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BIPRU 8.4 CAD Article 22 groups and investment firm consolidation waiver

Application

BIPRU 8.4.1R

This section applies to a BIPRU firm1 with an investment firm consolidation waiver.

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BIPRU 8.4.1AG

1An investment firm consolidation waiver may be applied for by a BIPRU firm only.

The effect of an investment firm consolidation waiver and the conditions for getting one

BIPRU 8.4.2G

A BIPRU firm2 may apply for a waiver of the requirement in this chapter to apply capital requirements on a consolidated basis. Such a waiver is called an investment firm consolidation waiver.

BIPRU 8.4.3G

An investment firm consolidation waiver will waive the application of BIPRU 8.2.1 R and BIPRU 8.2.2 R (if it applies with respect to a UK consolidation group) or BIPRU 8.3.1 R and BIPRU 8.3.2 R (if it applies with respect to a non-EEA sub-group). The effect will be to switch off this chapter with respect to the group in question apart from this section.

BIPRU 8.4.4G

The FCA will not grant an investment firm consolidation waiver unless:

  1. (1)

    the UK consolidation group or non-EEA sub-group meets the conditions for being a CAD Article 22 group;

  2. (2)

    the FCA is satisfied that each BIPRU firm in the UK consolidation group or non-EEA sub-group will be able to meet its capital requirements using the calculation of capital resources in GENPRU 2 Annex 6R (Capital resources table for a BIPRU 2firm with a waiver from consolidated supervision); and

  3. (3)

    the firm demonstrates that the requirements in BIPRU 8.4.11 R to BIPRU 8.4.18 R will be met.

BIPRU 8.4.5G

The standards in BIPRU 8.4.4 G are minimum standards. Satisfaction of these conditions does not automatically mean the FCA will give an investment firm consolidation waiver. The FCA will in addition also apply the tests in Section 138A of the Act (Modification or waiver of rules).

BIPRU 8.4.6G

SUP 8 (Waiver and modification of rules) and BIPRU 1.3 (Application for advanced approaches) are also relevant to applications for an investment firm consolidation waiver.

Meeting the terms of an investment firm consolidation waiver

BIPRU 8.4.7R

If a firm has an investment firm consolidation waiver with respect to its UK consolidation group or non-EEA sub-group but that UK consolidation group or non-EEA sub-group ceases to meet the definition of a CAD Article 22 group the firm must comply with the rest of this chapter rather than this section notwithstanding the investment firm consolidation waiver.

BIPRU 8.4.8G

Compliance with the capital requirements set out in BIPRU 8.4.11 R is a condition under the Capital Adequacy Directive for the exemption from capital requirements. Thus if they are breached the FCA is likely to revoke the investment firm consolidation waiver.

Definition of a CAD Article 22 group

BIPRU 8.4.9R

  1. (1)

    A CAD Article 22 group means a UK consolidation group or non-EEA sub-group that meets the conditions in this rule.

  2. (2)

    There must be no bank, building society or2 credit institution 2 in the UK consolidation group or non-EEA sub-group and any investment firm in the UK consolidation group or non-EEA sub-group must not be subject to consolidated supervision under the EU CRR2.

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  3. (3)

    Each CAD investment firm in the UK consolidation group or non-EEA sub-group which is an EEA firm must use the definition of own funds given in the CRD implementation measure of its EEA State for Article 16 of the Capital Adequacy Directive.

  4. (4)

    Each CAD investment firm in the UK consolidation group or non-EEA sub-group must be a:

    1. (a)

      limited activity firm; or

    2. (b)

      limited licence firm.

  5. (5)

    Each CAD investment firm in the UK consolidation group or non-EEA sub-group which is an EEA firm must:

    1. (a)

      meet the requirements imposed by the CRD implementation measures of its EEA State for Articles 18 and Article 20 of the Capital Adequacy Directive on an individual basis; and

    2. (b)

      deduct from its own funds any contingent liability in favour of other members of the UK consolidation group or non-EEA sub-group.

  6. (6)

    Each BIPRU firm1 in the UK consolidation group or non-EEA sub-group must comply with the main BIPRU firm Pillar 1 rules on an individual basis.

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BIPRU 8.4.10G

GENPRU 2.2 (Capital resources) says that a BIPRU firm1 with an investment firm consolidation waiver should calculate its capital resources on a solo basis using GENPRU 2 Annex 6 (Capital resources table for a BIPRU firm with a waiver from consolidated supervision). GENPRU 2 Annex 6 requires a BIPRU firm1 to deduct contingent liabilities in favour of other members of the UK consolidation group or non-EEA sub-group. Therefore BIPRU 8.4.9R (5)(b) only imposes the requirement to deduct them on EEA firms.

