CA-8.2.21

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An originating Islamic bank licensee may exclude securitised exposures from the calculation of its assets for capital adequacy purposes only if all of the following conditions have been met. Islamic bank licensees meeting these conditions must still hold regulatory capital against any exposures that they retain in respect of the securitisation (such as credit enhancements — see Section CA-8.4).

(a) In substance, all credit risks (and price risk, where applicable) associated with the securitised assets have been transferred to third parties;

(b) The transferor (i.e. originator) does not maintain effective or indirect control over the transferred assets. The assets are legally isolated from the transferor in such a way that the exposures are put beyond the reach of the transferor and its creditors, even in bankruptcy or receivership. See Paragraphs CA-8.2.5 to CA-8.2.12 for full details;

(c) Holders of the Sukuk (investors) have a claim only to the underlying pool of assets, and have no claim against the transferor;

(d) The immediate transferee is an SPV, and the holders of the legal and beneficial interests in that entity have the right to pledge or exchange such interests without restriction; and

(e) Clean-up calls⁴⁴ must be at the discretion of only the issuer (SPV). They must not be structured to provide credit enhancement and must be exercisable only when 10% or less of the purchase consideration for the underlying assets (e.g. in an IMB) remains to be paid. The issuer's rights to make clean-up calls, and the terms on which they are made, must have prior written Shari'a approval.

⁴⁴ A clean-up call is an option that permits the securitisation exposures to be called before all of the underlying exposures or securitisation exposures have been repaid. It is generally accomplished by repurchasing the remaining securitisation exposures once the pool balance or outstanding securities have fallen below some specified level.

January 2015