Saudi Arabian Monetary Agency

BANKING CONTROL

9041045212

From : Saudi Arabian Monetary Agency
To : All Banks
Attention : Managing Directors, Chief Executive Officers and General Managers Subject : Capital requirements for banks’ equity investments in funds

Background

The Basel document on capital requirements for banks’ equity investments in funds outlines the policy framework for equity investments in funds. This document improves the framework by following a look-through approach to identify the underlying assets whenever investing in funds and introduces three different approaches i.e. Look-Through Approach (LTA), Mandate-Based Approach (MBA) and the Fall-Back Approach (FBA). It further enhances the framework by:

• taking account of a fund’s leverage when determining risk-based capital requirements associated with banks’ investments in a fund;
• clarifying the application of the IRB approaches for credit risk; and
• more appropriately reflecting the risk of a fund’s underlying investments, including the use of a 1250% risk weight for situations in which there is not sufficient transparency regarding a fund’s investment activities.

SAMA has conducted a consultation process with the Saudi Banks in the development of this regulation, which is attached in the annexures containing:

• Annexure 1: Capital requirements for banks’ equity investments in funds (available on BIS website http://www.bis.org/publ/bcbs266.pdf).
• Annexure 2: SAMA’s position on National Discretion
• Annexure 3: Changes in the template Q17 for equities. Please ensure that these templates are cross-validated and reconciled to other Q17 templates.
• Annexure 4: Frequently Asked Questions (FAQs) and answers

Implementation date

These rules are applicable from 1 January 2017 as specified in the Basel document.

For:
Thamer M. AlEssa
Director General of Banking Control

P.O. Box 2992 - Riyadh-11169, Saudi Arabia - Tel : 011-463 3000 - Telex 404390 SJ - Fax : 011-463 2090

June 2016