| B) | assets legally and economically acquired by, |
a special-purpose institution that are claims against the said assets transferred or acquired;
| ii) | different classes of commercial paper are issued, and each class has a different priority claim on the cash flows originating from the underlying pool of assets; |
| iii) | the junior or subordinated risk positions can absorb losses without interrupting contractual payments to more senior tranches; |
| iv) | the potential risk of loss for the investors in commercial paper issued by the special-purpose institution primarily depends upon the performance of the underlying assets obtained by the special-purpose institution. |
| b) | There will tend to be substantially higher loss severity for lower rated tranches in a traditional securitisation scheme than for higher rated tranches. Within a traditional securitisation structure, investors in junior tranches will suffer a total loss before the investors in more senior tranches incur any loss. |
| c) | A bank that transfers assets to a special-purpose institution in terms of a traditional securitisation scheme may be allowed to exclude from the calculation of its required capital and reserve funds the assets so sold when the transfer constitutes, amongst other things, a "true sale". A "true sale" is likely to occur when the conditions relating to limiting of association, as specified below, are met. |
| 2) | Conditions relating to limiting of associate on with assets |
| a) | The transfer of assets to or acquisition of assets by a special-purpose institution shall totally divest the transferring institution and all its associated companies and, when the transferring institution is a bank, divest any other institution within the banking group of which such a bank is a member, of all rights and obligations originating from the underlying transactions and all risks in connection with the assets transferred or acquired: Provided that- |
| i) | the transferring institution may in terms of a separate transaction act in a secondary role and, when such transferring institution is a bank, act in such a secondary role in accordance with the requirements specified in this Schedule; |
| ii) | when the transferring institution is a bank, which bank wishes to act in a secondary role, a significant amount of credit risk associated with the assets transferred to the special-purpose institution shall be transferred to third parties; |
| iii) | once the assets have been transferred to or acquired by a special-purpose institution, any holder of an instrument subsequently issued by the special-purpose institution shall have the right to pledge or exchange the said instrument without restriction, that is, neither the transferring institution nor any of its associated companies shall have a right to impose restrictive conditions in respect of the ability of investors in instruments issued by the special-purpose institution to pledge or exchange the said instruments, provided that the provisions of this sub-item (iii) in no way shall prevent a special-purpose institution to place restrictive conditions on the transferability of instruments issued by it in accordance with the provisions or requirements of relevant laws issued from time to time in respect of the transferability of specified instruments. |
| b) | Subject to the provisions of item (a) above relating to limiting of association with assets, the transferor shall not maintain any effective or indirect control over the assets transferred to a special-purpose institution, that is, the assets shall be legally isolated from the institution that transferred the assets in such a way that the assets and the benefits that relate to the assets shall be placed beyond the reach of the institution that transferred the assets, and its creditors, even in the event of bankruptcy or liquidation, provided that- |
| i) | when the transferring institution is a bank or any other institution within the banking group of which such a bank is a member, the relevant bank institution shall obtain an opinion fro an independent qualified legal counsel, which opinion shall confirm that the bank institution complies with the requirements specified in item (a) above and in this item (b); |
| ii) | the transferor shall be deemed to have maintained effective control over the transferred assets when the transferor- |
| A) | is able to repurchase from the special-purpose institution the previously transferred assets in order to realise their benefits; |
| B) | is obligated to retain the risk relating to the transferred assets; |
| iii) | the retention of any servicing rights by the institution that transferred the assets to the special-purpose institution in respect of the assets transferred shall not constitute indirect control of the assets transferred. |
| c) | Subject to the provisions of items (a) and (b) relating to limiting of association with assets, neither the special-purpose institution nor any of its creditors shall have a right of recourse against an institution acting in a primary role or any of its associated companies or, when such an institution is a bank, against any other institution within the banking group of which such a bank is a member, in respect of costs, expenses or losses incurred in connection with any of the assets after the transfer thereof in terms of the traditional securitisation scheme. |
| d) | Item (c) relating to limiting of association with assets shall not apply when the special-purpose institution has a right of recourse against an institution acting in a primary role or any of its associated companies or, when such an institution is a bank, against any other institution within the banking group of which such a bank is a member in respect of losses incurred in connection with any of the assets after the transfer thereof in terms of a traditional securitisation scheme, and such right of recourse emanates from warranties given by such an institution in respect of assets so transferred: Provided that- |
