Collective Investment Undertakings, Securitisation Vehicles and Other Structures
CM-2.3.27
Bahraini conventional bank licensees must consider exposures even when a structure lies between thelicensee and the exposures, that is, even when thelicensee invests in structures through an entity which itself has exposures to assets (‘underlying assets’).Bahraini conventional bank licensees must assign the exposure amount, i.e. the amount invested in a particular structure, to specificcounterparties following the approach described in Paragraphs CM-2.3.28 to CM-2.3.35. The structures include funds, securitisations and other structures with underlying assets.Added: June 2022CM-2.3.28
Bahraini conventional bank licensee may assign the exposure amount to the structure itself, defined as a distinctcounterparty , if it can demonstrate that thelicensee’s exposure amount to each underlying asset of the structure is smaller than 1 percent of total consolidated capital, considering only those exposures to underlying assets that result from theinvestment in the structure itself, and using the exposure value calculated according to Paragraphs CM-2.3.34 and CM-2.3.35. In this case, thelicensee is not required to look through the structure to identify the underlying assets.Added: June 2022CM-2.3.29
Bahraini conventional bank licensees must look through the structure to identify those underlying assets for which the underlying exposure value is equal to or above 1 percent of total consolidated capital. In this case, thecounterparty corresponding to each of the underlying assets must be identified so that these underlying exposures can be added to any other direct or indirect exposure to the samecounterparty . Thelicensee’s exposure amount to the underlying assets that are below 1 percent of thelicensee’s total consolidated capital may be assigned to the structure itself (i.e. partial Look-Through-Approach (‘LTA’) is permitted).Added: June 2022CM-2.3.30
If a
Bahraini conventional bank licensee is unable to identify the underlying assets of a structure where the total amount of its exposure does not exceed 1 percent of its Total consolidated capital, thelicensee must:(a) Assign the total exposure amount of itsinvestment to the structure; or(b) Assign this total exposure amount to the unknown client.Added: June 2022CM-2.3.31
Bahraini conventional bank licensees must aggregate all ‘unknown exposures’ as if they are related to a singlecounterparty (the unknown client), to which the large exposure limit would apply.Added: June 2022CM-2.3.32
When a LTA is not required, according to Paragraph CM-2.3.28, a
Bahraini conventional bank licensee must, nevertheless, be able to demonstrate that regulatory arbitrage considerations have not influenced the decision whether to look through or not – e.g. that thelicensee has not circumvented the large exposure limit by investing in several individually immaterial transactions with identical underlying assets.Added: June 2022CM-2.3.33
If the LTA need not be applied,
Bahraini conventional bank licensee ’s exposure to the structure must be the nominal amount it invests in the structure.Added: June 2022CM-2.3.34
When the LTA is required, the exposure value assigned to a
counterparty is equal to the pro rata share that thelicensee holds in the structure multiplied by the value of the underlying asset in the structure. Thus, thelicensee holding a 1 percent share of a structure that invests in 20 assets each with a value of 5, must assign an exposure of 0.05 to each of thecounterparties . An exposure to acounterparty must be added to any other direct or indirect exposures thelicensee has to thatcounterparty .Added: June 2022CM-2.3.35
When the LTA is required, the exposure value to a
counterparty is measured for each tranche within the structure, assuming a pro rata distribution of losses amongst investors in a single tranche. To compute the exposure value to the underlying asset, thelicensee must:(a) Consider the lower of the value of the tranche in which thelicensee invests and the nominal value of each underlying asset included in the underlying portfolio of assets; and(b) Apply the pro rata share of thelicensee’s investment in the tranche to the value determined in the first step above.Added: June 2022
