6.An originating bank may exclude underlying exposures from the calculation of risk-weighted assets only if all of the following conditions for risk transference have been met.

1. a.Significant credit risk associated with the underlying exposures has been transferred to third parties.
2. b.Banks should obtain legal opinion that confirms true sale, that the transferor does not maintain effective or indirect control over the transferred exposures; that is, that the exposures 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.
3. c.The transferor is not able to repurchase from the transferee the previously transferred exposures in order to realize their benefits and is not obligated to retain the risk of the transferred exposures.
4. d.The securities issued are not obligations of the transferor. Thus, investors who purchase the securities only have a claim on the underlying exposures.
5. e.The transferee is an SPE and the holders of the beneficial interests in that entity have the right to pledge or exchange them without restriction.
6. f.Clean-up calls satisfy the conditions set out in Section D below.
7. g.The securitisation does not contain clauses that (i) require the originating bank to alter the underlying exposures such that the pool’s credit quality is improved unless this is achieved by selling exposures 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.
8. h.There are no termination options or triggers except eligible clean-up calls meeting the requirements of Section D below, termination for specific changes in tax and regulation, or early amortization provisions that result in the securitisation transaction failing the operational requirements set out in Section D below.
9. i.Such other conditions as the Central Bank shall provide after notification to banks pursuant to a circular or otherwise.

Banks meeting these above conditions must still hold regulatory capital against any exposure they retain under the securitisation.

7.The transferor’s retention of servicing rights to the exposures does not in itself constitute indirect control of the exposures.

8.For synthetic securitisations, the use of credit risk mitigation (CRM) techniques (i.e., collateral, guarantees and credit derivatives) for hedging the underlying exposure may be recognized for risk-based capital purposes only if the conditions outlined below are satisfied:

1. a.Credit risk mitigants comply with the requirements set out for CRM in the Central Bank’s Standard for Credit Risk.
2. b.Eligible collateral is limited to that specified as eligible under in the Central Bank’s Standards for Credit Risk (eligible collateral pledged by SPEs may be recognized).
3. c.Eligible guarantors are as defined in the Central Bank’s Standard for Credit Risk (SPEs are not considered to be eligible guarantors).
4. d.Significant credit risk associated with the underlying exposures is transferred by the bank to third parties.
5. e.Instruments used to transfer credit risk do not contain terms or conditions that limit the amount of credit risk transferred.
6. f.The bank obtains a legal opinion that confirms the enforceability of the contract.
7. g.Such other conditions as the Central Bank shall provide after notification to banks pursuant to a circular or otherwise.

9.Clean-up calls for synthetic securitisations also must satisfy the conditions set out in Section D below. If a synthetic securitisation incorporates a call (other than a clean-up call) that effectively terminates the transaction and the purchased credit protection on a specific date, the bank should treat this as required under the Central Bank’s Standard for Credit Risk for CRM maturity mismatch. This requirement does not apply to synthetic securitisations that are assigned a risk weight of 1250%.

10.A transaction is deemed to fail the operational requirements for traditional or synthetic securitisations stated above in this Standard if the bank originates or sponsors a securitisation transaction that includes one or more revolving credit facilities, and the securitisation transaction incorporates an early amortization or similar provision that, if triggered, would:

1. i.Subordinate the bank’s senior or pari passu interest in the underlying revolving credit facilities to the interest of other investors;
2. ii.Subordinate the bank’s subordinated interest to an even greater degree relative to the interests of other parties;
3. iii.In other ways increases the bank’s exposure to losses associated with the underlying revolving credit facilities; or
4. iv.Not satisfy any conditions as set by the Central Bank after notification to banks pursuant to a circular or otherwise.

11.If a transaction contains one of the following examples of an early amortization provision but otherwise meets the operational requirements for traditional or synthetic securitisations stated above in this Standard, the originating bank may exclude the underlying exposures associated with such a transaction from the calculation of risk-weighted assets, but must still hold regulatory capital against any securitisation exposures they retain in connection with the transaction:

1. a.Replenishment structures where the underlying exposures do not revolve and early amortization terminates the ability of the bank to add new exposures;
2. b.Transactions with revolving credit facilities containing early amortization features that mimic term structures (i.e., where the risk on the underlying revolving credit facilities does not return to the originating bank) and where the early amortization provision does not effectively result in subordination of the originator’s interest;
3. c.Structures where a bank securitizes one or more revolving credit facilities and where investors remain fully exposed to future drawdowns by borrowers even after an early amortization event has occurred; or
4. d.The early amortization provision is triggered solely by events not related to the performance of the underlying assets or the selling bank, such as material changes in tax laws or regulations.

12.For securitisation transactions that include a clean-up call, no capital shall be required due to the presence of a clean-up call if the following conditions are met:

1. a.The exercise of the clean-up call is not mandatory, in form or in substance, but rather is at the discretion of the originating bank;
2. b.The clean-up call is not structured to avoid allocating losses to credit enhancements or positions held by investors or otherwise structured to provide credit enhancement; and
3. c.The clean-up call is exercisable only when 10% or less of the original underlying portfolio or securities issued remains, or, for synthetic securitisations, when 10% or less of the original reference portfolio value remains.
4. d.Such other conditions as the Central Bank shall provide after notification to banks pursuant to a circular or otherwise.

13.Securitisation transactions that include a clean-up call that does not meet all of the criteria stated in the immediately preceding paragraph result in a capital requirement for the originating bank. For a traditional securitisation, the bank must treat the underlying exposures as if they were not securitized. Additionally, banks must not recognize in regulatory capital any gain on sale. For synthetic securitisations, the bank purchasing protection must hold capital against the entire amount of the securitized exposures as if they did not benefit from any credit protection.

14.If a clean-up call, when exercised, is found to serve as a credit enhancement, the exercise of the clean-up call must be considered a form of implicit support provided by the bank, and must be treated as such in accordance with the requirements related to implicit support stated below in this Standard.

15.The following types of securitisations, if the originating bank is UAE based, will only be permitted in specific instances and require the Central Bank’s approval:

1. a.securitisation of revolving credit facilities
2. b.synthetic securitisation
3. c.resecuritisation exposure