Transcription of The DFSA Rulebook
1 PIB/VER41/01-22 The DFSA Rulebook Prudential Investment, Insurance Intermediation and Banking Module (PIB) PRUDENTIAL INVESTMENT, INSURANCE INTERMEDIATION AND BANKING (PIB) i PIB/VER41/01-22 Contents The contents of this module are divided into the following chapters, sections and appendices: 1 APPLICATION, INTERPRETATION AND CATEGORISATION .. 1 Application .. 1 Glossary for PIB .. 6 Categories of Authorised Firms .. 19 Systemically Important Banks (SIBs) .. 22 2 GENERAL REQUIREMENTS .. 26 Introduction .. 26 Application .. 26 Trading Book .. 26 Reporting to the DFSA .. 27 Prudent valuation practices .. 28 3 CAPITAL .. 29 Introduction .. 29 PART 1 Application .. 29 Application .. 29 PART 2 Basic Requirements .. 30 Requirements .. 30 PART 3 Calculating the Capital Requirement .. 34 Capital Requirements for Categories 1 and 5 .. 34 Capital Requirements for Categories 2 and 3A.
2 34 Capital Requirements for Categories 3B, 3C and 4 .. 35 Base Capital Requirement .. 36 Expenditure Based Capital Minimum .. 37 Risk Capital Requirement .. 39 Stored Value Capital Requirement .. 41 Transaction Based Capital Requirement .. 41 Capital Conservation Buffer .. 42 Countercyclical Capital Buffer (CCyB) .. 42 HLA Capital Buffer .. 46 Failure to meet a Capital Buffer Requirement .. 47 PART 4 Calculating Capital Resources .. 51 Application .. 51 Calculation of Capital Resources .. 51 Tier 1 capital (T1 Capital) .. 52 Common Equity Tier 1 capital (CET1 Capital) .. 52 Additional Tier 1 capital (AT1 Capital) .. 61 Tier 2 capital (T2 Capital) .. 66 PRUDENTIAL INVESTMENT, INSURANCE INTERMEDIATION AND BANKING (PIB) ii PIB/VER41/01-22 Minority interests and instruments issued by Subsidiaries .. 70 Qualifying Holdings outside the financial sector .. 73 PART 5 Calculating the Leverage Ratio.
3 75 Leverage Ratios .. 75 4 CREDIT RISK .. 78 Introduction .. 78 PART 1 Application .. 78 Application .. 78 PART 2 Credit Risk systems and controls .. 80 Application of this part .. 80 Credit Risk management systems .. 80 Credit Risk strategy, policy, and procedures manual .. 83 Processes for credit assessment .. 87 PART 3 - CRCOM .. 91 Application .. 91 Simplified Approach .. 91 Calculation of the CRCOM .. 92 Methodology for measurement of Exposures .. 94 Categorisation of Credit Risk Exposures (CR Exposures) .. 99 Credit Quality Grade and External Credit Assessments .. 101 Risk weights .. 102 Credit Risk mitigation .. 108 Securitisation .. 120 Concentration Risk .. 137 5 MARKET RISK .. 144 Introduction .. 144 Application .. 144 Market Risk systems and controls .. 145 Calculation of the Market Risk Capital Requirement .. 145 Interest Rate Risk Capital Requirement.
4 146 Equity Risk Capital Requirement .. 146 Foreign Exchange Risk Capital Requirement .. 146 Commodities Risk Capital Requirement .. 147 Option Risk Capital Requirement .. 147 Collective Investment Fund Risk Capital Requirement .. 147 Securities Underwriting Capital Requirement .. 147 Use of internal Market Risk models .. 149 6 OPERATIONAL RISK .. 151 Introduction .. 151 Application .. 151 PRUDENTIAL INVESTMENT, INSURANCE INTERMEDIATION AND BANKING (PIB) iii PIB/VER41/01-22 Risk management framework and governance .. 152 Risk identification and assessment .. 154 Risk monitoring and reporting .. 156 Control and mitigation .. 157 Information Technology (IT) systems .. 157 Information security .. 158 158 Business continuity and disaster recovery .. 159 Management of Operational Risks in trading activities .. 159 Operational Risk Capital Requirement .. 161 Professional indemnity insurance.
5 162 Management of Operational Risk in Money Services .. 163 7 INTEREST RATE RISK IN THE NON-TRADING BOOK .. 168 Introduction .. 168 Application .. 168 Stress testing for Non-Trading Book interest rate risk .. 168 Non-Trading Book interest rate risk under chapter 10 .. 169 Systems and controls for Non-Trading Book interest rate risk .. 170 8 GROUP RISK .. 175 Introduction .. 175 Application .. 175 Systems and controls requirements .. 176 Financial Group Capital Requirements and Financial Group Capital Resources 177 Financial Group Concentration Risk limits .. 179 Restrictions on ownership or control .. 179 9 LIQUIDITY RISK .. 181 Introduction .. 181 Application .. 181 Liquidity Risk policy, systems and controls .. 181 Funding strategy, stress testing and contingency funding plan .. 190 Liquidity requirements .. 196 10 SUPERVISORY REVIEW AND EVALUATION PROCESSES .. 202 Introduction.
