Part 5.2 Concentration risk 5.2.1 Concentration risk 117 5.2.2 Policies—concentration risk sources and limits 117 5.2.3 Relation to stress-testing 118 Part 5.3 Management of exposures 5.3.1 Calculating exposures 119 5.3.2 Policies—large exposures 120 5.3.3 Limits on exposures 120 5.3.5 Obligation to measure 121 Part 5.4 Powers of Regulatory Authority 5.4.1 Authority can create relationships 122 5.4.2 Authority can set different limits and ratios 122 Chapter 6 Market risk Part 6.1 General Division 6.1.A Governing body, trading book and policies 6.1.1 Introduction 123 6.1.2 Requirements—capital and management of market risk 123 6.1.3 Standard method to be used 123 6.1.4 Need for trading book 124 6.1.5 Role of governing body—market risk 125 6.1.6 Policies—market risk environment 125 6.1.7 Policies—trading book 126 6.1.8 No switching of instruments between books 126 6.1.9 Relation to stress-testing 127 6.1.10 Capital requirement, assets and liabilities 127 Division 6.1.B Measurement of risk and valuation of positions 6.1.11 Valuing positions—mark-to-market 127 6.1.12 Valuing positions—mark-to-model 127 6.1.13 Independent price verification 128 6.1.14 Valuation adjustments 128
Note 1 The significant policies relate to the adequacy of capital and the management of prudential risk and group risk, as set out in the following Chapters. Note 2 For the requirements for an authorised firm’s general risk management strategy—see CTRL, rule 4.1.4. (3) The governing body must review the firm’s significant policies from time to time, taking into account changed operating circumstances, activities and risks. The interval between reviews must be appropriate for the nature, scale and complexity of the firm’s business, but must not be longer than 12 months. (4) The governing body must ensure that the policies are made known to, and understood by, all relevant staff. 1.1.8 Evaluation of information given to firm A banking business firm’s governing body must evaluate the suitability and effectiveness of the information and reports that it and the firm’s senior management receive under these rules. The test of suitability and effectiveness is whether the information and reports are suitable for effectively overseeing and implementing the principles and requirements set out in these rules. 1.1.9 Stress-testing In carrying out stress-testing and developing its stress-testing scenarios, a banking business firm must consider the Basel Committee’s recommended standards for stress-testing. Part 1.2 Principles relating to banking business 1.2.1 Principle 1—capital adequacy A banking business firm must have capital, of adequate amount and appropriate quality, for the nature, scale and complexity of its business and for its risk profile.
They may also be required in relation to assets that cannot readily be converted into cash. (2) Adjustments can be made to all 3 categories of regulatory capital, but most of them are to CET 1 capital. 3.2.21 Approaches to valuation and adjustment (1) A banking business firm must use the same approach for valuing regulatory adjustments to its capital as it does for balance-sheet valuations. An item that is deducted from capital must be valued in the same way as it would be for inclusion in the firm’s balance sheet. (2) The firm must use the corresponding deduction approach and the threshold deduction rule in making adjustments to its capital. 3.2.22 Definitions for Division 3.2.D In this Division: entity concerned means any of the following entities: (a) a banking business firm; (b) any other financial or insurance entity; (c) an entity over which a banking business firm exercises control. Note Exercise control is defined in the glossary. significant investment, by a banking business firm in an entity concerned, means an investment of 10% or more in the common shares, or other instruments that qualify as capital, of the entity concerned. Investment includes a direct, indirect and synthetic holding of capital instruments. Subdivision 3.2.D.2 Adjustments to common equity tier 1 capital 3.2.23 Form of adjustments Adjustments to CET 1 capital must be made in accordance with this Subdivision. Regulatory adjustments are generally in the form of deductions, but they may also be in the form of recognition or derecognition of items in the calculation of a firm’s capital. 3.2.24 Goodwill and intangible assets A banking business firm must deduct from CET 1 capital the amount of its goodwill and other intangible assets (except mortgage servicing
Table 4.4.7B Risk-weights based on ratings determined by ECRAs Note In table 4.4.7B, the ratings are shown according to Standard & Poor’s conventions. If a claim or asset is not rated by Standard & Poor’s, its rating must be mapped to the6 equivalent Standard & Poor’s rating. item description of claim or asset AAA to AA- A+ to A- BBB+ to BBB- BB+ to BB- B+ to B- below B- unrated 1 claims on other sovereigns 0 20 50 100 100 150 100 2 claims on public sector enterprises in other GCC countries, not denominated in the relevant enterprise’s domestic currency 0 20 50 100 100 150 100 3 claims on other sovereign public sector enterprises - 20 50 100 100 100 150 100 4 claims on commercial public sector enterprises 20 50 100 100 100 150 100
9 claims on securities and investment entities that are not subject to capital requirements similar to banks 20 50 100 100 150 150 100 10 claims on corporates 20 50 100 100 150 150 100 11 securitisation exposures 50 100 100 150 150 250 150 12 investments in rated funds 20 50 100 100 150 150 n/a 4.4.8 Specialised lending (1) A specialised lending exposure is risk-weighted one rating less favourable than the rating that would apply, under table 4.4.7B, to the counterparty to the transaction (or to the party to whom that counterparty has the right of recourse). (2) Specialised lending is a lending transaction that complies with the following requirements: (a) the purpose of the loan is to acquire an asset; (b) the cash flow generated by the collateral is the loan’s exclusive (or almost exclusive) source of repayment; (c) the loan represents a significant liability in the borrower’s capital structure; (d) the credit risk is determined primarily by the variability of the cash flow generated by the collateral (rather than the independent capacity of a broader commercial enterprise).