| i) | the warranties do not relate to the future creditworthiness of the obligor in terms of the assets transferred; and |
| ii) | the warranties do not relate to matters that do not fall within the control of the institution providing the warranties. |
| e) | No commercial paper issued to investors by the special-purpose institution in respect of assets transferred shall constitute a direct or indirect obligation of the institution that transferred the assets, that is, investors who invest in commercial paper issued by the special-purpose institution shall only have a claim in respect of the underlying pool of assets transferred. |
| f) | When payments in respect of assets transferred in terms of a traditional securitisation scheme are routed through the agency of an institution or any of its associated companies or, when such an institution is a bank, through the agency of any other institution within the banking group of which such a bank is a member, acting in a primary role, neither the said institution nor any of its associated companies shall be under any obligation to remit funds to the special-purpose institution unless and until the payments are actually received from the obligor. |
| g) | An asset of an institution or of any of its associated companies or, when such an institution is a bank, of any other institution within the banking group of which such a bank is a member shall not be transferred to a special-purpose institution if the transfer will result in a breach of any of the terms of the relevant underlying transaction |
| h) | Any contractual arrangement relating to a clean-up call in respect of the assets transferred to the special-purpose institution shall comply with the conditions specified in paragraph 11 below. |
| i) | When an institution transfers an undrawn commitment to lend money to a borrower, the transfer shall be effected by- |
| ii) | assignment, accompanied by written consent to the right to transfer the said commitment by the borrower; or |
| iii) | such other means as may be specified in writing by the Registrar; |
| j) | The agreement between the institution transferring assets in terms of a traditional securitisation scheme and the special-purpose institution shall be such that, in the event of the terms of an underlying transaction being amended, the special-purpose institution, and not the transferring institution, or any of the transferring institution's associated companies or, when such a transferring institution is a bank, any other institution within the banking group of which such a bank is a member will be subject to the terms so amended. |
| k) | A bank or another institution within a banking group of which such a bank is a member, acting in a primary role, may replace, at its own discretion, any asset transferred in terms of a traditional securitisation scheme, excluding a non-performing asset, with an asset of equivalent credit quality. |
| l) | A bank or another institution within a banking group of which such a bank is a member, acting in a primary role, may repurchase assets from a special-purpose institution only when such repurchase is conducted in compliance with the conditions specified below. |
| i) | The repurchase of assets shall be conducted on market-related terms and conditions. |
| ii) | Such a bank or other institution within a banking group of which such a bank is a member shall not have any prior obligation to repurchase assets from the special-purpose institution. |
| iii) | The repurchase of assets from the special-purpose institution shall be subject to the bank's normal credit approval and review processes. |
| iv) | When the institution acting in a primary role is a bank, the total value of assets or risk associated with assets repurchased from a special-purpose institution in terms of this subparagraph, other than in the bank's normal course of trading in Government securities and qualifying items, and held on the books of the bank at any time, shall not exceed 70 per cent of the maximum value of the pool of assets or risk associated with assets held by the special-purpose institution, that is, at least 90 per cent of the risk associated with assets transferred to a special-purpose institution shall be transferred to third parties: Provided that the Registrar may in the Registrar's sole discretion and subject to such conditions as the Registrar may determine, allow a bank to repurchase assets in excess of this limitation. |
| v) | A bank or another institution within a banking group of which such a bank is a member may repurchase non-performing assets only if such a bank's or other institution's external auditors have certified that the said assets are being acquired at fair market value, which value shall reflect the nonperforming status of the asset. |
| vi) | To the extent that such a repurchase of assets amounts to such a bank or another institution within a banking group of which such a bank is a member providing a liquidity facility, the provisions in this Schedule relating to liquidity facilities shall apply in addition to the provisions of this subparagraph. |
| m) | Once a traditional securitisation scheme has been perfected, the transfer by a bank acting in a primary role of further assets in terms of that scheme shall be permissible only for purposes of maintaining the capital value of the portfolio of assets included in the scheme: |
Provided that-
