An originating bank may exclude securitised exposures from the calculation of risk weighted assets under Paragraph CA-6.4.1, only if all of the following conditions have been met. Conventional bank licensees meeting these conditions must still hold regulatory capital against any securitisation exposures they retain:
(a) Significant credit risk associated with the securitised exposures has been transferred to third parties;
(b) The transferor does not maintain effective or indirect control35 over the transferred exposures. The assets are legally isolated from the transferor in such a way (e.g. through the sale of assets or through sub-participation) that the exposures are put beyond the reach of the transferor and its creditors, even in bankruptcy or receivership. These conditions must be supported by an opinion provided by a qualified legal counsel;
(c) The securities issued are not obligations of the transferor. Thus, investors who purchase the securities only have claim to the underlying pool of exposures;
(d) The transferee is an SPSV and the holders of the beneficial interests in that entity have the right to pledge or exchange them without restriction;
(e) Clean-up calls must satisfy the conditions set out in Paragraph CA-6.3.5; and
(f) The securitisation does not contain clauses that (i) require the originating bank to alter systematically the underlying exposures such that the pool's weighted average credit quality is improved unless this is achieved by selling assets to independent and unaffiliated third parties at market prices; (ii) allow for increases in a retained first loss position or credit enhancement provided by the originating bank after the transaction's inception; or (iii) increase the yield payable to parties other than the originating bank, such as investors and third-party providers of credit enhancements, in response to a deterioration in the credit quality of the underlying pool.
35 The transferor is deemed to have maintained effective control over the transferred credit risk exposures if it: (i) is able to repurchase from the transferee the previously transferred exposures in order to realise their benefits; or (ii) is obligated to retain the risk of the transferred exposures. The transferor's retention of servicing rights to the exposures will not necessarily constitute indirect control of the exposures.
January 2015
