1.This Standard articulates specific capital requirements for equity investments in funds held in the banking book by UAE Banks. It is based closely on requirements of the framework for capital adequacy developed by the Basel Committee on Banking Supervision (BCBS), specifically as articulated in Capital requirements for banks’ equity investments in funds, (BCBS 266, published December 2013).

2.This Standard formulates capital adequacy requirements that needs to be applied to all banks in UAE on a consolidated basis.

The requirements apply to all equity investments by banks in all types of funds that are held in the banking book (in-scope equity positions), including off-balance sheet exposures such as unfunded commitments to subscribe to a fund’s future capital calls. The requirements do not apply to exposures, including underlying exposures held by the fund, that would be deducted from capital under the Central Bank’s Guidance re Capital Supply.

3.This Standard requires banks to calculate risk-weighted assets (RWA) for any fund in which the bank has an in-scope equity position, with RWA calculated as if the bank held the fund’s exposures directly rather than indirectly through investment in the fund. Banks are required to use a hierarchy of three successive approaches with varying degrees of risk sensitivity and conservatism, as described below in these Standards. This Standard also incorporates a leverage adjustment to RWA to reflect a fund’s leverage appropriately. These requirements are discussed below in these Standards.

4.The Standards follow the calibration developed by the Basel Committee, which includes a maximum risk weight of 1250%, calibrated on a total capital adequacy requirement of 8%. The UAE instituted a higher minimum capital requirement of 10.5% (excluding capital buffers), applicable to all licensed banks. Consequently, the maximum capital charge for a single exposure will be the lesser of the value of the exposure after applying valid credit risk mitigation, netting and haircuts, and the capital resulting from applying a risk weight of 952% (reciprocal of 10.5%) to this exposure.