6 202 Application .. 202 Overview .. 203 IRAP .. 203 ICAAP .. 204 SREP .. 205 Imposition of an Individual Capital Requirement .. 205 PRUDENTIAL INVESTMENT, INSURANCE INTERMEDIATION AND BANKING (PIB) iv PIB/VER41/01-22 11 DISCLOSURE REQUIREMENTS .. 207 Introduction .. 207 Application and general obligation of disclosure .. 207 Disclosure policy .. 208 Disclosure frequency, locations and process .. 208 APP1 CATEGORIES OF AUTHORISED FIRMS .. 210 Categorisation of Authorised Firms .. 210 APP2 GENERAL REQUIREMENTS .. 213 Detail in the Trading Book .. 213 Trading Book policy .. 219 Risk management systems and controls for Trading Book .. 221 Reporting to the DFSA .. 221 Prudent Valuation Practices .. 229 APP3 CAPITAL .. 232 Stress and scenario testing .. 232 APP4 CREDIT RISK .. 234 Credit Risk systems and controls .. 234 Credit conversion factors (CCFs) for calculating Exposures.
7 244 Collateral calculations and haircuts .. 246 Qualifying securities financing transactions (SFTs) .. 256 Requirements for use of VaR models .. 256 Credit RWA - Unsettled Transactions, free deliveries and OTC Derivatives .. 257 Credit RWA - repurchase agreements, reverse repurchase agreements, similar transactions and other deferred settlements .. 262 Credit RWA - other Trading Book transactions .. 264 Exposures to Central Counterparties (CCPs) .. 264 Securitisation .. 265 Concentration Risk .. 270 The Simplified Approach for Category 2 and 3A firms .. 278 APP5 MARKET RISK .. 282 Market Risk systems and controls .. 282 Interest Rate Risk Capital Requirement .. 284 Equity Risk Capital Requirement .. 297 Foreign Exchange Risk Capital Requirement .. 302 Commodities Risk Capital Requirement .. 304 Option Risk Capital Requirement .. 308 Collective Investment Fund Risk Capital Requirement.
8 312 Securities Underwriting Risk Capital Requirement .. 314 Use of internal models for Market Risk .. 320 PRUDENTIAL INVESTMENT, INSURANCE INTERMEDIATION AND BANKING (PIB) v PIB/VER41/01-22 APP6 CALCULATING THE OPERATIONAL RISK CAPITAL REQUIREMENT .. 330 Basic Indicator Approach .. 331 Standardised Approach .. 332 Alternative Standardised Approach .. 333 APP7 NOT USED .. 337 APP8 NOT USED .. 338 APP9 LIQUIDITY .. 339 Application for a global liquidity concession .. 339 The Liquidity Coverage Ratio .. 340 The Maturity Mismatch approach .. 356 The Net Stable Funding Ratio (NSFR) .. 357 APP10 SUPERVISORY REVIEW AND Evaluation PROCESSES .. 365 IRAP .. 365 ICAAP .. 366 Supervisory Review and Evaluation Process (SREP) .. 368 APP11 PUBLIC DISCLOSURE 371 PRUDENTIAL INVESTMENT, INSURANCE INTERMEDIATION AND BANKING (PIB) 1 PIB/VER41/01-22 1 APPLICATION, INTERPRETATION AND CATEGORISATION Application (1) This module (PIB) applies to every Authorised Firm other than: (a) an Insurer; (b) a Representative Office; and (c) a Credit Rating Agency.
9 (2) The Rules in PIB apply to an Authorised Firm in accordance with its Category determined under section (3) Where a chapter, part or section of PIB applies to a limited scope of Categories of Authorised Firm, the term Authorised Firm used in those provisions is to be read accordingly. (4) The Rules in PIB apply to the whole business of an Authorised Firm except in relation to Client Assets and Insurance Money that are held or controlled by an Authorised Firm which are not included in any prudential calculation. Branches Unless otherwise directed by the DFSA, an Authorised Firm that is a Branch is required to comply with the Rules in chapters 2 to 11 as specifically provided in Application Table A which forms part of this Rule. Guidance 1. The effect of Rule (1) is that these Rules apply to all Authorised Firms, except those carrying on Insurance Business (that is, Insurers), that operate a Representative Office and those that are CRAs.
10 Those Authorised Firms that are authorised to effect or carry out Contracts of Insurance should refer to the PIN module. Authorised Firms that are authorised to Operate a Representative Office should refer to the REP module. 2. These Rules apply both to Domestic Firms and, to the extent specified in Rule , to Authorised Firms conducting Financial Services through a Branch in the DIFC. 3. The Rules in PIB reinforce the fitness and propriety requirements found in GEN chapter 5 - Management Systems and Principle 4 for Authorised Firms. The PIB module is set out in: a. an initial chapter establishing a categorisation of firms for the application of PIB; b. two general chapters setting overall requirements: General Requirements and Capital; c. six chapters setting specific requirements relating to the following particular risks or issues: Credit Risk, Market Risk, Operational Risk, Interest Rate Risk in the Non-Trading Book, Group Risk and Liquidity Risk; d.
