Minimum Capital Requirements for Credit Risk

The sponsor should be able to demonstrate expertise in providing liquidity and credit support in the context of ABCP conduits, and is supported by a management team with extensive industry experience. The sponsor should at all times act in accordance with reasonable and prudent standards. Policies, procedures and risk management controls of the sponsor should be well documented and the sponsor should adhere to good market practices and relevant regulatory regime. There should be strong systems and reporting capabilities in place at the sponsor. The party or parties with fiduciary responsibility should act on a timely basis in the best interests of the investors. Criterion C16: Fiduciary and Contractual Responsibilities (Transaction Level) 18.154 The sponsor should ensure that it receives representations from the sellers(s) and all other parties responsible for originating and servicing the asset pools that they: (1) Have well-documented procedures and policies in place to ensure appropriate servicing of the underlying assets; (2) Have expertise in the origination of same or similar assets to those in the asset pools; (3) Have extensive servicing and workout expertise, thorough legal and collateral knowledge and a proven track record in loss mitigation for the same or similar assets; (4) Have expertise in the servicing of the underlying credit claims or receivables;and (5) Are supported by a management team with extensive industry experience. Additional Requirement for Criterion C16 18.155 In assessing whether “strong systems and reporting capabilities are in place”, well documented policies, procedures and risk management controls, as well as strong systems and reporting capabilities, may be substantiated by a third- party review for sellers that are non-banking entities. Criterion C17: Transparency to Investors (Conduit Level) 18.156 The sponsor should ensure that the contractual obligations, duties and responsibilities of all key parties to the conduit, both those with a fiduciary responsibility and the ancillary service providers, are defined clearly both in the initial offering and any relevant underlying documentation of the conduit and the ABCP programme it issues. The “underlying documentation” does not refer to the documentation of the underlying transactions. 18.157 The sponsor should also make representations and warranties to investors that the duties and responsibilities of all key parties are clearly defined at transaction level. 18.158 The sponsor should ensure that the initial offering documentation disclosed to investors contains adequate provisions regarding the replacement of key counterparties of the conduit (e.g. bank account providers and derivatives counterparties) in the event of failure or non-performance or insolvency or deterioration of creditworthiness of any such counterparty. 18.159 The sponsor should also make representations and warranties to investors that provisions regarding the replacement of key counterparties at transaction level are well-documented. 18.160 The sponsor should provide sufficient information to investors about the liquidity facility(ies) and credit support provided to the ABCP programme for them to understand its functioning and key risks. Criterion C17: Transparency to Investors (Transaction Level) 18.161 The sponsor should conduct due diligence with respect to the transactions on behalf of the investors. To assist the sponsor in meeting its fiduciary and contractual obligations, the duties and responsibilities of all key parties to all transactions (both those with a fiduciary responsibility and of the ancillary service providers) should be defined clearly in all underlying documentation of these transactions and made available to the sponsor.