Source: https://handbook.fca.org.uk/handbook/BIPRU/5/?section=bipru%205.1&view=related-sections
Timestamp: 2019-12-10 03:11:12
Document Index: 343472985

Matched Legal Cases: ['art 2', 'art 2', 'art 3', 'art 3', 'art 1', 'art 1', 'art 2', 'art 3', 'art 1', 'art 1', 'art 1', 'art 1', 'art 1', 'art 1', 'art 2', 'art 2', 'art 2', 'art 2', 'art 2', 'art 3', 'art 3', 'art 3', 'art 3', 'art 3', 'art 3', 'art 3', 'art 3', 'art 3', 'art 3', 'art 3', 'art 3', 'art 3', 'art 3', 'art 3', 'art 3', 'art 3', 'art 3', 'art 3', 'art 3', 'art 3', 'art 3', 'art 3', 'art 3', 'art 3', 'art 3', 'art 3', 'art 3', 'art 3', 'art 3', 'art 3', 'art 3', 'art 3', 'art 3', 'art 3', 'art 3', 'art 1', 'art 2', 'art 3', 'art 1', 'art 2', 'art 3', 'art 1', 'art 3', 'art 3', 'art 3', 'art 1', 'art 2', 'art 2', 'art 3', 'art 3', 'art 3', 'art 3', 'art 3', 'art 3', 'art 3', 'art 3', 'art 3', 'art 3', 'art 3', 'art 3', 'art 3', 'art 3', 'art 3', 'art 3', 'art 3', 'art 5', 'art 5']

BIPRU 5 - FCA Handbook
View BIPRU 5 as PDF
BIPRU 5.1.1 R 01/01/2007 RP
1 BIPRU 5 applies to a BIPRU firm.
BIPRU 5.1.2 G 01/01/2014 RP
Pursuant to the third paragraph of article 95(2) of the EUCRR,2BIPRU 5 implements, in part, Articles 78(1) and 91 to 93 and Annex VIII of the Banking Consolidation Directive.
BIPRU 5.1.3 G 01/01/2007 RP
BIPRU 5.1.4 G 01/01/2007 RP
BIPRU 5.1.5 G 01/01/2007 RP
BIPRU 5.2.1 R 01/01/2007 RP
A firm using the standardised approach may recognise credit risk mitigation in accordance with BIPRU 5 in the calculation of risk weighted exposure amounts for the purposes of the calculation of the credit risk capital component.
[Note: BCD Article 91]
BIPRU 5.2.2 R 01/01/2007 RP
The technique used to provide the credit protection together with the actions and steps taken and procedures and policies implemented by a lending firm must be such as to result in credit protection arrangements which are legally effective and enforceable in all relevant jurisdictions.
[Note: BCD Article 92(1)]
BIPRU 5.2.3 R 01/01/2007 RP
A firm must not recognise credit protection as eligible until it has conducted sufficient legal review confirming that the credit protection arrangements are legally effective and enforceable in all relevant jurisdictions in accordance with BIPRU 5.2.2 R.
A firm must re-conduct legal reviews as necessary to ensure continuing enforceability and effectiveness.
BIPRU 5.2.4 R 01/01/2007 RP
A lending firm must take all appropriate steps to ensure the effectiveness of the credit protection arrangement and to address related risks.
[Note: BCD Article 92(2)]
Funded credit protection
BIPRU 5.2.5 R 01/01/2007 RP
In the case of funded credit protection:
to be eligible for recognition the assets relied upon must be sufficiently liquid and their value over time sufficiently stable to provide appropriate certainty as to the credit protection achieved having regard to the approach used to calculate risk weighted exposure amounts and to the degree of recognition allowed; eligibility is limited to the assets set out in the CRM eligibility conditions; and
the lending firm must have the right to liquidate or retain, in a timely manner, the assets from which the protection derives in the event of the default, insolvency or bankruptcy of the obligor - or other credit event set out in the transaction documentation - and, where applicable, of the custodian holding the collateral; the degree of correlation between the value of the assets relied upon for protection and the credit quality of the obligor must not be undue.
[Note: BCD Article 92(3) and (4)]
Treatment of credit linked notes
BIPRU 5.2.6 G 01/01/2007 RP
A credit linked note should be treated, to the extent of its cash funding, as funded credit protection. Therefore the conditions in BIPRU 5 regulating the eligibility of protection providers for unfunded credit protection do not apply. However the other provisions about the requirements for the recognition of unfunded credit protection do apply.
BIPRU 5.2.7 R 01/01/2007 RP
In the case of unfunded credit protection:
to be eligible for recognition the party giving the undertaking must be sufficiently reliable, and the protection agreement legally effective and enforceable in the relevant jurisdictions, to provide appropriate certainty as to the credit protection achieved having regard to the approach used to calculate risk weighted exposure amounts and to the degree of recognition allowed; and
eligibility is limited to the protection providers and types of protection agreement set out in the CRM eligibility conditions.
