Document ID: chunk:federal_register_of_legislation:F2023L01572:front:0:p13
Version: federal_register_of_legislation:F2023L01572
Segment Type: other
Provision Reference: 
Character Range: 32537–35697

(c)          may recognise any overlap in its exposures consistent with paragraphs 51 and 52.

Operational requirements for inferred ratings
58.         In accordance with Attachment C, an ADI may infer a rating for an unrated securitisation exposure, provided the following operational requirements are satisfied:
(a)          the reference securitisation exposure (the externally rated securitisation exposure) cannot be senior in any respect to the unrated securitisation exposure. Credit enhancements, if any, must be taken into account when assessing compliance with this requirement. If the reference securitisation exposure benefits from any third-party guarantees or other credit enhancements that are not available to the unrated securitisation exposure, then the latter may not be assigned an inferred rating based on the reference securitisation exposure;
(b)          the maturity of the reference securitisation exposure must be equal to or longer than that of the unrated securitisation exposure;
(c)          any inferred rating must be updated on a regular basis to reflect any subordination of the unrated securitisation exposure or changes in the external rating of the reference securitisation exposure; and
(d)          the external rating of the reference securitisation exposure must satisfy the general requirements for recognition of external credit assessments (paragraphs 53 to 57).

Due diligence requirements
59.         An ADI must perform due diligence on its securitisation exposures, including:
(a)          a comprehensive understanding of the risk characteristics of its individual securitisation exposures, whether on-balance sheet or off-balance sheet, as well as the pools underlying its securitisation exposures;
(b)          access to detailed performance information on the underlying pools which it reviews in a timely manner;
(c)          for resecuritisation exposures, access to information on the underlying securitisation tranches and on the risk characteristics and performance of the pools underlying the securitisation tranches which it reviews in a timely manner; and
(d)          a comprehensive understanding of all structural features of a securitisation transaction that may have a material impact on the ADI's exposures to the transaction.
60.         An ADI must deduct from Common Equity Tier 1 Capital the value of any securitisation exposure where the requirements of paragraph 59 are not met.

Overcollateralisation arrangement
61.         Where an originating ADI transfers exposures to an SPV below their book value (e.g. pursuant to an overcollateralisation agreement or by sale at a discounted price), the difference between the book value and the amount received by the ADI must be deducted from its Common Equity Tier 1 Capital unless it is written off through the ADI's profit or loss.[22]

Capital charge cap
62.         An originating ADI that complies with the operational requirements for regulatory capital relief (refer to Attachment A) may apply a cap on the capital charge for securitisation exposures it holds equal to the capital requirement under APS 112 or APS 113, as appropriate,