Securitisation rules in Singapore

from Monetary Authority of Singapore

MAS 628
06 Sep 2000
NOTICE TO BANKS
BANKING ACT, CAP 19
ASSET SECURISATION BY BANKS
1 Definitions
In this Nti!e"
#$ %ABS% &e'e&s t #sset()#!*e+ se!,&ities-

)$ "manager" &e'e&s t the )#n* th#t #&&#n.es #n+ p&/tes # se!,&itis#tin
t&#ns#!tin-

!$ %MBS% &e'e&s t /&t.#.e()#!*e+ se!,&ities-

+$ "seller" &e'e&s t the )#n* th#t see*s t se00 & the&1ise t&#ns'e& #ssets '' its
)#0#n!e sheet-

e$ %se&2i!e&% &e'e&s t the #.ent th#t !#&&ies ,t !e&t#in #+/inist&#ti2e ',n!tins
&e0#tin. t the se!,&itis#tin t&#ns#!tin
1
$ It /#3 )e # thi&+ p#&t3 #.ent & the
se00e& pe&'&/in. this ',n!tin in &+e& t /#int#in !,st/e& &e0#tinships &
e#&n se&2i!in. 'ees- #n+

'$ %SP4% &e'e&s t the spe!i#0 p,&pse 2ehi!0e & t&,st ,se+ #s # 2ehi!0e in #
se!,&itis#tin t&#ns#!tin$
2 Introduction
2$1 Se!,&itis#tin in its )#si! '&/ is the p&!ess )3 1hi!h #ssets
2
& inte&ests in
#ssets #&e s0+, & the&1ise t&#ns'e&&e+, t # SP4, 1hi!h is ',n+e+ )3 the iss,e '
se!,&ities se!,&e+ p&i/#&i03 )3 these #ssets$
2$2 B#n*s /#3 ,n+e&t#*e ne & se2e&#0 &0es in # se!,&itis#tin t&#ns#!tin$ The
e5tent ' # )#n*6s p#&ti!ip#tin /#3 )e 0i/ite+ t the p&2isin ' # p#&ti!,0#& se&2i!e
7e$.$ se&2i!in., !&e+it enh#n!e/ent & 0i8,i+it3 '#!i0ities9, & it /#3 p#&ti!ip#te #s
1
se00e& in se!,&itis#tin t&#ns#!tins /#n#.e+ )3 in+epen+ent p#&ties$ A0te&n#ti2e03, #
)#n* /#3 est#)0ish #n+ /#n#.e its 1n se!,&itis#tin t&#ns#!tins$
2$: The seni& /#n#.e/ent ' # )#n* is &espnsi)0e '& the instit,tin6s p#&ti!ip#tin
in se!,&itis#tin t&#ns#!tins$ B#n*s sh,0+ h#2e clear strategies and approved
policies governing these activities, #n+ the&e /,st )e appropriate internal systems
and controls to identify, monitor and manage the various types of risk arising out
of their involvement in securitisation.
Scope of !"ligations
:$1 This Nti!e is iss,e+ p,&s,#nt t se!tin ;<A719 ' the B#n*in. A!t #n+ #pp0ies
t #00 )#n*s #!tin. #s se00e&, se&2i!e&, provider of credit enhancement or li#uidity
facilities, /#n#.e& & in2est& &e0#tin. t #n3 se!,&itis#tin t&#ns#!tin$
:$2 The !/p&ehensi2e #pp0i!#tin ' this Nti!e t )&#n!hes ' '&ei.n(
in!&p&#te+ )#n*s is nt pssi)0e )e!#,se p&2isins &e0#tin. t !#pit#0 #+e8,#!3
&e8,i&e/ents !#nnt )e #pp0ie+ +i&e!t03$ In these !#ses, the t&e#t/ent ' se!,&itis#tin
'& !#pit#0 #+e8,#!3 p,&pses 1,0+ )e # /#tte& '& the h/e s,pe&2is& ' the entit3
!n!e&ne+$ Nnethe0ess, )&#n!hes ' '&ei.n(in!&p&#te+ )#n*s in Sin.#p&e /,st
)se&2e the &e8,i&e/ents &e0#tin. t +is!0s,&e, sep#&#tin #n+, 1he&e #pp0i!#)0e, #n3
the& !n+itins &e0#te+ t the p&2isin ' '#!i0ities #n+ se&2i!es #s set ,t in this
Nti!e$
$ %rior Approval from MAS
<$1 An3 )#n* p&psin. t act as seller or manager, eithe& s0e03 & =int03 1ith
the& p#&ties, in # se!,&itis#tin t&#ns#!tin /,st see* p&i& #pp&2#0 '&/ the
A,th&it3$ >he&e # )#n* see*s t ,n+e&t#*e # se!,&itis#tin t&#ns#!tin ,sin. #
st&,!t,&e '& 1hi!h it h#+ p&e2i,s03 &e!ei2e+ #pp&2#0 '&/ the A,th&it3, n03 p&i&
nti'i!#tin is &e8,i&e+$
<$2 An3 )#n* 1ith p0#ns t p#&ti!ip#te in #n3 se!,&itis#tin t&#ns#!tin th#t &#ises
iss,es nt !2e&e+ in this Nti!e 7e$.$ &e202in. #sset st&,!t,&es9 sh,0+ !ns,0t the
A,th&it3 1e00 in #+2#n!e$