[Note: BCD Article 92(5)]
BIPRU 5.2.8 R 01/01/2007 RP
The minimum requirements set out in BIPRU 5 must be complied with.
[Note: BCD Article 92(6)]
BIPRU 5.2.9 R 01/04/2013 RP
A firm must be able to satisfy the appropriate regulator that it has adequate risk management processes to control the 1risks to which the firm may be exposed as a result of carrying out credit risk mitigation. Those processes must include appropriate stress tests and scenario analyses relating to those risks, including residual risk and the risks relating to the intrinsic value of the credit risk mitigation1.
[Note: BCD Annex VIII Part 2 point 1]
BIPRU 5.2.10 R 01/04/2013 RP
Notwithstanding the presence of credit risk mitigation taken into account for the purposes of calculating risk weighted exposure amounts and as relevant expected loss amounts, a firm must continue to undertake full credit risk assessment of the underlying exposure and must be in a position to demonstrate to the appropriate regulator the fulfilment of this requirement. In the case of repurchase transactions and/or securities or commodities lending or borrowing transactions the underlying exposure must, for the purposes of this rule only, be deemed to be the net amount of the exposure.
[Note: BCD Annex VIII Part 2 point 2]
Calculating the effects of the credit risk mitigation
BIPRU 5.2.11 R 01/01/2007 RP
Where the requirements of BIPRU 5.2.2 R to BIPRU 5.2.8 R are met the calculation of risk weighted exposure amounts, may be modified in accordance with BIPRU 5.
[Note: BCD Article 93(1)]
BIPRU 5.2.12 R 01/01/2007 RP
No exposure in respect of which credit risk mitigation is obtained may produce a higher risk weighted exposure amount than an otherwise identical exposure in respect of which there is no credit risk mitigation.
[Note: BCD Article 93(2)]
BIPRU 5.2.13 R 01/01/2007 RP
Where the risk weighted exposure amount already takes account of credit protection under the standardised approach the calculation of the credit protection must not be further recognised under BIPRU 5.
[Note: BCD Article 93(3)]
BIPRU 5.2.14 R 01/01/2007 RP
Subject to BIPRU 5.8, BIPRU 5.9 and BIPRU 5.7.27 R to BIPRU 5.7.28 R, where the CRM eligibility conditions and the CRM minimum requirements are satisfied, the calculation of risk weighted exposure amounts under the standardised approach may be modified in accordance with the provisions of BIPRU 5.
[Note: BCD Annex VIII Part 3 point 1]
BIPRU 5.2.15 R 01/01/2007 RP
Cash, securities or commodities purchased, borrowed or received under a repurchase transaction or securities or commodities lending or borrowing transaction must be treated as collateral.
[Note: BCD Annex VIII Part 3 point 2]
BIPRU 5.3.1 R 01/01/2007 RP
A firm may recognise as eligible the on-balance sheet netting of mutual claims between the firm and its counterparty.
[Note: BCD Annex VIII Part 1 point 3]
BIPRU 5.3.2 R 01/01/2007 RP
Without prejudice to BIPRU 5.6.1 R, eligibility is limited to reciprocal cash balances between a firm and a counterparty. Only loans and deposits of the lending firm may be subject to a modification of risk weighted exposure amounts and, as relevant, expected loss amounts as a result of an on-balance sheet netting agreement.
[Note: BCD Annex VIII Part 1 point 4]
BIPRU 5.3.3 R 01/01/2007 RP
For on-balance sheet netting agreements - other than master netting agreements covering repurchase transactions, securities or commodities lending or borrowing transactions and/or other capital market-driven transactions - to be recognised for the purposes of BIPRU 5 the following conditions must be satisfied:
they must be legally effective and enforceable in all relevant jurisdictions, including in the event of the insolvency or bankruptcy of a counterparty;
the firm must be able to determine at any time those assets and liabilities that are subject to the on-balance sheet netting agreement;
the firm must monitor and control the risks associated with the termination of the credit protection; and
the firm must monitor and control the relevant exposures on a net basis.
[Note: BCD Annex VIII Part 2 point 3]
Calculating the effects of credit risk mitigation
BIPRU 5.3.4 R 01/01/2007 RP
Loans and deposits with a lending firm subject to on-balance sheet netting are to be treated as cash collateral.
