| i) |
transaction-specific credit enhancement serves as the first layer of loss protection and addresses the unique characteristics and credit risk of the underlying or reference asset; |
| ii) |
a programme-wide facility serves as a second layer of loss protection, absorbing losses in excess of the transaction-specific enhancement, which losses are typically due to the size and composition of the credit portfolio; |
| iii) |
credit-enhancement facilities includes any facility or arrangement in terms of which the provider of the said facility provides added credit protection to other parties involved in the securitisation scheme. |
| 2) |
Conditions relating to credit-enhancement facilities |
| a) |
A bank, or another institution within a banking group of which such a bank is a member, may provide, notwithstanding the fact that such a bank or other institution is also acting in a primary role, a credit-enhancement facility in respect of a traditional or syntheticsecuritisation scheme provided that- |
| i) |
There shall be no recourse to the bank or such other institution within a banking group beyond a fixed contractual obligation specified in the facility. |
| iii) |
Subject to reasonable qualifying conditions, parties involved in a traditional or synthetic securitisation scheme or a person acting on behalf of these parties shall have the unequivocal right to select an alternative party to provide a credit-enhancement facility. |
| iv) |
The credit-enhancement facility shall be documented in a manner that clearly distinguishes such a facility from any other facility provided by the bank or such other institution within the banking group in respect of the securitisation scheme. |
| v) |
The credit-enhancement facility shall be transacted on market related terms and conditions, including matters relating to price and fee. |
| vi) |
The credit-enhancement facility shall be subject to the bank's normal credit approval and review processes. |
| vii) |
Payment of any fee or other income for the facility shall not be further subordinated or be subject to deferral or waiver beyond what is specifically provided for in the order of priority and other payment entitlement provisions. |
| viii) |
The details of the credit-enhancement facility shall be disclosed in the disclosure document issued in respect of the relevant securitisation scheme. |
| i) |
the first-loss and the second-loss credit-enhancement facilities shall be separately documented; |
| ii) |
the separate first-loss credit-enhancement facility shall provide substantial protection, that is, a multiple of historical losses or expected losses estimated by way of simulation or other technique, to a second-loss credit-enhancement facility; |
| iii) |
the second-loss facility shall consist of subordinated securities or some form of marketable credit enhancement that can be traded by the bank at any time provided that the Registrar may in the Registrar's sole discretion and subject to such conditions as the Registrar may determine allow a bank to provide a second-loss facility that deviates from the provisions of this subitem. |
When an institution fails to comply with the aforementioned conditions, the first-loss credit-enhancement facility and the second-loss credit-enhancement facility shall be treated as a first-loss credit-enhancement facility when the bank calculates its capital-adequacy ratio.
| c) |
A bank or another institution within a banking group of which such a bank is a member, acting in a primary role, may provide credit enhancements in terms of the provisions of this paragraph 6 only to the extent that the provision of such a facility have been determined at the commencement of the relevant securitisation scheme provided that the Registrar may in the Registrar's sole discretion and subject to such conditions as the Registrar may determine allow a bank or such other institution to alter such determination during the duration of the said securitisation scheme. |
| d) |
When a bank or another institution within a banking group of which such a bank is a member, acting in a primary role, transfers assets to a special-purpose institution at a price below book value, the difference between the book value and the aforementioned lesser amount shall be regarded as a first-loss credit-enhancement facility unless the said difference is recognised as a loss in the income statements of the institution concerned. |
| e) |
A bank shall in the calculation of its required capital and reserve funds in terms of the provisions of section 70 of the Act, comply with such further conditions or requirements relating to a first-loss credit-enhancement facility or a second-loss credit-enhancement facility as may be prescribed in the Regulations relating to Banks. |
Protection of Businesses Act, 1978
