BIPRU 3.1 Application and purpose

Application

BIPRU 3.1.1R

1BIPRU 3 applies to a BIPRU firm.

Purpose

BIPRU 3.1.2G

2Pursuant to the third paragraph of article 95(2) of the EU CRR, BIPRU 3 implements:

  1. (1)

    Articles 78 to 80, paragraph (1) of Article 81, Article 83, Annex II and Parts 1 and 3 of Annex VI of the Banking Consolidation Directive;

  2. (2)

    Article 18 of the Capital Adequacy Directive so far as it applies Articles 78 to 80, paragraph (1) of Article 81, Article 83 and Parts 1 and 3 of Annex VI of the Banking Consolidation Directive to investment firms; and

  3. (3)

    Article 40 of the Capital Adequacy Directive for the purposes of the calculation of credit risk under the Banking Consolidation Directive.

BIPRU 3.1.3G

BIPRU 3.1 sets out how a firm should calculate the credit risk capital component, which is one of the elements that make up the credit risk capital requirement under GENPRU 2.1.51 R. Part of that calculation involves calculating risk weighted exposure amounts for exposures in the firm's non-trading book. The rest of BIPRU 3 sets out how the firm should carry out that calculation.

BIPRU 3.1.4G

BIPRU 5 deals with the effect of credit risk mitigation on the calculation of risk weighted exposure amounts. BIPRU 13 deals with the calculation of exposure values for certain kinds of products. BIPRU 14.3 deals with the calculation of the counterparty risk capital component for unsettled transactions in the trading book and non-trading book. BIPRU 14.4 deals with capital resources with respect to free deliveries.

Calculation of the credit risk capital component

BIPRU 3.1.5R

The credit risk capital component of a firm is 8% of the total of its risk weighted exposure amounts for exposures falling into BIPRU 3.1.6 R, calculated in accordance with BIPRU 3.

BIPRU 3.1.6R

An exposure falls into this rule if:

  1. (1)

    it is in a firm's non-trading book;and

  2. (2)

    it has not been deducted from the firm's capital resources under GENPRU 2.2.