& Supervisory 'onsiderations
;$1 >hi0st the A,th&it3 &e!.nises the )ene'its ' se!,&itis#tin, these #!ti2ities
&#ise i/p&t#nt i/p0i!#tins '& the p&,+enti#0 s,pe&2isin ' )#n*s$ As # &es,0t '
thei& in202e/ent in se!,&itis#tin t&#ns#!tins, )#n*s 1i00 in!,& pe&#tin#0, 0e.#0
#n+?& the& &is*s$ (anks may also feel pressured to support a securitisation
transaction, "eyond any legal o"ligation, in order to protect its reputation.
2
;$2 Moreover, the securitisation of high #uality assets may lead to
deterioration in the average #uality of the seller)s assets if funds received from
securitisation are reinvested in assets of a lo*er #uality vis+,+vis the assets sold$
;$: T ens,&e th#t )#n*s !n+,!t se!,&itis#tin t&#ns#!tins in # p&,+ent /#nne&, the
A,th&it3 /#3 i/pse s,pe&2is&3 0i/its n the 20,/e & t3pes ' #ssets 1hi!h /#3
)e se!,&itise+$ The A,th&it3 /#3 #0s &#ise the !#pit#0 #+e8,#!3 &e8,i&e/ents ' #
)#n*, 1he&e the tt#0it3 ' its #!ti2ities s,..ests th#t its 2e&#00 0e2e0 & !n!ent&#tin
' &is*s h#s )e!/e e5!essi2e &e0#ti2e t its !#pit#0$
- .eneral /e#uirements for All (anks %articipating in Securitisation
0ransactions
Disclosure Requirements
6$1 An3 )#n* p#&ti!ip#tin. in # se!,&itis#tin t&#ns#!tin /,st t#*e &e#sn#)0e steps
t +is!0se t in2est&s the n#t,&e #n+ e5tent ' its !nt&#!t,#0 )0i.#tins in the
se!,&itis#tin t&#ns#!tin$ @& this p,&pse, )#n*s /,st !/p03 1ith the &e8,i&e/ents
set ,t in Anne5 A t this Nti!e$
Separation Requirements
6$2 In &+e& t limit a "ank)s reputational risks *ith respect to a securitisation
transaction, the&e /,st )e !0e#& sep#&#tin )et1een the )#n* #n+ the SP4$ @& this
p,&pse, )#n*s p#&ti!ip#tin. in # se!,&itis#tin t&#ns#!tin /,st !/p03 1ith the
&e8,i&e/ents set ,t in Anne5 B t this Nti!e$
6$: A00 t&#ns#!tins )et1een the )#n* #n+ the SP4 /,st )e conducted at arm)s
length and on market terms and conditions.
1 /e#uirements for (anks as Sellers
A$1 A se00e& 1i00 )e &e0ie2e+ ' the nee+ t /#int#in !#pit#0 in s,pp&t ' #ssets it h#s
t&#ns'e&&e+ t the SP4 1he&e it h#s"
#$ !/p0ie+ 1ith the &e8,i&e/ents in se!tin 6-

)$ !/p0ie+ 1ith the &e8,i&e/ents in Anne5 C t this Nti!e- #n+

!$ !n'i&/e+ in 1&itin. t the A,th&it3 th#t it h#s &e!ei2e+ 1&itten pinins '&/
its e5te&n#0 #,+it&s #n+ 0e.#0 #+2is&s th#t the te&/s ' the se!,&itis#tin
t&#ns#!tin !/p03 1ith the &e8,i&e/ents /entine+ in se!tins A$17#9 #n+ 7)9$
:
A$2 A seller may purchase senior securities issued "y the S%2 at market prices
for investment or hedging purposes. Such purchases should not e3ceed 14 per
cent of the original amount of the issue.
5 /e#uirements for (anks %roviding Servicing, 'redit 6nhancement and7or
8i#uidity 9acilities
8$1 B#n*s /#3 ente& int #.&ee/ents t p&2i+e se&2i!in., !&e+it enh#n!e/ent
#n+?& 0i8,i+it3 '#!i0ities t # SP4$ In p&2i+in. s,!h '#!i0ities, )#n*s sh,0+ ',003
,n+e&st#n+ the &#n.e ' &is*s in202e+$ The&e sh,0+ )e e''e!ti2e s3ste/s in p0#!e t
ens,&e th#t #00 &is*s, in!0,+in. ptenti#0 !n'0i!ts ' inte&est, #&e i+enti'ie+ #n+
p&pe&03 /#n#.e+, #n+ th#t #+e8,#te !#pit#0 #s p&es!&i)e+ in this Nti!e is he0+
#.#inst s,!h &is*s$
8$2 B#n*s ente&in. int #.&ee/ents &e'e&&e+ t in se!tin 8$1, sh#00 !/p03 1ith"
#$ the &e8,i&e/ents in se!tin 6- #n+