[Note: BCD Annex VIII Part 3 point 4]
BIPRU 5.4.1 R 01/01/2007 RP
[Note:BCD Annex VIII Part 1 point 6]
BIPRU 5.4.2 R 01/01/2007 RP
[Note:BCD Annex VIII Part 1 point 7 (part)]
BIPRU 5.4.3 R 01/01/2007 RP
BIPRU 5.4.4 R 01/01/2007 RP
BIPRU 5.4.5 R 01/04/2013 RP
[Note:BCD Annex VIII Part 1 point 8]
BIPRU 5.4.6 R 31/12/2010 RP
[Note:BCD Annex VIII Part 1 point 9]
BIPRU 5.4.7 R 01/01/2007 RP
[Note:BCD Annex VIII Part 1 point 10]
BIPRU 5.4.8 R 31/12/2010 RP
[Note:BCD Annex VIII Part 1 point 11]
BIPRU 5.4.9 R 01/01/2007 RP
[Note:BCD Annex VIII Part 2 point 6]
BIPRU 5.4.10 R 01/01/2007 RP
[Note:BCD Annex VIII Part 2 point 6(a)]
BIPRU 5.4.11 R 01/01/2007 RP
[Note:BCD Annex VIII Part 2 point 6(b)]
BIPRU 5.4.12 R 01/01/2007 RP
[Note:BCD Annex VIII Part 2 point 6(c)]
BIPRU 5.4.13 R 01/01/2007 RP
[Note:BCD Annex VIII Part 2 point 7]
BIPRU 5.4.14 R 01/01/2007 RP
BIPRU 5.4.15 R 01/01/2007 RP
[Note:BCD Annex VIII Part 3 point 24 (part)]
BIPRU 5.4.16 R 01/04/2013 RP
A firm must not use both the financial collateral simple method and the financial collateral comprehensive method, unless such use is for the purposes of BIPRU 4.2.17 R to BIPRU 4.2.19 R and BIPRU 4.2.26 R, and such use is provided for by the firm'sIRB permission. A firm must demonstrate to the appropriate regulator that this exceptional application of both methods is not used selectively with the purpose of achieving reduced minimum capital requirements and does not lead to regulatory arbitrage.4
BIPRU 5.4.17 R 01/01/2007 RP
[Note:BCD Annex VIII Part 3 point 25]
BIPRU 5.4.18 R 31/12/2010 RP
[Note:BCD Annex VIII Part 3 point 26]
BIPRU 5.4.19 R 01/01/2007 RP
[Note:BCD Annex VIII Part 3 point 27]
BIPRU 5.4.20 R 01/01/2007 RP
[Note:BCD Annex VIII Part 3 point 28 (part)]
BIPRU 5.4.21 R 01/01/2007 RP
[Note:BCD Annex VIII Part 3 point 29]
BIPRU 5.4.22 R 01/01/2007 RP
BIPRU 5.4.23 R 01/01/2007 RP
BIPRU 5.4.24 R 01/01/2007 RP
[Note:BCD Annex VIII Part 3 point 30]
BIPRU 5.4.25 R 01/01/2007 RP
[Note:BCD Annex VIII Part 3 point 31]
BIPRU 5.4.26 R 01/01/2007 RP
[Note:BCD Annex VIII Part 3 point 32]
BIPRU 5.4.27 R 01/01/2007 RP
BIPRU 5.4.28 R 31/12/2010 RP
[Note:BCD Annex VIII Part 3 point 33]
BIPRU 5.4.29 R 01/01/2007 RP
BIPRU 5.4.30 R 01/01/2007 RP
[Note:BCD Annex VIII Part 3 point 34]
BIPRU 5.4.31 R 01/01/2007 RP
[Note:BCD Annex VIII Part 3 point 35 (part)]
BIPRU 5.4.32 R 01/01/2007 RP
BIPRU 5.4.33 R 01/01/2007
BIPRU 5.4.34 R 01/01/2007 RP
[Note:BCD Annex VIII Part 3 point 36]
BIPRU 5.4.35 R 06/04/2007 RP
BIPRU 5.4.36 R 01/01/2007 RP
BIPRU 5.4.37 R 01/01/2007 RP
BIPRU 5.4.38 R 01/01/2007 RP
BIPRU 5.4.39 R 01/01/2007 RP
[Note:BCD Annex VIII Part 3 point 37]
BIPRU 5.4.40 R 01/01/2007 RP
[Note:BCD Annex VIII Part 3 point 38]
BIPRU 5.4.41 R 01/01/2007 RP
[Note:BCD Annex VIII Part 3 point 39]
BIPRU 5.4.42 R 01/01/2007 RP
[Note:BCD Annex VIII Part 3 point 40]
BIPRU 5.4.43 R 01/01/2007 RP
[Note:BCD Annex VIII Part 3 point 41]
BIPRU 5.4.44 R 01/01/2007 RP
BIPRU 5.4.45 R 01/01/2007 RP
[Note:BCD Annex VIII Part 3 point 42]
BIPRU 5.4.46 R 01/01/2007 RP
[Note:BCD Annex VIII Part 3 point 43]
BIPRU 5.4.47 R 01/01/2007 RP
[Note:BCD Annex VIII Part 3 point 44]
BIPRU 5.4.48 R 01/01/2007 RP
[Note:BCD Annex VIII Part 3 point 45]
BIPRU 5.4.49 R 01/01/2007 RP
[Note:BCD Annex VIII Part 3 point 46]
BIPRU 5.4.50 R 01/01/2007 RP
[Note:BCD Annex VIII Part 3 point 47]
BIPRU 5.4.51 R 01/01/2007 RP
[Note:BCD Annex VIII Part 3 point 48]
BIPRU 5.4.52 R 01/01/2007 RP
[Note:BCD Annex VIII Part 3 point 49]
BIPRU 5.4.53 R 14/12/2009 RP
[Note:BCD Annex VIII Part 3 point 50]
BIPRU 5.4.54 R 01/01/2007 RP
[Note:BCD Annex VIII Part 3 point 51]
BIPRU 5.4.55 G 01/04/2013 RP
BIPRU 5.4.56 R 01/01/2007 RP
[Note:BCD Annex VIII Part 3 point 52]
BIPRU 5.4.57 R 01/01/2007 RP
[Note:BCD Annex VIII Part 3 point 53]
BIPRU 5.4.58 R 01/01/2007 RP
BIPRU 5.4.59 R 01/01/2007 RP
[Note:BCD Annex VIII Part 3 point 55]
BIPRU 5.4.60 R 01/01/2007 RP
[Note:BCD Annex VIII Part 3 point 56]
BIPRU 5.4.61 R 01/01/2007 RP
[Note:BCD Annex VIII Part 3 point 57]
BIPRU 5.4.62 R 01/01/2007 RP
