Question 1: BCBS 266 states “Equity holdings in entities whose debt obligations qualify for a zero risk weight can be excluded from the LTA, MBA and FBA approaches (including those publicly sponsored entities where a zero risk weight can be applied), at the discretion of the national supervisor.” Are such equity holdings excluded under the Central Bank’s Standards?
No, the Central Bank of the UAE has chosen not to adopt this point of national discretion. Bank investments in such funds are subject to the requirements of the Standards.

Question 2: If a bank makes a “seed capital investment” in a fund that is out of scope of consolidation, and is considered a significant investment in the common shares of a banking, financial, or insurance entity, is it within scope as an equity investment in a fund?
If the investment is one that the bank would be required to deduct from capital, then the investment is not in scope for this Standards.

Question 3: If a bank makes a “seed capital investment” in a fund, and that fund is managed by a Fund Manager hired by the bank, is the investment considered to be a direct investment in the fund, or indirect?
Assuming that the fund in question is not consolidated into the bank under accounting rules for financial reporting, such an investment is considered a direct investment under the Standards.

Question 4: Under the Standards, what methodology should a bank use to compute counterparty credit risk exposure for funds in which the bank has an equity investment?
The Standards states that banks must risk weight all exposures as if the bank held those exposures directly. Thus, the risk weights and the exposure amounts for counterparty credit risk should be determined using the standards that would apply to the bank. For banks in the UAE, the applicable standards for counterparty credit risk is the Central Bank’s Standards for Counterparty Credit Risk Capital, which reflects the Standardised Approach to Counterparty Credit Risk (SA-CCR).

Question 5: If a bank relies on a third-party information provider for information used to calculate the leverage adjustment for a fund, does the 1.2 multiplication factor apply?
No, as the Standards states, the factor of 1.2 applies when the bank relies on a third party for the risk weights of the underlying exposures. This is a conservative adjustment to recognize the uncertainty associated with such information about risk weights. It does not apply to the leverage ratio calculation.

Question 6: The FBA applies a risk weight of 1250%, which is significantly higher than the current risk weights of 100% or 150% that apply to equity investments in funds under previous capital requirements. Should this risk weight be lower?
The risk weight of 1250% is aligned with international capital standards as developed by the Basel Committee, and is being adopted by the Central Bank under this Standards. Considering the higher minimum capital requirements in the UAE (10.5% vs 8%), the final risk weight is capped at 952%.

Question 7: What happens when the bank has mandated intermediaries to invest in fixed income? Would this investment be included or excluded in the calculation of Equity Investments?
Banks having mandated Intermediaries have to go through same framework approach. This means that if the bank has information for these intermediaries, the bank may use the LTA approach. If the bank does not have information, then it has to use the MBA or FBA approach.

Question 8: The EIF standards allows for partial use of approaches for reporting EIF and the RWA calculations from each applied approach are summed, and then divided by total fund assets to compute “Avg RWfund”. Should the leverage of the fund be proportioned according to use of approach?
No, the leverage ratio is a single number that applies to the entire fund. When a bank uses more than one approach to determine the risk weight (that is, LTA, MBA, and/or FBA), the bank should report the amounts on separate lines in the reporting template.