Sunday, May 16, 2021

Dubai FSA Issues Resolution Module, Consults on Leverage Ratio Rules

Dubai FSA published the new Recovery and Resolution (RAR) module of the Dubai FSA Rulebook. An authorized firm is required to prepare and submit a recovery plan to Dubai FSA if the firm is included in a class of authorized firms that are required to prepare and submit such a plan or if the firm is not included in such a class but has received the Dubai FSA notice requiring the firm to prepare a plan. Dubai FSA is also consulting on changes to the leverage ratio to reflect changes introduced by the respective BCBS standard in 2017. Dubai FSA is proposing changes with respect to minimum leverage ratio, exposure measure, unsettled transactions and cash pooling, collateral and cash variation margin, clearing services, and written credit derivatives. The deadline for providing comments on this consultation is June 26, 2021.

In the leverage ratio consultation, Dubai FSA proposed to:

  • adopt the BCBS minimum leverage ratio level of 3% and require firms to report breaches promptly to Dubai FSA.
  • adopt a minimum leverage ratio for globally systemically important banks (G-SIBs) set at 3%, plus 50% of the additional higher loss absorbency risk-weighted capital requirement that is assigned under the G-SIB framework.
  • adopt a minimum leverage ratio of 3.5% for firms that are designated as domestic systemically important banks (D-SIBs) by Dubai FSA.
  • clarify the treatment of exposures that have been already deducted from tier 1 capital by explicitly allowing a firm to exclude such exposures from the leverage ratio exposure measure.
  • not allow the treatment of unsettled transactions and cash pooling under the BCBS standard to be used for leverage ratio calculation under the Dubai FSA rules. 
  • clarify the treatment of collateral posted and received against derivative positions for determining the leverage ratio exposure measure. (A firm should not net collateral received against the derivative position whether or not netting is allowed and a firm needs to gross up the leverage ratio exposure measure by the amount of the collateral posted against a derivative position, if posting of such collateral has reduced the value of Balance Sheet assets under the accounting standards.)
  • not allow offset of variation margin against the exposure position for leverage ratio calculation.
  • include trade exposures in the leverage ratio exposure measure where the clearing member has provided a guarantee or contractual commitment and to include this in the Prudential—Investment, Insurance Intermediation And Banking Business Module (PIB) module.
  • include the notional amount of the credit derivative in the leverage ratio exposure measure (for firms writing credit derivatives) and not reduce the notional amount of written credit protection using the credit protection that was bought.

Additionally, Dubai FSA is consulting (paper No 140) on various policy proposals that will result in changes to the Dubai FSA Rulebook and the Regulatory Law. Dubai FSA is proposing amendments to General (GEN) Module, Anti-Money Laundering, Counter-Terrorist Financing and Sanctions (AML) Module, PIB Module, and Collective Investment Rules (CIR) Module of the Dubai FSA Rulebook. The proposals in the consultation paper also include updates of cross-references and correction of other errors in the Dubai FSA Rulebook. The deadline for providing comments on this consultation is May 26, 2021.

Related Links

Comment Due Date: June 26, 2021 (Leverage Ratio)/May 26, 2021 (Others)

Keywords: Middle East and Africa, United Arab Emirates, Dubai, Banking, Rulebook, Resolution Planning, Basel, Leverage Ratio, Regulatory Capital, BCBS, Dubai FSA

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