from Monetary Authority of Singapore


MAS 628

06 Sep 2000




1      Definitions

In this Notice:

a. "ABS" refers to asset-backed securities;

b. "manager" refers to the bank that arranges and promotes a securitisation transaction;

c. "MBS" refers to mortgage-backed securities;

d. "seller" refers to the bank that seeks to sell or otherwise transfer assets off its balance sheet;

e. "servicer" refers to the agent that carries out certain administrative functions relating to the securitisation transaction 1. It may be a third party agent or the seller performing this function in order to maintain customer relationships or earn servicing fees; and

f.  "SPV" refers to the special purpose vehicle or trust used as a vehicle in a securitisation transaction.

2     Introduction

2.1   Securitisation in its basic form is the process by which assets 2or interests in assets are sold, or otherwise transferred, to a SPV, which is funded by the issue of securities secured primarily by these assets.

2.2   Banks may undertake one or several roles in a securitisation transaction. The extent of a bank's participation may be limited to the provision of a particular service (e.g. servicing, credit enhancement or liquidity facilities), or it may participate as seller in securitisation transactions managed by independent parties. Alternatively, a bank may establish and manage its own securitisation transactions.

2.3   The senior management of a bank is responsible for the institution's participation in securitisation transactions. Banks should have clear strategies and approved policies governing these activities, and there must be appropriate internal systems and controls to identify, monitor and manage the various types of risk arising out of their involvement in securitisation.

3     Scope of Obligations

3.1   This Notice is issued pursuant to section 54A(1) of the Banking Act and applies to all banks acting as seller, servicer, provider of credit enhancement or liquidity facilities, manager or investor relating to any securitisation transaction.

3.2   The comprehensive application of this Notice to branches of foreign-incorporated banks is not possible because provisions relating to capital adequacy requirements cannot be applied directly. In these cases, the treatment of securitisation for capital adequacy purposes would be a matter for the home supervisor of the entity concerned. Nonetheless, branches of foreign-incorporated banks in Singapore must observe the requirements relating to disclosure, separation and, where applicable, any other conditions related to the provision of facilities and services as set out in this Notice.

4     Prior Approval from MAS

4.1   Any bank proposing to act as seller or manager, either solely or jointly with other parties, in a securitisation transaction must seek prior approval from the Authority. Where a bank seeks to undertake a securitisation transaction using a structure for which it had previously received approval from the Authority, only prior notification is required.

4.2   Any bank with plans to participate in any securitisation transaction that raises issues not covered in this Notice (e.g. revolving asset structures) should consult the Authority well in advance.

5     Supervisory Considerations

5.1   Whilst the Authority recognises the benefits of securitisation, these activities raise important implications for the prudential supervision of banks. As a result of their involvement in securitisation transactions, banks will incur operational, legal and/or other risks. Banks may also feel pressured to support a securitisation transaction, beyond any legal obligation, in order to protect its reputation.

5.2   Moreover, the securitisation of high quality assets may lead to deterioration in the average quality of the seller's assets if funds received from securitisation are reinvested in assets of a lower quality vis-à-vis the assets sold.

5.3   To ensure that banks conduct securitisation transactions in a prudent manner, the Authority may impose supervisory limits on the volume or types of assets which may be securitised. The Authority may also raise the capital adequacy requirements of a bank, where the totality of its activities suggests that its overall level or concentration of risks has become excessive relative to its capital.

6     General Requirements for All Banks Participating in Securitisation Transactions

Disclosure Requirements

6.1   Any bank participating in a securitisation transaction must take reasonable steps to disclose to investors the nature and extent of its contractual obligations in the securitisation transaction. For this purpose, banks must comply with the requirements set out in Annex A to this Notice.

Separation Requirements

6.2   In order to limit a bank's reputational risks with respect to a securitisation transaction, there must be clear separation between the bank and the SPV. For this purpose, banks participating in a securitisation transaction must comply with the requirements set out in Annex B to this Notice.

6.3   All transactions between the bank and the SPV must be conducted at arm's length and on market terms and conditions.

7     Requirements for Banks as Sellers

7.1   A seller will be relieved of the need to maintain capital in support of assets it has transferred to the SPV where it has:

  1. complied with the requirements in section 6;
  2. complied with the requirements in Annex C to this Notice; and
  3. confirmed in writing to the Authority that it has received written opinions from its external auditors and legal advisors that the terms of the securitisation transaction comply with the requirements mentioned in sections 7.1(a) and (b).

7.2   A seller may purchase senior securities issued by the SPV at market prices for investment or hedging purposes. Such purchases should not exceed 10 per cent of the original amount of the issue.

8     Requirements for Banks Providing Servicing, Credit Enhancement and/or Liquidity Facilities

8.1   Banks may enter into agreements to provide servicing, credit enhancement and/or liquidity facilities to a SPV. In providing such facilities, banks should fully understand the range of risks involved. There should be effective systems in place to ensure that all risks, including potential conflicts of interest, are identified and properly managed, and that adequate capital as prescribed in this Notice is held against such risks.

8.2   Banks entering into agreements referred to in section 8.1, shall comply with:

a.  the requirements in section 6; and

b. the applicable requirements in Annex D to this Notice.

9     Requirements for Banks as Investors

9.1   Banks holding ABS have risk exposures to the underlying SPV assets. These should be taken into consideration when determining overall exposures to any particular obligor, industry or geographic area for the purpose of managing concentration risks.

9.2   For capital adequacy purposes, banks holding ABS shall treat them according to the applicable risk weights prescribed by the Authority.

9.3   However, investment grade securities from a securitisation transaction involving residential mortgages held in the banking book will be eligible for a 50 per cent risk-weight, where the following conditions are met:

      a. the loans underlying the MBS must at the start of the securitisation transaction be fully secured by mortgage on residential property;

      b. the mortgage loans must not be classified (in accordance to MAS Notice 612) at the time at which they are transferred to the SPV;

      c. the activities of the SPV are restricted to solely that of issuing securities and it may only hold assets qualifying for risk-weight of 50 per cent or less; and

      d. the documentation for MBS qualifying for 50 per cent risk-weight must not provide that the investors in such MBS will absorb more than their pro-rata share of losses in the event of arrears or default on payment of interest on, or principal of, the underlying mortgage loans.

9.4   Banks may purchase non-investment grade ABS in a multi-class issue for investment purposes. However, where the Authority regards such purchase as a form of credit enhancement to the SPV, the bank will be required to deduct the purchase from its capital base.

10     Policy Review

10.1   The Authority will continually monitor market developments and review its policy as and when necessary to ensure the prudent conduct of securitisation transactions by banks.

Annex A Annex B Annex C
Annex D


1 The primary responsibility of the servicer is to set up and operate the mechanism for collecting payments of interest or principal deriving from the underlying assets, and channelling these funds to the investors or the trustee representing them. Other functions include customer service, cash management, maintenance of records, and reporting duties.

2 Examples of such assets include loans, leases or other receivables.