sovereign includes a multilateral development bank, and a public sector enterprise, that has a zero per cent Table 4.5.5A Haircuts for debt securities column 1 item column 2 credit rating for debt securities column 3 residual maturity % column 4 sovereigns % column 5 other issuers % 1 AAA to (long-term and short-term) ≤1 year 0.5 1 >1 year, ≤ 5 years 2 4 > 5 years 4 8 2 A+ to BBB-/ and and unrated bank securities that are eligible financial collateral ≤1 year 1 2 >1 year, ≤ 5 years 3 6 > 5 years 6 12 3 BB+ to BB- (long-term) All 15 Not applicable 4 securities issued by the State of Qatar or the Qatar Central Bank ≤1 year 1 Not applicable >1 year, ≤5 years 3 Not applicable >5 years 6 Not applicable Note Table 4.5.5A item 3, column 5: securities rated BB+ or below are eligible financial collateral only if issued by a sovereign or non-commercial public sector enterprise—see rule 4.5.7 (1) (c) (i). term
(b) prudent and appropriate market risk limits that are consistent with the firm’s risk tolerance, risk profile and capital, and with the management’s ability to manage; (c) who is responsible for identifying, measuring and reporting market risk; (d) procedures for tracking and reporting exceptions to, and deviations from, limits or policies; and (e) procedures for including positions and exposures in the trading book. (2) The policy must ensure that all of the firm’s transactions are identified and recorded in a timely way and that their valuations are consistent and prudent. The firm must use reliable market data that have been verified by a function that is independent of the function that assumed or incurred the risk. Guidance In the absence of market prices, the firm may use industry-accepted models to value transactions. 6.1.7 Policies—trading book (1) The firm must have clearly defined policies for keeping the book and the positions and exposures accurate. (1A) In particular, the firm must have policies on: (a) what to include, or not to include, in the trading book; (b) managing and reporting trading positions; (c) valuing positions, including: (i) clearly defined responsibilities of staff involved in the valuation; (ii) sources of market information, and review of their reliability; (iii) frequency of independent valuations; (iv) timing of closing prices; (v) procedures for adjusting valuations between periods; (vi) ad-hoc verification procedures; and (vii) reporting lines for the valuation function that are independent of that function that gave rise to the position.
7.1.6 Powers of Regulatory Authority Despite anything in these rules, if the Regulatory Authority identifies points of exposure or vulnerability to operational risk that are common to 2 or more banking business firms, it may impose specific capital requirements or limits on each affected firm. Examples  outsourcing of important operations by many banking business firms to a single provider  severe disruption to providers of payment and settlement services. 7.1.7 Basic indicator approach (1) A banking business firm must use the basic indicator approach to operational risk. Operational risk capital requirement is the amount of capital that the firm must have to cover its operational risk. (2) The firm’s operational risk capital requirement is calculated in accordance with the following formula: where: GI is the firm’s average annual gross income (as defined in subrule (3) or (4)) for those years (out of the previous 3 years) for which the firm’s annual gross income is more than zero. α is 15% or a higher percentage set by the Regulatory Authority. n is the number of years out of the previous 3 years for which the firm’s gross income is more than zero. Guidance Because of the definitions of GI and n, figures for any year in which the annual gross income of a firm is negative or zero must be excluded from both the numerator and denominator when calculating the average. (3) For a deposit-taker or investment dealer, gross income, for a year, means net interest income plus net non-interest income for the year. It must be gross of: (a) any provisions (including provisions for unpaid interest); (b) operating expenses; and (c) losses from the sale of securities in the ‘Held to Maturity’ and ‘Available for Sale’ categories in the banking book.