)$ the #pp0i!#)0e &e8,i&e/ents in Anne5 B t this Nti!e$
: /e#uirements for (anks as Investors
9$1 B#n*s h0+in. ABS h#2e &is* e5ps,&es t the ,n+e&03in. SP4 #ssets$ These
sh,0+ )e t#*en int !nsi+e&#tin 1hen +ete&/inin. 2e&#00 e5ps,&es t #n3
p#&ti!,0#& )0i.&, in+,st&3 & .e.&#phi! #&e# '& the p,&pse ' /#n#.in.
!n!ent&#tin &is*s$
9$2 @& !#pit#0 #+e8,#!3 p,&pses, )#n*s h0+in. ABS sh#00 t&e#t the/ #!!&+in. t
the #pp0i!#)0e &is* 1ei.hts p&es!&i)e+ )3 the A,th&it3$
9$: C1e2e&, investment grade securities from a securitisation transaction
involving residential mortgages held in the "anking "ook *ill "e eligi"le for a &4
per cent risk+*eight, 1he&e the '001in. !n+itins #&e /et"
#$ the 0#ns ,n+e&03in. the MBS /,st #t the st#&t ' the se!,&itis#tin t&#ns#!tin
)e ',003 se!,&e+ )3 /&t.#.e n &esi+enti#0 p&pe&t3-

)$ the /&t.#.e 0#ns /,st nt )e !0#ssi'ie+ 7in #!!&+#n!e t MAS Nti!e 6129
#t the ti/e #t 1hi!h the3 #&e t&#ns'e&&e+ t the SP4-

!$ the #!ti2ities ' the SP4 #&e &est&i!te+ t s0e03 th#t ' iss,in. se!,&ities #n+ it
/#3 n03 h0+ #ssets 8,#0i'3in. '& &is*(1ei.ht ' ;0 pe& !ent & 0ess- #n+

<
+$ the +!,/ent#tin '& MBS 8,#0i'3in. '& ;0 pe& !ent &is*(1ei.ht /,st nt
p&2i+e th#t the in2est&s in s,!h MBS 1i00 #)s&) /&e th#n thei& p&(&#t#
sh#&e ' 0sses in the e2ent ' #&&e#&s & +e'#,0t n p#3/ent ' inte&est n, &
p&in!ip#0 ', the ,n+e&03in. /&t.#.e 0#ns$
9$< B#n*s /#3 p,&!h#se nn(in2est/ent .&#+e ABS in # /,0ti(!0#ss iss,e '&
in2est/ent p,&pses$ C1e2e&, 1he&e the A,th&it3 &e.#&+s s,!h p,&!h#se #s # '&/
' !&e+it enh#n!e/ent t the SP4, the )#n* 1i00 )e &e8,i&e+ t +e+,!t the p,&!h#se
'&/ its !#pit#0 )#se$
14 %olicy /evie*
10$1 The A,th&it3 1i00 !ntin,#003 /nit& /#&*et +e2e0p/ents #n+ &e2ie1 its
p0i!3 #s #n+ 1hen ne!ess#&3 t ens,&e the p&,+ent !n+,!t ' se!,&itis#tin
t&#ns#!tins )3 )#n*s$

Anne3 A Anne3 ( Anne3 '
Anne3 D
1
The p&i/#&3 &espnsi)i0it3 ' the se&2i!e& is t set ,p #n+ pe&#te the /e!h#nis/ '&
!00e!tin. p#3/ents ' inte&est & p&in!ip#0 +e&i2in. '&/ the ,n+e&03in. #ssets, #n+
!h#nne00in. these ',n+s t the in2est&s & the t&,stee &ep&esentin. the/$ Othe&
',n!tins in!0,+e !,st/e& se&2i!e, !#sh /#n#.e/ent, /#inten#n!e ' &e!&+s, #n+
&ep&tin. +,ties$

2
E5#/p0es ' s,!h #ssets in!0,+e 0#ns, 0e#ses & the& &e!ei2#)0es$
;