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Status: Please note you should read all Brexit changes to the FCA Handbook and BTS alongside the main FCA transitional directions. Where these directions apply the 'standstill', firms have the choice between complying with the pre-IP completion day rules, or the post-IP completion day rules. To see a full list of Handbook modules affected, please see Annex B to the main FCA transitional directions.

You are viewing the version of the document as on 2012-12-13.

Status: In this content, we have included all amendments made by EU exit-related instruments up to end September 2020. There will be more amendments to be made later this year, further to the September QCP.

BIPRU 10.6 Exemptions

General exemptions

BIPRU 10.6.1R

This section applies to exposures in the trading book and the non-trading book.3

BIPRU 10.6.2R

  1. (1)

    In BIPRU 10.6.3 R and BIPRU 10.6.4 R, references to guarantees include credit derivatives recognised under BIPRU 5 (Credit risk mitigation) and, if applicable, BIPRU 4.10 (The IRB approach: Credit risk mitigation), other than credit linked notes.

    [Note: BCD Article 112(1)]2

  2. (2)

    BIPRU 10.3.3 R (6) (Compliance with minimum credit risk mitigation requirements) applies for the purpose of BIPRU 10.6.3 R and BIPRU 10.6.4 R.

BIPRU 10.6.3R

The following exposures are exempt from the limits described in BIPRU 10.5 (Limits on exposures):2

2
  1. (1)

    asset items constituting claims on central governments or central banks which claims would unsecured receive a 0% risk weight under the standardised approach;

  2. (2)

    asset items constituting claims on international organisations or multilateral development banks which claims would unsecured receive a 0% risk weight under the standardised approach;

  3. (3)

    asset items constituting claims carrying the explicit guarantees of central governments, central banks, international organisations or multilateral development banks, where unsecured claims on the entity providing the guarantee would receive a 0% risk weight under the standardised approach;

  4. (4)

    other exposures attributable to, or guaranteed by, central governments, central banks, international organisations,2 multilateral development banks or public sector entities 2where unsecured claims on the entity to which the exposure is attributable or by which it is guaranteed would receive a 0% risk weight under the standardised approach;

  5. (5)

    [deleted]2

    2
  6. (6)

    [deleted]2

    2
  7. (7)

    asset items constituting claims on EEA States' regional governments or 2local authorities which claims would receive a 0% risk weight under the standardised approach;

    2
  8. (8)

    other exposures to or guaranteed by EEA States' regional governments or 2local authorities claims on which would receive a 0% risk weight under the standardised approach;

    2
  9. (9)

    [deleted]2

    2
  10. (10)

    [deleted]2

    2
  11. (11)

    loans secured by mortgages on residential property and leasing transactions under which the lessor retains full ownership of the residential property leased for as long as the lessee has not exercised his option to purchase, in all cases up to 50% of the value of the residential property concerned;

  12. (12)

    the following, where they would receive a 50% risk weight under the standardised approach, and only up to 50% of the value of the commercial 2property concerned:

    1. (a)

      exposures secured by mortgages on offices or other commercial premises; and

    2. (b)

      exposures related to property leasing transactions concerning offices or other commercial premises;

      2
  13. (13)

    [deleted]2

    2
  14. (14)

    2asset items and other exposures secured by collateral in the form of cash deposits placed with the lending firm or with a credit institution which is the parent undertaking or a subsidiary undertaking of the lending firm;

  15. (15)

    2asset items and other exposures secured by collateral in the form of certificates of deposit issued by the lending firm or by a credit institution which is the parent undertaking or a subsidiary undertaking of the lending firm and lodged with either of them; and

  16. (16)

    2exposures arising from undrawn credit facilities that are classified as low risk off-balance sheet items in BIPRU 3.7.2 R and provided that an agreement has been concluded with the counterparty or group of connected clients under which the facility may be drawn only if it has been ascertained that it will not cause the limit in BIPRU 10.5.6 R (Limits on exposures) to be exceeded.

    [Note: BCD Articles 113(3), 115(1) sub-paragraphs (a) and (b) and 115(2) sub-paragraphs (a) and (b)]

BIPRU 10.6.4R

2For the purposes of BIPRU 10.6.3R (11) (Loan secured by residential mortgages and leasing transactions):

2
  1. (1)

    the requirements set out in BIPRU 3.4.64 R to BIPRU 3.4.73 R (Requirements for recognition of real estate collateral) apply;2

  2. (2)

    the value of the property must be calculated on the basis of prudent valuation standards laid down by law, regulation or administrative provisions;2

  3. (3)

    valuation must be carried out at least once every three years;2

  4. (4)

    the valuation rules set out in BIPRU 3.4.77 R to BIPRU 3.4.80 R apply; and2

  5. (5)

    residential property means a residence to be occupied or let by the borrower.2

    [Note: BCD Article 115(1) second to fourth paragraphs]2

BIPRU 10.6.5R

[deleted]2

BIPRU 10.6.6R

[deleted]2

2
BIPRU 10.6.7R

[deleted]2

BIPRU 10.6.8G

[deleted]2

BIPRU 10.6.9R

[deleted]2

BIPRU 10.6.10R

[deleted]2

2
BIPRU 10.6.11R

[deleted]2

2
BIPRU 10.6.12R

[deleted]2

2
BIPRU 10.6.13G

[deleted]2

2
BIPRU 10.6.14R

[deleted]2

2
BIPRU 10.6.15R

[deleted]2

2
BIPRU 10.6.16R

[deleted]2

2
BIPRU 10.6.17R

[deleted]2

BIPRU 10.6.18G

[deleted]2

2
BIPRU 10.6.19R

[deleted]2

2
BIPRU 10.6.20R

[deleted]2

2
BIPRU 10.6.21R

[deleted]2

2
BIPRU 10.6.22R

[deleted]2

2
BIPRU 10.6.23R

[deleted]

