A firm must treat the exposures to its connected counterparties that are not members of its non-core large exposures group as exposures to a single undertaking and must ensure that the total amount of its exposures to such connected counterparties does not exceed the 25% limit in BIPRU 10.5.6 R (Large exposure limit) and, if applicable, the trading book limits in BIPRU 10.10A (Connected counterparties: trading book limits).
The non-core large exposures group of a firm consists of each non-core concentration risk group counterparty of the firm that is not a member of its core UK group but satisfies all other conditions for membership of the firm's core UK group except for the following:
A non-core concentration risk group counterparty (in relation to a firm) is a counterparty which is its parent undertaking, its subsidiary undertaking or a subsidiary undertaking of its parent undertaking, provided that (in each case) both the counterparty and the firm satisfy one of the following conditions:
they are included within the scope of consolidation on a full basis with respect to the same UK consolidation group and BIPRU 8.3.1 R applies to the firm with respect to that UK consolidation group; or
they are included within the scope of consolidation on a full basis with respect to the same group by a competent authority of an EEA State other than the United Kingdom under the CRD implementation measures about consolidated supervision for that EEA State; or
they are included within the scope of consolidation on a full basis with respect to the same group by a third country competent authority under prudential rules for the banking sector or investment services sector of or administered by that third country competent authority and the firm or another EEA firm in that group has been notified in writing by the FSA or a competent authority of another EEA State pursuant to Article 143 of the Banking Consolidation Directive that that group is subject to equivalent supervision.
Subject to the limit in BIPRU 10.9A.7R (Back-stop large exposures limit), a firm may concentrate its intra-group exposure to a particular member of its non-core large exposures group in excess of 25% of the capital resources of the firm's core UK group.
The written notice referred to in (2) must contain the following:
an explanation of the reason for the exposure.
If this section applies to a firm, then subject to BIPRU 10.10A.12 (Core UK group and non-core large exposures group: treatment of the trading book concentration risk excess), it may, on a solo basis, treat an exposure to a member of its non-core large exposures group as exempt from the limits in BIPRU 10.5 (Limits on exposures).
The purpose of BIPRU 10.9A.10R is to reflect the fact that the limits in BIPRU 10.5 (Limits on exposures), so far as they apply to a member of a firm's non-core large exposures group, are calculated on a consolidated basis with respect to a firm's core UK group. It is therefore necessary to switch them off on a purely solo basis.
A firm must immediately notify the FSA in writing it if becomes aware that any exposure that it has treated as exempt under this section or any counterparty that it has been treating as a member of its non-core large exposures group has ceased to meet the conditions for application of the treatment in this section.