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BIPRU 2.1 Solo consolidation

Application

BIPRU 2.1.1R

1This section applies to a BIPRU firm that has a solo consolidation waiver.

Purpose

BIPRU 2.1.2G

3Pursuant to the third paragraph of article 95(2) of the EU CRR, the purpose of this section is to implement Articles 70 and 118 of the Banking Consolidation Directive3so far as they apply under Articles 2 and 28 of the Capital Adequacy Directive to CAD investment firms3 that are subject to the requirements imposed by MiFID (or which would have been subject to that Directive if its head office were in an EEA State), but excluding a bank, building society, a credit institution, a local and an exempt CAD firm..

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BIPRU 2.1.3G

The rules in GENPRU and BIPRU do not allow a firm that is a parent undertaking to incorporate the capital and requirements of a subsidiary undertaking in the calculation of that firm's capital resources and capital resources requirement. A firm that wishes to incorporate a subsidiary undertaking for this purpose should therefore apply for a solo consolidation waiver.

Applying for a solo consolidation waiver

BIPRU 2.1.4G

BIPRU 1.3 (Applications for advanced approaches) explains how to apply for a solo consolidation waiver.

General

BIPRU 2.1.5G

The appropriate regulator will not grant a firm a solo consolidation waiver with respect to a subsidiary undertaking unless the firm and the subsidiary undertaking meet the standards in BIPRU 2.1.19 R to BIPRU 2.1.24 R.

BIPRU 2.1.6G

A solo consolidation waiver will modify the relevant parts of GENPRU, BIPRU and SYSC referred to in BIPRU 2.1.7 R to BIPRU 2.1.8 R to apply BIPRU 2.1 to a firm.

The basic rules for solo consolidation

BIPRU 2.1.7R

A firm that has a solo consolidation waiver must incorporate in the calculation of its requirements under the main BIPRU firm Pillar 1 rules each subsidiary undertaking to which the solo consolidation waiver applies. This does not apply to the base capital resources requirement.

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BIPRU 2.1.8R
  1. (1)

    A firm that has a solo consolidation waiver must meet the obligations in SYSC 12.1.13 R (Application of certain systems and controls rules on a consolidated basis) on a consolidated basis with respect to the firm and each subsidiary undertaking to which the firm's solo consolidation waiver applies.

  2. (2)

    If (1) applies, SYSC 12.1.13 R applies to the group made up of the firm and its subsidiary undertakings referred to in (1) in the same way as it applies to a UK consolidation group or non-EEA sub-group.

  3. (3)

    If (1) applies, the provisions of SYSC and BIPRU listed in SYSC 12.1.13 R do not apply to the firm on a solo basis.

Solo consolidation and capital and concentration risk requirements

BIPRU 2.1.9R

BIPRU 2.1.10 R to BIPRU 2.1.18 R apply for the purposes of BIPRU 2.1.7 R.

BIPRU 2.1.10R

A firm must treat itself and each subsidiary undertaking referred to in BIPRU 2.1.7 R as a single undertaking and must apply, on that basis, BIPRU 8 (Group risk - consolidation) to the group made up of the firm and such subsidiary undertakings in the same way as BIPRU 8 applies to a UK consolidation group or non-EEA sub-group.

BIPRU 2.1.11R

Subject to BIPRU 2.1.13 R, a firm must calculate its capital resources in accordance with BIPRU 8.6 (Consolidated capital resources).

BIPRU 2.1.12R

A firm must calculate its capital resources requirement in accordance with BIPRU 8.7.13 R (3) (Treating group members as a single undertaking for consolidation purposes).

BIPRU 2.1.13R

Where GENPRU applies a different method of calculating capital resources or capital resources requirements depending on the category into which the firm in question falls, the method that applies is the one that would apply to the firm on a solo basis.

BIPRU 2.1.14G

For example, the effect of BIPRU 2.1.13 R is that if a firm that is applying BIPRU 2.1 is a limited licence firm it should continue to apply the capital resources and capital resources requirement applicable to a limited licence firm.

BIPRU 2.1.15R

A firm must continue to calculate its base capital resources requirement and the requirement in GENPRU 2.1.42 R (Calculation of capital resources requirement on authorisation) on a solo basis.

BIPRU 2.1.16R

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BIPRU 2.1.17G

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BIPRU 2.1.18R

A firm must include in full any subsidiary undertaking in respect of which the firm applies BIPRU 2.1 in the calculations under BIPRU 2.1.7 R.

