Operational requirements for the treatment of Clean-Up Calls
PRU A4.10.3
Where a Clean-Up Call is included within a securitisation, the Authorised Person which has the ability to exercise the Clean-Up Call must ensure that:
(a) the exercise of the Clean-Up Call must not be mandatory, in form or substance;(b) the Clean-Up Call must not be structured to avoid allocating losses to Credit Enhancements, or positions held by investors or in any way structured to provide Credit Enhancement; and(c) the Clean-Up Call must only be exercisable when 10% or less of the original underlying Exposures or Securities issued in that securitisation remains, or in the case of a Synthetic Securitisation, when 10% or less of the original reference portfolio value remains.PRU A4.10.4
Where the conditions listed in Rule A4.10.3 are not met the Authorised Person must hold capital against the Exposures as follows:
(a) for a Traditional Securitisation the underlying Exposures must be treated as if they had not been securitised;(b) Authorised Persons must not include any gain-on-sale in any element or component of their Capital Resources;(c) for Synthetic Securitisations, the Authorised Person must hold capital against the entire amount of securitised Exposures; and(d) where a Synthetic Securitisation incorporates a call that is not a Clean-Up Call, the Authorised Person must treat the transaction in accordance with the relevant CRM techniques in Section 4.13.