(5) For a deposit-taker or investment dealer, gross income excludes: (a) realised profits from the sale of securities in the banking book; (aa) realised profits from securities in the ‘Held to Maturity’ category in the banking book; (b) extraordinary or irregular items of income; (c) income derived from insurance; (d) any collection from previously written-off loans; and (e) income obtained from the disposal of real estate and other assets during the year. Chapter 8 Interest rate risk in the banking book 8.1.1 Introduction (1) This Chapter sets out the requirements for a banking business firm’s policies to identify, measure, evaluate, manage and control or mitigate interest rate risk in the banking book. (2) This Chapter also deals with stress-testing the firm’s exposure to IRRBB and the relationship between IRRBB and the internal capital adequacy assessment process. IRRBB is a major source of risk for firms that conduct banking activities; this is particularly so if the firm’s banking book assets is 15% or more of its total assets. (3) Interest rate risk in this Chapter refers to interest rate risk in the banking book. Interest rate risk in the trading book is part of market risk in Chapter 6. 8.1.2 Interest rate risk in the banking book (1) Interest rate risk in the banking book or IRRBB is the risk to earnings or capital arising from movement of interest rates. (2) IRRBB arises from changing rate relationships among yield curves that affect bank activities (basis risk), from changing rate relationships across the spectrum of maturities (yield curve risk), and from options embedded in bank products (option risk). Examples of sources of IRRBB  risks from underwriting on a firm-commitment basis
(3) The firm’s senior management must be satisfied that all of the firm’s business units whose activities affect the firm’s liquidity: (a) are fully aware of the firm’s liquidity risk management strategy; and (b) operate in accordance with the firm’s approved policies, procedures, limits and controls. 9.2.4 Liquidity management strategy (1) A banking business firm’s liquidity management strategy must include specific policies on liquidity management, such as: (a) the composition and maturity of assets and liabilities; (b) the diversity and stability of funding sources; (c) the firm’s approach to managing liquidity in different currencies, across borders, and across business lines and legal entities; and (d) the firm’s approach to intraday liquidity management. (2) The strategy must take account of the firm’s liquidity needs both under normal conditions and during periods of liquidity stress. The strategy must include quantitative and qualitative targets. (3) The strategy must be appropriate for the nature, scale and complexity of the firm’s operations. In formulating the strategy, the firm must consider its legal structure, its key business lines, the breadth and diversity of its markets and products, the jurisdictions in which it operates, and regulatory requirements. (4) The firm’s senior management must communicate the following throughout the firm: (a) the strategy; (b) the firm’s key policies for implementing it; (c) the firm’s liquidity management structure. 9.2.5 Liquidity risk management—processes (1) A banking business firm must have a sound process for identifying, measuring, monitoring and controlling liquidity risk. The process must include a robust framework for comprehensively projecting cashflows arising from assets, liabilities and off-balance-sheet items over an appropriate set of time horizons.
Table 9.6.7 ASF factors Item no. Kind of capital item or liability ASF factor (%) With maturity (months) no maturity < 6 6 – < 12 > 12 1 Capital items and instruments: (a) regulatory capital (excluding tier 2 instruments) 100 100 100 100 (b) other capital instruments not included in item (a) 0 50 100 100 (c) minority interest 0 50 100 100 2 Marketable debt securities 0 50 100 100 3 Non-bank-customer deposits 80 90 100 100 4 Other types of funding 0 50 100 100 5 Trade debts payable 0 0 0 0 6 Net derivative liabilities 0 0 0 0 7 Other liabilities not listed above 0 50 100 100 9.6.8 Calculating RSF—liquidity risk group B banking business firms The amount of a liquidity risk group B banking business firm’s RSF is calculated as follows: (a) first, for each of the firm’s assets and off-balance-sheet items, multiply its carrying value by the RSF factor set out in
(3) In the table: MDB means multilateral development bank. Note For a list of multilateral development banks that qualify for 0% risk weight, and examples of other multilateral development banks that do not, see the note following table 4.4.7A. PSE means public sector enterprise. Table 9.7.6 Haircuts for assets Item Kind of asset Haircut (%) A. Sovereign, central bank, non-commercial PSE and MDB investment-grade securities A.1 Marketable securities with 12 months’ or less residual maturity, issued or guaranteed by a sovereign, a central bank, a non-commercial PSE or an MDB 0 A.2 Marketable securities with more than 12 months’ but not more than 5 years’ residual maturity, issued or guaranteed by a sovereign, a central bank, a non-commercial PSE or an MDB 5 A.3 Marketable securities with more than 5 years’ residual maturity, issued or guaranteed by a sovereign, a central bank, a non-commercial PSE or an MDB 10 B. Sovereign, central bank, non-commercial PSE and MDB securities B.1 Marketable securities issued by a sovereign, a central bank, a non-commercial PSE or an MDB, where the credit exposure is to the issuer, regardless of maturity 20 B.2 Marketable securities issued by a sovereign, a central bank, a non-commercial PSE or an MDB, where the credit exposure is not to the issuer, regardless of maturity 40
