Irrespective of whether a bank adopted the standardised approach or IRB approach for the measurement of the bank's exposure to creciit risk and securitisation schemes or any resecuritisation exposure, when the bank calculates its minimum required amount of capital and reserve funds, the bank shall not recognise any credit assessment issued in respect of any securitisation or resecuritisation exposure unless the said external credit assessment complies with the requirements specified below:

[Words preceding regulation 38(6)(a) substituted by section 9(n) of Notice No. 943, GG46159, dated 31 March 2022 : effective 1 April 2022]

Provided that, when an eligible credit assessment is not provided free of charge, the relevant eligible external credit assessment institution shall, within its own publicly available Code of Conduct, in accordance with the 'comply or explain' provisions of the IOSCO Code of Conduct Fundamentals for Credit Rating Agencies duly explain its non-compliance with the provisions of this paragraph (b);

For example, when a bank buys asset-backed commercial paper from or related to a scheme or structure in respect of which the bank also provided unfunded securitisation exposure extended by the bank to that ABCP programme, scheme or structure, such as a liquidity facility or credit enhancement, and the latter exposure plays a role in determining the credit assessment on the said ABCP programme, scheme or structure, the bank shall regard the first-said acquired ABCP position as unrated, and continue to maintain capital against the said securitisation exposures provided by the bank, that is, the aforesaid liquidity facility and/or credit enhancement.

For example, a bank that provides a liquidity facility that fully supports the asset-backed commercial paper issued in terms of an ABCP programme, and subsequently purchases twenty per cent of the outstanding ABCP of that programme, may recognise an overlap of twenty per cent.

If the bank provided a liquidity facility that covers ninety per cent of the outstanding ABCP and purchased twenty per cent of the ABCP, the overlap shall be ten per cent.

If the bank provided a liquidity facility that covers fifty per cent of the outstanding ABCP and subsequently purchases twenty per cent of the ABCP, the two exposures shall be risk weighted without recognizing any overlap.