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Capital adequacy obligations relating to a CAD Article 22 group: General rule

BIPRU 8.4.11R

If a firm has an investment firm consolidation waiver, it must ensure that any financial holding company in the UK consolidation group or the non-EEA sub-group that is the UK parent financial holding company in a Member State of a CAD investment firm in the UK consolidation group or non-EEA sub-group has capital resources, calculated under BIPRU 8.4.12 R, in excess of the sum of the following (or any higher amount specified in the investment firm consolidation waiver):

  1. (1)

    the sum of the solo notional capital resources requirements for each CAD investment firm, financial institution, asset management company and ancillary services undertaking in the UK consolidation group or the non-EEA sub-group, as calculated in accordance with BIPRU 8.4.13 R; and

  2. (2)

    the total amount of any contingent liability in favour of CAD investment firms, financial institutions, asset management companies and ancillary services undertakings in the UK consolidation group or non-EEA sub-group.

Capital adequacy obligations relating to a CAD Article 22 group: Capital resources

BIPRU 8.4.12R

A firm must calculate the capital resources of the parent financial holding company in a Member State for the purpose of BIPRU 8.4.11 R as follows:

  1. (1)

    the capital resources are the sum of capital resources calculated at stages D (Total tier one capital before deductions) and I (Total tier two capital) of the version of the capital resources table in GENPRU 2 Annex 4R(Capital resources table for a BIPRU 2firm deducting material holdings) as adjusted in accordance with this rule;

  2. (2)

    capital resources at stage D must not include innovative tier one capital resources, but they may be included at stage I if (5) allows this;

  3. (3)

    the amount of the items which may be included at stage I must not exceed the amount calculated at stage D of the capital resources table;

  4. (4)

    the amount of the items which may be included in lower tier two capital in stage I must not exceed 50% of the amount calculated at stage D of the capital resources table; and

  5. (5)

    GENPRU 2.2.25 R (Limits on the use of different forms of capital: Use of higher tier capital in lower tiers) and GENPRU 2.2.27 R (Use of innovative tier one capital in lower stages of capital) apply.

Capital adequacy obligations relating to a CAD Article 22 group: Capital resources requirement

BIPRU 8.4.13R

The solo notional capital resources requirement as referred to in BIPRU 8.4.11R (1) is calculated in the same way as the capital resources requirement for a BIPRU firm.1

BIPRU 8.4.14R

A firm must exclude material holdings in the notional calculation of the credit risk capital requirement for the purposes of BIPRU 8.4.13 R. A firm must identify whether it has any material holdings and the amount of them in accordance with GENPRU 2.2 (Capital resources) and GENPRU 2 Annex 4 (Capital resources table for a BIPRU 2firm deducting material holdings).

BIPRU 8.4.15G

The notional capital resources requirement calculated under BIPRU 8.4.13 R need not include a credit charge for material holdings. However it should include one for illiquid assets.

BIPRU 8.4.16R

Intra-group exposures must not be netted for the purpose of BIPRU 8.4.11 R.

Capital adequacy obligations relating to a CAD Article 22 group: Advanced prudential calculation approaches

BIPRU 8.4.17R

A firm may not use an advanced prudential calculation approach for the purpose of BIPRU 8.4.11 R.

Additional rules that apply to a firm with an investment firm consolidation waiver

BIPRU 8.4.18R

If a firm has an investment firm consolidation waiver, it must:

  1. (1)

    ensure that each CAD investment firm in the UK consolidation group or non-EEA sub-group which is a firm or an EEA firm has in place systems to monitor and control the sources of capital and funding of all the members in the UK consolidation group or non-EEA sub-group;

  2. (2)

    notify the FCA of any serious risk that could undermine the financial stability of the UK consolidation group or non-EEA sub-group, as soon as the firm becomes aware of that risk, including those associated with the composition and sources of the capital and funding of members of the UK consolidation group or non-EEA sub-group;

  3. (3)

    report the amount of the consolidated capital resources and consolidated capital resources requirement of the UK consolidation group or non-EEA sub-group on a periodic basis as set out in the investment firm consolidation waiver;

  4. (4)

    report any large exposures risks of members of the UK consolidation group or non-EEA sub-group including any undertakings not located in an EEA State on a periodic basis set out in the investment firm consolidation waiver;

  5. (5)

    notify the FCA immediately it becomes aware that the UK consolidation group or non-EEA sub-group has ceased to meet the conditions for being a CAD Article 22 group; and

  6. (6)

    notify the FCA immediately it becomes aware of any breach of BIPRU 8.4.11 R.

BIPRU 8.4.19G

Although an investment firm consolidation waiver switches off most of this chapter, a firm should still carry out the capital adequacy calculations in BIPRU 8.3 to BIPRU 8.8 as if those parts of this chapter still applied to the UK consolidation group or non-EEA sub-group and report these to the FCA. It should also still monitor large exposure risk on a consolidated basis.