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.


Status: This chapter was amended on 31 December 2020 as a result of Brexit. However, it is subject to the FCA Prudential Transitional Direction, which means that firms should not comply with these provisions yet. Instead, firms must follow this link and continue to comply with pre-IP completion day requirements https://www.handbook.fca.org.uk/handbook?date=31-12-2020&timeline=True (unless specified otherwise in the Direction). To see a full list of Handbook modules affected, please see Section B of the Annex to the Direction.

BIPRU 5.3 On balance sheet netting

Eligibility

BIPRU 5.3.1RRP

A firm may recognise as eligible the on-balance sheet netting of mutual claims between the firm and its counterparty.

[Note: BCD Annex VIII Part 1 point 3]

BIPRU 5.3.2RRP

Without prejudice to BIPRU 5.6.1 R, eligibility is limited to reciprocal cash balances between a firm and a counterparty. Only loans and deposits of the lending firm may be subject to a modification of risk weighted exposure amounts and, as relevant, expected loss amounts as a result of an on-balance sheet netting agreement.

[Note: BCD Annex VIII Part 1 point 4]

Minimum requirements

BIPRU 5.3.3RRP

For on-balance sheet netting agreements - other than master netting agreements covering repurchase transactions, securities or commodities lending or borrowing transactions and/or other capital market-driven transactions – to be recognised for the purposes of BIPRU 5 the following conditions must be satisfied:

  1. (1)

    they must be legally effective and enforceable in all relevant jurisdictions, including in the event of the insolvency or bankruptcy of a counterparty;

  2. (2)

    the firm must be able to determine at any time those assets and liabilities that are subject to the on-balance sheet netting agreement;

  3. (3)

    the firm must monitor and control the risks associated with the termination of the credit protection; and

  4. (4)

    the firm must monitor and control the relevant exposures on a net basis.

    [Note: BCD Annex VIII Part 2 point 3]

Calculating the effects of credit risk mitigation

BIPRU 5.3.4RRP

Loans and deposits with a lending firm subject to on-balance sheet netting are to be treated as cash collateral.

[Note: BCD Annex VIII Part 3 point 4]