CA-6.3.3
For synthetic securitisations, the use of CRM techniques (i.e. collateral, guarantees and credit derivatives) for hedging the underlying exposure may be recognised for risk-based capital purposes only if the conditions outlined below are satisfied:
(a) Credit risk mitigants must comply with the requirements as set out in Chapter CA-4 of this Module;
(b) Eligible collateral is limited to that specified in Paragraphs CA-4.3.1 and CA-4.3.2. Eligible collateral pledged by SPSVs may be recognised;
(c) Eligible guarantors are defined in Paragraph CA-4.5.7. Conventional bank licensees may not recognise SPSVs as eligible guarantors in the securitisation framework;
(d) Conventional bank licensees must transfer significant credit risk associated with the underlying exposure to third parties;
(e) The instruments used to transfer credit risk may not contain terms or conditions that limit the amount of credit risk transferred, such as those provided below:
(i) Clauses that materially limit the credit protection or credit risk transference (e.g. significant materiality thresholds below which credit protection is deemed not to be triggered even if a credit event occurs or those that allow for the termination of the protection due to deterioration in the credit quality of the underlying exposures);
(ii) Clauses that require the originating bank to alter the underlying exposures to improve the pool's weighted average credit quality;
(iii) Clauses that increase the conventional bank licensees ' cost of credit protection in response to deterioration in the pool's quality;
(iv) Clauses that 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 reference pool; and
(v) Clauses that provide for increases in a retained first loss position or credit enhancement provided by the originating bank after the transaction's inception;
(f) An opinion must be obtained from a qualified legal counsel that confirms the enforceability of the contracts in all relevant jurisdictions; and
(g) Clean-up calls must satisfy the conditions set out in Paragraph CA-6.3.5.
January 2015