[Note:BCD Annex VIII Part 3 point 58 (part)]
BIPRU 5.4.63 R 01/01/2007 RP
BIPRU 5.4.64 R 01/01/2007 RP
the entities mentioned in BIPRU 5.4.2 R (2)exposures to which are assigned a 0% risk weight under the standardised approach to credit risk;
BIPRU 5.4.65 R 01/01/2007 RP
[Note:BCD Annex VIII Part 3 point 59]
BIPRU 5.4.66 R 01/01/2007 RP
Under the standardised approachE* as calculated under BIPRU 5.4.28 R must be taken as the exposure value for the purposes of BIPRU 3.2.20 R to BIPRU 3.2.26 R. In the case of off-balance sheet items listed in BIPRU 3.7, E* must be taken as the value to which the percentages indicated in BIPRU 3.2.1 R and BIPRU 3.7.2 R must be applied to arrive at the exposure value.
[Note:BCD Annex VIII Part 3 point 60]
Deposits with third parties: Eligibility
BIPRU 5.5.1 R 01/01/2007 RP
Cash on deposit with, or cash assimilated instruments held by, a third party institution in a non-custodial arrangement and pledged to a lending firm may be recognised as eligible credit protection.
[Note: BCD Annex VIII Part 1 point 23]
Deposits with third parties: Minimum requirements
BIPRU 5.5.2 R 01/01/2007 RP
To be eligible for the treatment set out at BIPRU 5.5.3 R, the protection referred to in BIPRU 5.5.1 R must satisfy the following conditions:
the borrower's claim against the third party institution is openly pledged or assigned to the lending firm and such pledge or assignment is legally effective and enforceable in all relevant jurisdictions;
the third party institution is notified of the pledge or assignment;
as a result of the notification, the third party institution is able to make payments solely to the lending firm or to other parties with the lending firm's consent; and
the pledge or assignment is unconditional and irrevocable.
[Note: BCD Annex VIII Part 2 point 12]
Deposits with third parties: Calculating the effects of the credit risk mitigation
BIPRU 5.5.3 R 01/01/2007 RP
Where the conditions set out in BIPRU 5.5.2 R are satisfied, credit protection falling within the terms of BIPRU 5.5.1 R may be treated as a guarantee by the third party institution.
[Note: BCD Annex VIII Part 3 point 79]
Life insurance policies: Eligibility
BIPRU 5.5.4 R 01/01/2007 RP
Life insurance policies pledged to a lending firm may be recognised as eligible credit protection.
[Note: BCD Annex VIII Part 1 point 24]
Life insurance policies: Minimum requirements
BIPRU 5.5.5 R 01/01/2016 RP
For life insurance policies pledged to a lending firm to be recognised the following conditions must be met:
the party providing the life insurance must be subject to the Solvency II Directive2, or is subject to supervision by a competent authority of a third country which applies supervisory and regulatory arrangements at least equivalent to those applied in the Community;1
the life insurance policy is openly pledged or assigned to the lending firm;
the party providing the life insurance is notified of the pledge or assignment and as a result may not pay amounts payable under the contract without the consent of the lending firm;
the surrender value is declared by the company providing the life insurance and1 is non-reducible;
1the surrender value must be paid in a timely manner upon request;
1the surrender value must not be requested without the consent of the lending firm;
the lending firm must have the right to cancel the policy and receive the surrender value in a timely way in the event of the default of the borrower;
the lending firm is informed of any non-payments under the policy by the policyholder;
the credit protection must be provided for the maturity of the loan. Where this is not possible because the insurance relationship ends before the loan relationship expires, the lending firm must ensure that the amount deriving from the insurance contract serves the lending firm as security until the end of the duration of the credit agreement;1 and
the pledge or assignment must be legally effective and enforceable in all jurisdictions which are relevant at the time of the conclusion of the credit agreement.
