii) could prevent the guarantor from being obliged to pay out in a timely manner in the event that the underlying obligor fails to make any payment due; or
      (iv) could allow the maturity of the guarantee agreed ex-ante to be reduced ex-post by the guarantor;
      (f) the Authorised FirmG is able in a timely manner to pursue the guarantor for any monies outstanding under the documentation governing the transaction on the default of, or non-payment by, the underlying obligor without first having to take legal action to pursue the underlying obligor for payment; and
      (g) the guarantee covers all types of payments that the underlying obligor is expected to make under the documentation governing the transaction, except in the case of accrued interest, accrued expenses or fees outstanding, where these are deemed immaterial.
      Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 4.13.9 Guidance

        1. PIB Rule 4.13.9(2)(e) does not include any guarantee with a cancellation clause where it is provided that any obligation incurred or transaction entered into prior to any cancellation, unilateral or otherwise, continues to be guaranteed by the guarantor.
        2. The guarantee payments may be in the form of the guarantor making a lump sum payment of all monies to the Authorised FirmG or the guarantor assuming the future payment obligations of the CounterpartyG covered by the guarantee, as specified in the relevant documentation governing the guarantee.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

    • PIB 4.13.10

      In addition to the requirements in PIB Rule 4.13.9, where an Authorised FirmG has an ExposureG that is protected by a guarantee or that is counter-guaranteed by a central government or Central BankG , a regional government or local authority or a PSE claims on which are treated as claims on the central government in whose jurisdiction they are established, a MDB or an international organisation to which a 0% risk weight is assigned under PIB section 4.12, an Authorised FirmG may treat the ExposureG as being protected by a direct guarantee from the central government or Central BankG in question, provided the following requirements are complied with:

      (a) the counter-guarantee covers all Credit RiskG elements of the ExposureG ;
      (b) both the original guarantee and the counter-guarantee comply with all the requirements for guarantees set out in this section, except that the counter-guarantee need not be direct and explicit with respect to the original ExposureG ; and
      (c) the Authorised FirmG is able to satisfy the DFSAG that the cover is robust and that nothing in the historical evidence suggests that the coverage of the counter-guarantee is less than effectively equivalent to that of a direct guarantee by the entity in question.
      Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]