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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]
Sourcebook Modules
Consultation Papers
Policy Statements
DFSA Codes of Practice
Amendments to Legislation
Media Releases
Notices
Financial Markets Tribunal
Archive

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  • PIB A6.3.4

    An Authorised FirmG may, in calculating its Operational RiskG Capital RequirementG under PIB Rule A6.3.1:

    (a) aggregate retail and commercial banking using a single beta of 15%; or
    (b) if it is unable to disaggregate gross income in its six other business lines, aggregate the total gross income for these six business lines using a beta of 18%, with negative gross income treated as described in the Standardised ApproachG .
    Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

    • PIB A6.3.4 Guidance

      1. For the purposes of the Alternative Standardised ApproachG , total loans and advances in the retail banking business line consist of the total drawn amounts in the following credit portfolios: retail, SMEs treated as retail, and purchased retail receivables.
      2. For commercial banking, total loans and advances consist of the drawn amounts in the following credit portfolios: corporate, sovereign, bank, specialised lending, SMEs treated as corporate and purchased corporate receivables. The book value of securities held in the Non-Trading BookG should also be included.
      3. The three year average should be calculated on the basis of the last three yearly observations at the end of the Authorised Firm'sG financial year. When audited figures are not available, business estimates may be used.
      4. If an Authorised FirmG does not have sufficient income data to meet the three year requirement (e.g. a start-up) it may use its forecasted gross income projections for all or part of the three year time period.
      5. In accordance with PIB Rule 6.11.3 of PIBG , an Authorised FirmG seeking to apply the Standardised ApproachG or the Alternative Standardised ApproachG must develop specific policies and have documented criteria for mapping gross income for current business lines and activities into the Standardised ApproachG or the Alternative Standardised ApproachG . The criteria must be reviewed and adjusted for new or changing business activities as appropriate. The principles for business line mapping are set out below.

      PrinciplesG for business line mapping

      6. All activities should be mapped into the eight level 1 business lines in a mutually exclusive and jointly exhaustive manner.
      7. Any activity which cannot be readily mapped into the business line framework, but which represents an ancillary function to an activity included in the framework, should be allocated to the business line it supports. If more than one business line is supported through the ancillary activity, an objective mapping criteria should be used.
      8. When mapping gross income, if an activity cannot be mapped into a particular business line then the business line yielding the highest charge should be used. The same business line equally applies to any associated ancillary activity.
      9. An Authorised FirmG may use internal pricing methods to allocate gross income between business lines, provided that total gross income for the firm (as would be recorded under the Basic Indicator ApproachG ) still equals the sum of gross income for the eight business lines.
      10. The mapping of activities into business lines for Operational RiskG capital purposes should be consistent with the definitions of business lines used for regulatory capital calculations in other risk categories, i.e. credit and Market RiskG . Any deviations from this principle should be clearly motivated and documented.
      11. The mapping process used should be clearly documented. In particular, written business line definitions should be clear and detailed enough to allow third parties to replicate the business line mapping. Documentation should, among other things, clearly motivate any exceptions or overrides and be kept on record.
      12. Processes should be in place to define the mapping of any new activities or products and the mapping process to business lines should be subject to independent review.

      Table — Mapping of Business Lines

      Level 1 Level 2 Activity GroupsG
      Corporate Finance Corporate Finance Mergers and acquisitions, underwriting, privatisations, securitisation, research, debt (government, high yield), equity, syndications, IPO, secondary private placements.
      Municipal/Government Finance
      Merchant BankingG
      AdvisoryG Services
      Trading and Sales Sales Fixed income, equity, foreign exchanges, commodities, credit, funding, own position securities, lending and repos, brokerage, debt, prime brokerage.
      Market MakingG
      Proprietary Positions
      Treasury
      Retail BankingG Retail BankingG Retail lending and deposits, banking services, trust and estates.
      Private BankingG Private lending and deposits, banking services, trust and estates, investment advice.
      Card Services Merchant/commercial/corporat e cards, private labels and retail.
      Commercial BankingG Commercial BankingG Project finance, real estate, export finance, trade finance, factoring, leasing, lending, guarantees, bills of exchange.
      Payment and Settlement External ClientsG Payments and collections, funds transfer, clearing and Settlement.

      Note: Payment and settlement losses related to an Authorised Firm'sG own activities would be incorporated in the loss experience of the affected business line.
      Agency Services Custody Escrow, depository receipts, securities lending (customers) corporate actions.
      Corporate Agency IssuerG and paying agents.
      Corporate Trust -
      Asset Management Discretionary Fund ManagementG Pooled, segregated, retail, institutional, closed, open, private EquityG .
      Non-Discretionary Fund ManagementG Pooled, segregated, retail, institutional, closed, open.
      Retail Brokerage Retail Brokerage ExecutionG and full service.
      Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]