[Note: BCD Annex VIII Part 2 point 13 (part)]
BIPRU 5.5.6 R 01/01/2007 RP
Where it is not possible for a firm to meet the condition set out in BIPRU 5.5.5 R (7), because the insurance relationship ends before the loan relationship expires, the firm must ensure that the amount deriving from the insurance contract serves the firm as security until the end of the duration of the credit agreement.
Life insurance policies: Calculating the effects of the credit risk mitigation
BIPRU 5.5.7 R 31/12/2010 RP
1Where the conditions set out in BIPRU 5.5.5 R are satisfied, the portion of the exposure collateralised by the current surrender value of credit protection falling within the terms of BIPRU 5.5.4 R must be either:
1subject to the risk weights specified in (3) where the exposure is subject to the standardised approach to credit risk; or
1assigned an LGD of 40% where the exposure is subject to the IRB approach but not subject to the firm's own estimates of LGD.
1In case of a currency mismatch, the current surrender value must be reduced according to BIPRU 5.7.17 R and BIPRU 5.7.18R, the value of the credit protection being the current surrender value of the life insurance policy.
1For the purpose of (1)(a), the following risk weights must be assigned on the basis of the risk weight assigned to a senior unsecured exposure to the company providing the life insurance:
1a risk weight of 20%, where the senior unsecured exposure to the company providing the life insurance is assigned a risk weight of 20%;
1a risk weight of 35%, where the senior unsecured exposure to the company providing the life insurance is assigned a risk weight of 50%;
1a risk weight of 70%, where the senior unsecured exposure to the company providing the life insurance is assigned a risk weight of 100%; and
1a risk weight of 150%, where the senior unsecured exposure to the company providing the life insurance is assigned a risk weight of 150%.
[Note: BCD Annex VIII Part 3 point 80]
Instruments purchased on request: Eligibility
BIPRU 5.5.8 R 01/01/2007 RP
Instruments issued by third party institutions which will be repurchased by that institution on request may be recognised as eligible credit protection.
[Note: BCD Annex VIII Part 1 point 25]
Instruments purchased on request: Calculating the effects of the credit risk mitigation
BIPRU 5.5.9 R 01/01/2007 RP
Instruments eligible under BIPRU 5.5.8 R may be treated as a guarantee by the issuing institution.
[Note: BCD Annex VIII Part 3 point 81]
BIPRU 5.5.10 R 01/01/2007 RP
For the purposes of BIPRU 5.5.9 R, the value of the credit protection recognised is the following:
where the instrument will be repurchased at its face value, the value of the protection is that amount; or
where the instrument will be repurchased at market price, the value of the protection is the value of the instrument valued in the same way as the debt securities specified in BIPRU 5.4.5 R.
[Note: BCD Annex VIII Part 3 point 82]
BIPRU 5.5.11 R 01/01/2007 RP
Investments in credit linked notes issued by a lending firm may be treated as cash collateral.
[Note: BCD Annex VIII Part 3 point 3]
BIPRU 5.6.1 R 01/01/2007 RP
For a firm adopting the financial collateral comprehensive method, the effects of bilateral netting contracts covering repurchase transactions, securities or commodities lending or borrowing transactions, and/or other capital market-driven transactions with a counterparty may be recognised.
Without prejudice to BIPRU 14 to be recognised the collateral taken and securities or commodities borrowed within such agreements must comply with the eligibility requirements for collateral set out at BIPRU 5.4.2 R to BIPRU 5.4.8 R.
[Note:BCD Annex VIII Part 1 point 5]
BIPRU 5.6.2 R 01/01/2007 RP
For master netting agreements covering repurchase transactions and/or securities or commodities lending or borrowing transactions and/or other capital market-driven transactions1 to be recognised for the purposes of BIPRU 5, they must:
be legally effective and enforceable in all relevant jurisdictions, including in the event of the bankruptcy or insolvency of the counterparty;
give the non-defaulting party the right to terminate and close-out in a timely manner all transactions under the agreement upon the event of default, including in the event of the bankruptcy or insolvency of the counterparty; and
provide for the netting of gains and losses on transactions closed out under a master agreement so that a single net amount is owed by one party to the other.
[Note:BCD Annex VIII Part 2 point 4]
BIPRU 5.6.3 R 01/01/2007 RP
In addition the minimum requirements for the recognition of financial collateral under the financial collateral comprehensive method set out in BIPRU 5.4.9 R must be fulfilled.