Minimum standards

BIPRU 2.1.19R

A firm must not apply BIPRU 2.1 to a subsidiary undertaking to which the firm's solo consolidation waiver applies BIPRU 2.1 unless in addition it meets the conditions in BIPRU 2.1.20 R to BIPRU 2.1.24 R.

BIPRU 2.1.20R

The risk evaluation, measurement and control procedures of the firm must cover the subsidiary undertaking referred to in BIPRU 2.1.19 R.

BIPRU 2.1.21R

The firm must hold more than 75% of the voting rights attaching to the shares in the capital of the subsidiary undertaking referred to in BIPRU 2.1.19 R and must have the right to appoint or remove a majority of the members of the governing body of the subsidiary undertaking.

BIPRU 2.1.22R

The material exposures or material liabilities of the subsidiary undertaking referred to in BIPRU 2.1.19 R must be to the firm.

BIPRU 2.1.23R

Where the firm is a parent institution in a Member State, it must have measures in place that ensure the satisfactory allocation of risks within the group consisting of the firm and each subsidiary undertaking to which BIPRU 2.1 is applied.

BIPRU 2.1.24R

A firm must be able to demonstrate fully to the appropriate regulator the circumstances and arrangements, including legal arrangements, by virtue of which there are no material practical or legal impediments, and none are foreseen, to the prompt transfer of the capital resources of the subsidiary undertaking referred to in BIPRU 2.1.19 R or repayment of liabilities when due by the subsidiary undertaking to the firm.

BIPRU 2.1.25G

The following are the criteria that the appropriate regulator will take into account when considering whether the condition in BIPRU 2.1.24 R is going to be met:

  1. (1)

    the speed with which funds can be transferred or liabilities repaid to the firm and the simplicity of the method for the transfer or repayment;

  2. (2)

    whether there are any interests other than those of the firm in the subsidiary undertaking and what impact those other interests may have on the firm's control over the subsidiary undertaking and on the ability of the firm to require a transfer of funds or repayment of liabilities;

  3. (3)

    whether the prompt transfer of funds or repayment of liabilities to the firm might harm the reputation of the firm or its subsidiary undertakings;

  4. (4)

    whether there are any tax disadvantages for the firm or the subsidiary undertaking as a result of the transfer of funds or repayment of liabilities;

  5. (5)

    whether there are any exchange controls that may have an impact on the transfer of funds or repayment of liabilities;

  6. (6)

    whether there are assets in the subsidiary undertaking available either to be transferred or liquidated for the purposes of the transfer of funds or repayment of liabilities;

  7. (7)

    whether any regulatory requirements impact on the ability of the subsidiary undertaking to transfer funds or repay liabilities promptly;

  8. (8)

    whether the purpose of the subsidiary undertaking prejudices the prompt transfer of funds or repayment of liabilities;

  9. (9)

    whether the legal structure of the subsidiary undertaking prejudices the prompt transfer of funds or repayment of liabilities;

  10. (10)

    whether the contractual relationships of the subsidiary undertaking with the firm and other third parties prejudices the prompt transfer of funds or repayment of liabilities;

  11. (11)

    whether past and proposed flows of funds between the subsidiary undertaking and the firm demonstrate the ability to make prompt transfer of funds or repayment of liabilities; and

  12. (12)

    whether the degree of solo consolidation by the firm undermines the appropriate regulator's ability to assess the soundness of the firm as a legal entity (taking into account any other subsidiary undertakings to which BIPRU 2.1 is being applied).

BIPRU 2.1.26G

The effect of BIPRU 2.1.19 R is that even though a firm's solo consolidation waiver applies BIPRU 2.1 with respect to a subsidiary undertaking, the firm should not apply BIPRU 2.1 with respect to that subsidiary undertaking unless in addition it meets the conditions in BIPRU 2.1.20 R to BIPRU 2.1.24 R.

BIPRU 2.1.27G

A firm should not apply BIPRU 2.1 to a subsidiary undertaking to which the firm's solo consolidation waiver applies if it ceases to be a subsidiary undertaking of the firm even if the solo consolidation waiver is not varied by removing the subsidiary undertaking.

BIPRU 2.1.28G

If a subsidiary undertaking referred to in BIPRU 2.1.27 G later becomes a subsidiary undertaking again the firm should not apply BIPRU 2.1 to it unless the solo consolidation waiver is varied to re-apply it with respect to the subsidiary undertaking.