2
BIPRU 10.6.24R

[deleted]2

2
BIPRU 10.6.25R

[deleted]2

2
BIPRU 10.6.26R

[deleted]

2
BIPRU 10.6.27G

[deleted]2

2
BIPRU 10.6.28R

2For the purposes of BIPRU 10.6.3R (12) (Loans secured by commercial mortgages and leasing transactions):

  1. (1)

    the value of the property must be calculated on the basis of prudent valuation standards laid down by law, regulation or administrative provisions; and

  2. (2)

    the commercial property concerned must be fully constructed, leased and produce appropriate rental income.

    [Note: BCD Article 115(2) second and third paragraphs]

BIPRU 10.6.29G

For the purposes of BIPRU 10.6.3R (12), a 50% risk weight is not allowed under the standardised approach for commercial property based in the UK.

BIPRU 10.6.30R

For the purposes of BIPRU 10.6.3R (14) (Cash deposits) and BIPRU 10.6.3R (15) (Certificates of deposit), a firm may only treat the asset items or other exposures as secured if the collateral complies with the eligibility requirements and other minimum requirements set out in BIPRU 5 (Credit risk mitigation) and, if relevant, BIPRU 4.10 (The IRB approach: Credit risk mitigation) for the purposes calculating a firm's exposure.

BIPRU 10.6.31G

In relation to BIPRU 10.6.3R (14) (Cash deposits) and BIPRU 10.6.3R (15) (Certificates of deposit), the collateral may in some cases give rise to an exposure between the lending firm and the credit institution. Where this is the case, the exposure is considered to be an intra-group exposure. A firm may apply BIPRU 10.8A (Intra-group exposures: core UK group) or BIPRU 10.9A (Intra-group exposures: non-core large exposures group), as appropriate.

Institutional exemption

BIPRU 10.6.32R

Where a counterparty is an institution or where a group of connected clients includes one or more institutions:

  1. (1)

    the total amount of a firm's exposures to the same counterparty or group of connected clients may exceed 25% of the firm's capital resources so long as the total amount of such exposures does not exceed €150 million;

  2. (2)

    the firm must ensure that the total amount of its exposures, after taking into account the effect of credit risk mitigation, to other persons in that group of connected clients which are not institutions does not exceed 25% of the firm's capital resources;

  3. (3)

    where the amount of €150 million in (1) is higher than an amount equivalent to 25% of the firm's capital resources, the firm must ensure the following:

    1. (a)

      the total amount of those exposures in (1) in relation to the same counterparty or group of connected clients does not exceed a reasonable limit in terms of the firm's capital resources; and

    2. (b)

      in any case, the limit in this rule must not exceed 100% of the firm's capital resources; and

    capital resources are as determined under BIPRU 10.5.2 R, BIPRU 10.5.3 R and BIPRU 10.5.5 R (Stage (N) of the calculation in the capital resources table (Total tier one capital plus tier two capital after deductions)); and

  4. (4)

    for the purpose of (3), the firm must determine the limit consistently with the policies and procedures required under BIPRU 10.12.3 R (Concentration risk policies).

    [Note: BCD Article 111(1) second to fourth paragraphs]

BIPRU 10.6.33G

Article 111(4) of the Banking Consolidation Directive allows the FSA to waive the 100% limit on a case-by-case basis. The FSA will consider an application for such a waiver in the light of the criteria in section 148 of the Act (Modification or waiver of rules).

3

Sovereign large exposure waiver

BIPRU 10.6.34R
BIPRU 10.6.35R

A firm that has a sovereign large exposure waiver must exempt from the limits described in BIPRU 10.5 (Limits on exposures) the exposures as specified in the sovereign large exposure waiver. It must do so to the extent specified in that waiver.

BIPRU 10.6.36R

For the purpose of the sovereign large exposure waiver, and in relation to a firm, the exposures referred to in BIPRU 10.6.35R are limited to the following:

  1. (1)

    asset items constituting claims on central banks not within BIPRU 10.6.3R (1), which are in the form of required minimum reserves held at those central banks which are denominated and funded in their national currencies; and

  2. (2)

    asset items constituting claims on central governments not within BIPRU 10.6.3R (1), which are in the form of statutory liquidity requirements held in government securities denominated and funded in their national currencies.

    [Note: BCD Article 113(4)(g) and (h)]

BIPRU 10.6.37G

As part of the process of applying for a sovereign large exposure waiver, a firm should agree with the FSA the amount of the exposures that may be exempted. In general, the FSA will expect the likelihood of the firm's liabilities (that fund the particular exempt exposure) falling alongside a fall in that exposure in an event of default to form one of the key considerations in discussions with the firm regarding the total amount of such exempt exposures. For this purpose, the FSA will expect the firm to demonstrate that, taking into account the aggregate of all exposures exempted under other sovereign large exposure waivers granted to the firm, the criteria in section 148 of the Act (Modification or waiver of rules) are satisfied in relation to the sovereign large exposure waiver under consideration.