Back Custom print Link Text Only Rich Text Print

  • Identification of Additional Risks

    • CM-2.3.31

      Bahraini Islamic bank licensees must identify third parties that may constitute an additional risk factor inherent in a structure itself rather than in the underlying assets. This third party could be a risk factor for more than one structure that the licensee invests in. Examples of roles played by third parties include originator, fund manager, liquidity provider and credit protection provider.

      Added: June 2022

    • CM-2.3.32

      Bahraini Islamic bank licensees should connect their investments in those structures with a common risk factor, to form a group of connected counterparties. In such cases, the manager would be regarded as a distinct counterparty so that the sum of the licensee’s investments in all of the funds managed by this manager would be subject to the large exposure limit, with the exposure value being the total value of the different investments. In other cases, the identity of the manager may not comprise of an additional risk factor – for example, if the legal framework governing the regulation of particular funds requires separation between the legal entity that manages the fund, and the legal entity that has custody of the fund’s assets.

      Added: June 2022

    • CM-2.3.33

      In the case of structured finance products, the liquidity provider or sponsor of short-term programmes (asset-backed commercial paper – ‘ABCP’, or conduits and structured investment vehicles – ‘SIVs’) may warrant consideration as an additional risk factor (with the exposure value being the amount invested).

      Added: June 2022

    • CM-2.3.34

      Bahraini Islamic bank licensees may add their investments in a set of structures associated with a third party that constitutes a common risk factor to other exposures (such as a financing) it has to that third party. Whether the exposures to such structures must be added to any other exposures to the third party, would again depend on a case-by-case consideration of the specific features of the structure and on the role of the third party. In the example of the fund manager, adding together the exposures may not be necessary because potentially fraudulent behaviour may not necessarily affect the repayment of a financing exposure.

      Added: June 2022