Prudential Standards on Securitisation Transactions

While significant benefits may be derived from securitisation activities, the nature of securitisation that un-bundles traditional banking roles into several limited functions has the potential for exposing banking institutions to heightened levels of risk. In this regard, Bank Negara Malaysia (the Bank) has issued the Prudential Standards on Securitisation Transactions (Prudential Standards), applicable to both traditional and synthetic securitisations, with the objectives of:

i. outlining the role and responsibilities of the board of directors and the senior management of banking institutions involved in securitisation activities; and
ii. specifying best practices with respect to the general risk management framework in relation to securitisation activities.
Capital adequacy requirements, including the operational requirements to be met in order to exclude securitised exposures from the calculation of risk-weighted assets, are addressed within the respective capital adequacy frameworks.

Banking institutions are required to observe all general requirements. While the general risk management requirements are in most cases more relevant to banking institutions that assume primary roles in securitisation transactions, banking institutions that assume only secondary roles shall also observe the general requirements where applicable. In most instances, banking institutions should be able to leverage on their existing infrastructure to comply with the requirements. Banking institutions should comply with all requirements outlined in the Prudential Standards on an ongoing basis, unless an exemption or deviation from a specific requirement is given by the Bank.

In relation to synthetic securitisations, the Prudential Standards should also be read together with relevant components of the following guidelines:
(i) Guidelines on Regulatory Treatment for Credit Derivatives Transactions;
(ii) Guidelines on Introduction of New Products; and
(iii) Minimum Standards on Risk Management Practices for Derivatives.

This document belongs to Bank Negara Malaysia (BNM). Full access to the original source is available here: https://www.bnm.gov.my/banking-islamic-banking