CP13/6 - CRD IV for Investment Firms - Financial Conduct Authority

FCA 2013/xx
being recognised or the firm being subject to extra capital charges in their
ICG in Pillar 2 add-ons. Credit protection arrangements are generally subject
to the same overarching principles as those in the securitisation framework,
and a firm should not seek to arbitrage standards by deliberating structuring
transactions so that they fall into a specific section of the EU CRR.
4.4.39 G Where a firm does achieve significant risk transfer, the FCA expects it to
continue to monitor any risks that it may still be exposed to in relation to the
transaction. The firm should consider capital planning implications where the
risks of securitised assets may return. A firm should conduct regular stress
testing of its securitisation activities and off-balance sheet exposures. The
stress tests should consider the firm-wide impact of stressed market
conditions on those activities and exposures and the implications for other
sources of risk, for example, credit risk, concentration risk, counterparty risk,
market risk, liquidity risk and reputational risk. Stress testing of securitisation
activities should take into account both existing securitisations and pipeline
transactions, as there is a risk that these would not be completed in a stressed
market scenario. A firm should have procedures in place to assess and
respond to the results produced from the stress testing and these should be
taken into account under the overall Pillar 2 rule.
Clarification of determining tranche seniority
4.4.40 G For the purposes of determining the most senior tranche under article 261 of
the EU CRR (Ratings based method) and the mapping of ECAI assessments
by the FCA, a senior liquidity facility need not be taken into account.
4.5 Settlement risk
4.5.1 R Where a system wide failure of a settlement system, a clearing system or a
CCP occurs, the own funds requirements calculated in articles 378
(Settlement/delivery risk) and 379 (Free deliveries) of the EU CRR are
waived until the situation is rectified. In this case, the failure of a
counterparty to settle a trade shall not be deemed a default for purposes of
credit risk.
4.6 Counterparty credit risk
Hedging sets
4.6.1 R For the purpose of article 282(6) of the EU CRR (Hedging sets), where a firm
is unable to calculate the delta or the modified duration of OTC derivative
transactions with a non-linear risk profile, or for payment legs and
transactions with debt instruments as underlying, using a model approved by
the FCA for the purposes of determining own funds requirements for market
risk, it must apply the CCR Mark-to-market method as set out in Part Three,
Title II, Chapter 6, Section 3 (Mark-to-market method) of the EU CRR.
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