[Note:BCD Annex VIII Part 2 point 5]
Calculation of the fully adjusted exposure value: the supervisory volatility adjustments approach and the own estimates of volatility adjustments approach
BIPRU 5.6.4 R 01/01/2007 RP
BIPRU 5.6.5 R 01/01/2007 RP
In calculating the 'fully adjusted exposure value' (E*) for the exposures subject to an eligible master netting agreement covering repurchase transactions and/or securities or commodities lending or borrowing transactions and/or other capital market-driven transactions, a firm must calculate the volatility adjustments to be applied in the manner set out in BIPRU 5.6.6 R to BIPRU 5.6.11 R either using the supervisory volatility adjustments approach or the own estimates of volatility adjustments approach as set out in BIPRU 5.4.30 R to BIPRU 5.4.65 R for the financial collateral comprehensive method. For the use of the own estimates of volatility adjustments approach the same conditions and requirements apply as under the financial collateral comprehensive method.
[Note:BCD Annex VIII Part 3 point 5]
BIPRU 5.6.6 R 01/01/2007 RP
A firm must calculate the net position in each type of security or commodity by subtracting from the total value of the securities or commodities of that type lent, sold or provided under the master netting agreement, the total value of securities or commodities of that type borrowed, purchased or received under the agreement.
[Note:BCD Annex VIII Part 3 point 6]
BIPRU 5.6.7 R 01/01/2007 RP
For the purposes of BIPRU 5.6.6 R, type of security means securities which are issued by the same entity, have the same issue date, the same maturity and are subject to the same terms and conditions and are subject to the same liquidation periods as indicated in BIPRU 5.4.30 R to BIPRU 5.4.65 R.
[Note: BCD Annex VIII Part 3 point 7]
BIPRU 5.6.8 R 01/01/2007 RP
A firm must calculate the net position in each currency other than the settlement currency of the master netting agreement by subtracting from the total value of securities denominated in that currency lent, sold or provided under the master netting agreement added to the amount of cash in that currency lent or transferred under the agreement, the total value of securities denominated in that currency borrowed, purchased or received under the agreement added to the amount of cash in that currency borrowed or received under the agreement.
[Note: BCD Annex VIII Part 3 point 8]
BIPRU 5.6.9 R 01/01/2007 RP
A firm must apply the volatility adjustment appropriate to a given type of security or cash position to the absolute value of the positive or negative net position in the securities of that type.
[Note: BCD Annex VIII Part 3 point 9]
BIPRU 5.6.10 R 01/01/2007 RP
A firm must apply the foreign exchange risk (fx) volatility adjustment to the net positive or negative position in each currency other than the settlement currency of the master netting agreement.
[Note: BCD Annex VIII Part 3 point 10]
BIPRU 5.6.11 R 01/01/2007 RP
E * must be calculated according to the following formula:
E * = max {0, [(∑(E) -∑ (C)) + ∑ (|net position in each security| x Hsec) + (∑|Efx| x Hfx)]}
(where risk weighted exposure amounts are calculated under the standardised approach) E is the exposure value for each separate exposure under the agreement that would apply in the absence of the credit protection;
C is the value of the securities or commodities borrowed, purchased or received or the cash borrowed or received in respect of each such exposure;
∑(E) is the sum of all Es under the agreement;
∑(C) is the sum of all Cs under the agreement;
Efx is the net position (positive or negative) in a given currency other than the settlement currency of the agreement as calculated under BIPRU 5.6.8 R;
Hsec is the volatility adjustment appropriate to a particular type of security;
Hfx is the foreign exchange volatility adjustment; and
E* is the fully adjusted exposure value.
[Note: BCD Annex VIII Part 3 point 11]
Calculation of the fully adjusted exposure value: the master netting agreement internal models approach
BIPRU 5.6.12 R 01/01/2007 RP
BIPRU 5.6.13 G 01/04/2013 RP
BIPRU 5.6.14 G 01/01/2007 RP
BIPRU 5.6.15 G 01/04/2013 RP
A firm which has been granted a VaR modelwaiver will still need to make an application to the appropriate regulator for a master netting agreement internal models approach permission. However, the application should generally be straightforward as a firm which is able to satisfy the requirements for a VaR modelwaiver should usually also be able to satisfy the requirements for a master netting agreement internal models approach permission.
[Note: BCD Annex VIII Part 3 point 14]
BIPRU 5.6.16 R 01/01/2007 RP
The master netting agreement internal models approach1 is an alternative to using the supervisory volatility adjustments approach or the own estimates of volatility adjustments approach in calculating volatility adjustments for the purpose of calculating the 'fully adjusted exposure value' (E*) resulting from the application of an eligible master netting agreement covering repurchase transactions, securities or commodities lending or borrowing transactions and/or other capital market-driven transactions other than derivative transactions. The master netting agreement internal models approach takes into account correlation effects between security positions subject to a master netting agreement as well as the liquidity of the instruments concerned. The internal model used for the master netting agreement internal models approach must provide estimates of the potential change in value of the unsecured exposure amount (∑E -∑C).