| ii) | the Registrar may in the Registrar's sole discretion and subject to such conditions as the Registrar may determine allow such a bank to transfer further assets in excess of this limitation. |
| n) | When an institution acting in a primary role, by itself or together with its associated companies, and, when such an institution is a bank, such a bank, by itself or together with any institution or institutions within a banking group of which such a bank is a member, enters into a swap agreement with a special-purpose institution that intentionally bears losses in respect of the assets transferred to the special-purpose institution in terms of a traditional securitisation scheme and which losses are for the account of the institution that acts in a primary role, the said institution shall comply with the provisions of paragraph 6 below. |
| o) | The securitisation transaction shall not contain any clauses that- |
| i) | require from the institution that transferred the assets to alter systematically the quality of the underlying exposures such that the pool's weighted average credit quality is improved; |
| ii) | after the transaction's inception, allow for increases in respect of a credit-enhancement facility provided by the institution that transferred the assets to the special-purpose institution; |
| iii) | increase the yield payable to parties involved in the securitisation scheme other than the institution that transferred the assets, such as investors and third-party providers of credit enhancements, in response to a deterioration in the credit quality of the underlying pool. |
| p) | An institution acting in a primary role, by itself or together with its associated companies, and, when such an institution is a bank, such a bank, by itself or together with any institution or institutions within a banking group of which such a bank is a member, shall not- |
| i) | in the case of a special-purpose institution that is a company- |
| A) | directly or indirectly acquire or hold any equity share capital in such a special-purpose institution of which the nominal value represents 20 per cent or more of the nominal value of all the issued equity share capital in the special-purpose institution; |
| B) | have the right to determine the outcome of the voting at a general meeting of the special-purpose institution; |
| ii) | in the case of a special-purpose institution that is a trust- |
| A) | directly or indirectly acquire or hold any beneficial interest in or be a beneficiary of such a special-purpose institution of which the value represents 20 per cent or more of the interest (beneficial or otherwise) in the property forming the subject matter of the special-purpose institution; |
| B) | have the right to determine the outcome of the voting at a general meeting of the special-purpose institution. |
| q) | The board of directors or body of trustees, as the case may be, of a special-purpose institution shall be independent of the institution acting in a primary role and whenever such an institution is a bank, of any other institution within a banking group of which such a bank is a member: Provided that an institution acting in a primary role may- |
| i) | in the case of a company, appoint one director to its board of directors, which board of directors shall consist of not less than three members; or |
| ii) | in the case of a trust, appoint one trustee to its body of trustees, which body of trustees shall consist of not less than three members. |
| r) | The name of a special-purpose institution shall not include the name of the bank acting in a primary role or imply any association with such a bank. |
| 3) | Support beyond contractual terms |
| a) | When a bank, or another institution within a banking group of which such a bank is a member, acting in a primary role, in the opinion of the Registrar, provides implicit support to a securitisation scheme, that is, support beyond the predetermined contractual obligation- |
| i) | the implicit support shall be regarded as a first-loss credit enhancement facility; |
| ii) | the bank, as a minimum- |
| A) | shall maintain capital and reserve funds against all exposures associated with the securitisation scheme; |
| B) | shall not recognise in the bank's capital and reserve funds any gain relating to the securitisation transaction, such as an amount relating to expected future margin income; |
| C) | shall disclose to the public sufficiently detailed information relating to the implicit support, including the related capital impact of providing implicit support to a securitisation scheme. |
| a) | In cases of uncertainty, a bank or another institution within a banking group of which such a bank is a member acting in a primary role shall obtain a legal opinion confirming that the said institution complies with the aforementioned conditions relating to limiting of association with assets. |
| 5) | Consideration received in respect of assets transferred |
| a) | When a bank or another institution within a banking group of which such a bank is a member, acting in a primary role, transfers assets to a special-purpose institution in terms of a traditional securitisation scheme, the bank or another institution within a banking group of which such a bank is a member shall receive the amount of consideration paid in respect of the assets so transferred no later than the date of the transfer of the assets: Provided that the Registrar may in the Registrar's sole discretion and subject to such conditions as the Registrar may determine allow a bank or another institution within a banking group of which such a bank is a member to receive the amount of consideration in respect of the assets so transferred on a date later than the date of the transfer of the assets. |