77 NASDAQ OMX Exchanges - NASDAQ OMX Armenia - NASDAQ OMX Copenhagen - NASDAQ OMX Helsinki - NASDAQ OMX Iceland - NASDAQ OMX Oslo ASA (NASDAQ Commodities Europe) - NASDAQ OMX Riga - NASDAQ OMX Stockholm - NASDAQ OMX Tallin - NASDAQ OMX Vilnius Yerevan, Armenia Copenhagen, Denmark Helsinki, Finland Reykjavík, Iceland Lysaker, Norway Riga, Latvia Stockholm, Sweden Tallinn, Estonia Vilnius, Lithuania 78 National Stock Exchange of India Ltd. Mumbai, India 79 Niedersächsische Börse Zu Hannover Hannover, Germany 80 NYSE Euronext - Euronext Amsterdam - Euronext Brussels - Euronext Lisbon - Euronext Paris - Euronext Liffe Amsterdam, Netherlands Brussels, Belgium Lisbon, Portugal Paris, France London, United Kingdom 81 NYMEX New York, USA
Glossary (see r 1.1.3) absolute value of a number means the value of the number irrespective of sign. accounting standards include accounting rules, principles, practices and conventions. additional tier 1 capital has the meaning given by rule 3.2.10. affiliate, of a party, means any entity of which the party holds 10% or more, but less than a majority, of the voting power. approved website means a website that is approved under the Interpretation and Application Rules 2005, rule 3.1.2. asset-backed commercial paper or ABCP means securities with an original maturity of 1 year or less that are backed by assets or other exposures held in an SPE. asset-backed securities means securities that are backed by receivables. Note Mortgage-backed security, which is backed by mortgage receivables, is a subset of asset-backed security. authorisation means an authorisation granted under FSR, Part 5. authorised firm (or firm) means a person that has an authorisation. banking business firm has the meaning given by rule 1.3.1. base capital requirement has the meaning given by rule 3.2.4. Basel III LCR: see Part 9.3, note. Basel Accords is the collective name for Basel I, Basel II and Basel III, which are a set of reform measures issued by the Basel Committee on Banking Supervision to improve the regulation, supervision, risk management and capital adequacy of financial institutions, as amended from time to time. Basel Core Principles for Effective Banking Supervision means the Principles issued under that name by the Basel Committee on Banking Supervision, as amended from time to time. branch means the local office in the QFC of a legal person incorporated outside the QFC. business day means a day that is not a Friday, a Saturday, or a public or bank holiday in Qatar.
customer means a person to whom a banking business firm provides (or intends or wishes to provide, or has provided) a service or product and includes: (a) in relation to a deposit taker—a business customer of the firm (within the meaning given in COND); and (b) in relation to an investment dealer—a business customer or retail customer of the firm (within the meanings given in COND). day means a period of 24 hours starting at midnight. dealing in investments means the regulated activity described in FSR, Schedule 3, Part 2, paragraph 4. deposit-taker has the meaning given by rule 1.3.2. deposit taking means the regulated activity described in FSR, Schedule 3, Part 2, paragraph 1. early amortisation provision has the meaning given by rule 4.6.37 (1). Note For controlled and non-controlled early amortisation provisions see subrules 4.6.37 (2) and (3). ECRA means external credit rating agency. eligible financial collateral has the meaning given by rule 4.5.7. eligible guarantor has the meaning given by rule 4.5.15. eligible liquidity facility, in relation to a securitisation, has the meaning given by rule 4.6.28 (2). eligible netting agreement has the meaning given by rule 4.5.18. eligible protection provider has the meaning given by rule 4.6.35 (2) eligible servicer cash advance facility, in relation to a securitisation, has the meaning given by rule 4.6.31 (3). entity means any kind of entity, and includes, for example, any person. exercise control: an entity (entity A) exercises control over another (entity B) if: (a) entity A holds 10% or more of the shares of entity B, or is entitled to exercise or control the exercise of 10% or more of the voting power in entity B; (b) entity A holds 10% or more of the shares in a parent entity of entity B or is entitled to exercise or control the exercise of 10% or more of the voting power in a parent entity of entity B; or (c) entity A is able to exercise significant influence over the management of entity B or a parent entity of entity B because of