[Note: BCD Annex VIII Part 3 point 12 (part)]
BIPRU 5.6.17 R 01/01/2007 RP
A firm may also use the internal model used for the master netting agreement internal models approach1 for margin lending transactions if the transactions are covered under the firm'smaster netting agreement internal models approach permission and the transactions are covered by a bilateral master netting agreement that meets the requirements set out in BIPRU 13.7.
BIPRU 5.6.18 R 01/01/2007 RP
A firm may use the master netting agreement internal models approach independently of the choice it has made between the standardised approach and the IRB approach for the calculation of risk weighted exposure amounts. However, if a firm uses the master netting agreement internal models approach, it must do so for all counterparties and securities, excluding immaterial portfolios where it may use the supervisory volatility adjustments approach or the own estimates of volatility adjustments approach as set out in BIPRU 5.4.30 R to BIPRU 5.4.65 R.
[Note: BCD Annex VIII Part 3 point 13]
BIPRU 5.6.19 R 01/04/2013 RP
A firm must be able to satisfy the appropriate regulator that the firm's risk management system for managing the risks arising on the transactions covered by the master netting agreement is conceptually sound and implemented with integrity and that, in particular, the minimum qualitative standards in (2) - (11) are met.
The internal risk-measurement model used for calculation of potential price volatility for the transactions is closely integrated into the daily risk-management process of the firm and serves as the basis for reporting risk exposures to senior management of the firm.
The firm has a risk control unit that is independent from business trading units and reports directly to senior management. The unit must be responsible for designing and implementing the firm's risk-management system. It must produce and analyse daily reports on the output of the risk-measurement model and on the appropriate measures to be taken in terms of position limits.
The daily reports produced by the risk-control unit are reviewed by a level of management with sufficient authority to enforce reductions of positions taken and of overall risk exposure.
The firm has sufficient staff skilled in the use of sophisticated models in the risk control unit.
The firm has established procedures for monitoring and ensuring compliance with a documented set of internal policies and controls concerning the overall operation of the risk-measurement system.
The firm's models have a proven track record of reasonable accuracy in measuring risks demonstrated through the back-testing of its output using at least one year of data.
The firm frequently conducts a rigorous programme of stress testing and the results of these tests are reviewed by senior management and reflected in the policies and limits it sets.
The firm must conduct, as part of its regular internal auditing process, an independent review of its risk-measurement system. This review must include both the activities of the business trading units and of the independent risk-control unit.
At least once a year, the firm must conduct a review of its risk management system.
The internal model used for the master netting agreement internal models approach1 must meet the requirements set out in BIPRU 13.6.65 R to BIPRU 13.6.67 R.
[Note: BCD Annex VIII Part 3 point 16]
BIPRU 5.6.19A G 14/12/2009 RP
2This paragraph provides guidance in relation to BIPRU 5.6.19R (8). In carrying out the stress testing programme, a firm should evaluate the simultaneous impact of individual stress scenarios on its counterparty exposures, its positions and the aggregate amount of margin calls that it would receive. A firm's stress scenarios should take into account the possibility that the liquidation period may be substantially longer than 5 days for repurchase transactions and securities lending or borrowing transactions, and 10 days for other types of securities financing transactions.
BIPRU 5.6.20 R 01/01/2007 RP
The calculation of the potential change in value must be subject to the following minimum standards:
at least daily calculation of the potential change in value;
a 5-day equivalent liquidation period, except in the case of transactions other than securities repurchase transaction or securities lending or borrowing transactions where a 10-day equivalent liquidation period should be used;
an effective historical observation period of at least one year except where a shorter observation period is justified by a significant upsurge in price volatility; and
three-monthly data set updates.
[Note: BCD Annex VIII Part 3 point 17]
BIPRU 5.6.21 R 01/01/2007 RP
The internal risk-measurement model must capture a sufficient number of risk factors in order to capture all material price risks.
[Note: BCD Annex VIII Part 3 point 18]
BIPRU 5.6.22 R 01/04/2013 RP
A firm may use empirical correlations within risk categories and across risk categories provided that it is able to satisfy the appropriate regulator that the firm's system for measuring correlations is sound and implemented with integrity.
[Note: BCD Annex VIII Part 3 point 19]
BIPRU 5.6.23 G 01/04/2013 RP
BIPRU 5.6.24 R 01/01/2007 RP
The fully adjusted exposure value (E*) for a firm using the master netting agreement internal models approach must be calculated according to the following formula:
E * = max {0, [(∑E -∑C) + (VaR output of the internal models)]}
C is the value of the securities borrowed, purchased or received or the cash borrowed or received in respect of each such exposure;
∑ (E) is the sum of all Es under the agreement; and
∑ (C) is the sum of all Cs under the agreement.
[Note: BCD Annex VIII Part 3 point 20]
BIPRU 5.6.25 R 01/01/2007 RP
In calculating risk weighted exposure amounts using the master netting agreement internal models approach, a firm must use the previous business day's model output.
[Note: BCD Annex VIII Part 3 point 21]
BIPRU 5.6.26 G 01/04/2013 RP
No changes should be made to the internal model used for the master netting agreement internal models approach1 unless the change is not material. Material changes to such a model will require a variation of the master netting agreement internal models approach permission. Materiality is measured against the model as it was at the time that the master netting agreement internal models approach permission was originally granted or, any later date set out in the master netting agreement internal models approach permission for this purpose. If a firm is considering making material changes to such a model then it should notify the appropriate regulator at once.
BIPRU 5.6.27 G 01/04/2013 RP
If a firm ceases to meet the requirements of BIPRU 5 in relation to the master netting agreement internal models approach, the firm should notify the appropriate regulator at once.
BIPRU 5.6.28 G 01/04/2013 RP
Calculation of risk weighted exposure amounts under the standardised approach
BIPRU 5.6.29 R 01/01/2007 RP
A firm must under the standardised approach calculate risk weighted exposure amounts for repurchase transactions and/or securities or commodities lending or borrowing transactions and/or other capital market-driven transactions covered by master netting agreements under this rule.
E* as calculated under BIPRU 5.6.5 R to BIPRU 5.6.25 R must be taken as the exposure value of the exposure to the counterparty arising from the transactions subject to the master netting agreement for the purposes of BIPRU 3.2.20 R to BIPRU 3.2.26 R.
[Note: BCD Annex VIII Part 3 point 22]
BIPRU 5.7.1 R 01/01/2007 RP
international organisationsexposures which are assigned a 0% risk weight under the standardised approach;
BIPRU 5.7.2 R 01/01/2007 RP
BIPRU 5.7.3 R 01/01/2007 RP
BIPRU 5.7.4 R 01/01/2007 RP
BIPRU 5.7.5 R 01/01/2007
BIPRU 5.7.6 R 01/01/2007 RP
BIPRU 5.7.7 G 01/01/2007 RP
BIPRU 5.7.8 R 01/04/2013 RP
BIPRU 5.7.9 R 01/04/2013 RP
BIPRU 5.7.10 R 01/01/2007 RP
BIPRU 5.7.11 R 01/01/2007 RP
BIPRU 5.7.12 R 01/04/2013 RP
BIPRU 5.7.13 R 01/01/2007 RP
BIPRU 5.7.14 R 01/01/2007 RP
BIPRU 5.7.15 R 01/01/2007
BIPRU 5.7.16 R 01/01/2007 RP
BIPRU 5.7.17 R 01/01/2007 RP
BIPRU 5.7.18 R 01/01/2007 RP
BIPRU 5.7.19 R 01/01/2007 RP
BIPRU 5.7.20 R 01/01/2007
BIPRU 5.7.21 R 01/01/2007 RP
BIPRU 5.7.22 R 01/01/2007 RP
BIPRU 5.7.23 R 31/12/2010 RP
BIPRU 5.7.24 R 31/12/2010 RP
Where the protected amount is less than the exposure value and the protected and unprotected portions are of equal seniority - i.e.1 the firm and the protection provider share losses on a pro-rata basis, proportional regulatory capital relief is afforded. For the purposes of BIPRU 3.2.20 R to BIPRU 3.2.26 Rrisk weighted exposure amounts must be calculated in accordance with the following formula:
BIPRU 5.7.25 R 01/01/2007 RP
BIPRU 5.7.26 R 01/01/2007 RP
BIPRU 5.7.27 R 01/01/2007 RP
BIPRU 5.7.28 R 01/01/2007 RP
BIPRU 5.8.1 R 01/01/2007 RP
BIPRU 5.8.2 R 01/01/2007 RP
BIPRU 5.8.3 R 01/01/2007 RP
BIPRU 5.8.4 R 01/01/2007 RP
BIPRU 5.8.5 R 01/01/2007 RP
BIPRU 5.8.6 R 01/01/2007
BIPRU 5.8.7 R 01/01/2007 RP
BIPRU 5.8.8 R 01/01/2007
BIPRU 5.8.9 R 01/01/2007 RP
BIPRU 5.8.10 R 01/01/2007
BIPRU 5.8.11 R 01/01/2007 RP
BIPRU 5.9.1 R 01/01/2007 RP
In the case where a firm calculating risk weighted exposure amounts under the standardised approach has more than one form of credit risk mitigation covering a single exposure (e.g. a firm has both collateral and a guarantee partially covering an exposure), the firm must subdivide the exposure into parts covered by each type of credit risk mitigation tool (e.g. a part covered by collateral and a portion covered by guarantee) and the risk weighted exposure amount for each portion must be calculated separately in accordance with the provisions of the standardised approach and BIPRU 5.
[Note: BCD Annex VIII Part 5 point 1]
BIPRU 5.9.2 R 01/01/2007 RP
When credit protection provided by a single protection provider has differing maturities, a similar approach to that described in BIPRU 5.9.1 R must be applied.
[Note: BCD Annex VIII Part 5 point 2]