BIPRU 8.6 Consolidated capital resources

General

BIPRU 8.6.1R

A firm must calculate the consolidated capital resources of its UK consolidation group or its non-EEA sub-group by applying GENPRU 2.2 (Capital resources) to its UK consolidation group or non-EEA sub-group on an accounting consolidation basis, treating the UK consolidation group or non-EEA sub-group as a single undertaking. The firm must adjust GENPRU 2.2 in accordance with this section for this purpose.

Notification of issuance of capital instruments

BIPRU 8.6.1AR

3This section applies to a firm if another member of its group intends to issue a capital instrument on or after 1 March 2012 for inclusion in the firm's capital resources or consolidated capital resources of its UK consolidation group or non-EEA sub-group.

BIPRU 8.6.1BR

3A firm must notify the appropriate regulator in writing of the intention of another member of its group which is not a firm to issue a capital instrument which the firm intends to include within its capital resources or the consolidated capital resources of its UK consolidation group or non-EEA sub-group as soon as it becomes aware of the intention of the group undertaking to issue the capital instrument. When giving notice, a firm must:

  1. (1)

    provide details of the amount of capital to be raised through the intended issue and whether the capital is intended to be issued to external investors or within its group;

  2. (2)

    identify the stage of the capital resources table the capital instrument is intended to fall within;

  3. (3)

    include confirmation from a senior manager of the firm responsible for authorising the inclusion of the issue within capital resources or consolidated capital resources that the capital instrument complies with the rules applicable to instruments included in the stage of the capital resources table identified in (2); and

  4. (4)

    provide details of any features of the capital instrument which are novel, unusual or different from a capital instrument of a similar nature previously issued by the firm or widely available in the market or not specifically contemplated by GENPRU 2.2.

This rule does not apply to a firm if a group undertaking intends to issue a capital instrument listed in BIPRU 8.6.1E R.

BIPRU 8.6.1CR

3A firm must provide a further notification to the appropriate regulator in writing including all the information required in BIPRU 8.6.1BR (1) to (4) as soon as it becomes aware of any changes that are proposed to the intended date of issue, amount of issue, type of investors, stage of capital or any other feature of the capital instrument previously notified to the appropriate regulator.

BIPRU 8.6.1DR

3If a group undertaking proposes to establish a debt securities program for the issue of capital instruments which the firm intends to include within its capital resources or the consolidated capital resources of its UK consolidation group or non-EEA sub-group, it must:

  1. (1)

    notify the appropriate regulator of the establishment of the program; and

  2. (2)

    provide the information required by BIPRU 8.6.1BR (1) to (4);

as soon as it becomes aware of the proposed establishment. The appropriate regulator must be notified of any changes, in accordance with BIPRU 8.6.1C R.

BIPRU 8.6.1ER

3The capital instruments to which BIPRU 8.6.1B R does not apply are:

  1. (1)

    ordinary shares issued by a group undertaking which:

    1. (a)

      are the most deeply subordinated capital instrument issued by that group undertaking;

    2. (b)

      meet the criteria set out in GENPRU 2.2.83R (2) and GENPRU 2.2.83R (3) and GENPRU 2.2.83A R; and

    3. (c)

      are the same as ordinary shares previously issued by that group undertaking;

  2. (2)

    debt instruments issued from a debt securities program established by a group undertaking, provided the program was notified to the appropriate regulator prior to its first drawdown, in accordance with BIPRU 8.6.1D R; and

  3. (3)

    capital instruments which are not materially different in terms of their characteristics and eligibility for inclusion in a particular tier of capital to capital instruments previously issued by a group undertaking for inclusion in the firm's capital resources or consolidated capital resources of its UK consolidation group or non-EEA sub-group.

BIPRU 8.6.1FR

3A firm must notify the appropriate regulator in writing, no later than the date of issue, of the intention of a group undertaking to issue a capital instrument listed in BIPRU 8.6.1E R which the firm intends to include within its capital resources or the consolidated capital resources of its UK consolidation group or non-EEA sub-group. When giving notice a firm must:

  1. (1)

    provide the information set out at BIPRU 8.6.1BR (1) to (3); and

  2. (2)

    confirm that the terms of the capital instrument have not changed since the previous issue of that type of capital instrument by that group undertaking.

Limits on the use of different forms of capital

BIPRU 8.6.2R

The capital resources gearing rules apply for the purposes of calculating consolidated capital resources. They apply to the UK consolidation group or non-EEA sub-group on an accounting consolidation basis, treating the UK consolidation group or non-EEA sub-group as a single undertaking.

BIPRU 8.6.3G

As the various components of capital differ in the degree of protection that they offer, the capital resources gearing rules as applied on a consolidated basis place restrictions on the extent to which certain types of capital are eligible for inclusion in a UK consolidation group or non-EEA sub-group's consolidated capital resources. GENPRU 2.2.25 R (Limits on the use of different forms of capital: Use of higher tier capital in lower tiers) also applies.

BIPRU 8.6.4G

The prohibition in GENPRU 2.2 (Capital resources) on including innovative tier one capital in tier one capital for the purposes of meeting capital resources requirements applies under this section. However GENPRU 2.2.27 R (innovative tier one capital may be included in lower stages of capital when excluded from tier one capital) also applies. So, for example, a firm should not include consolidated indirectly issued capital in tier one capital but should generally include it as upper tier two capital.

BIPRU 8.6.5G

The rules in GENPRU 2.2 (Capital resources) on what tier two capital and tier three capital can be used for also apply under this section.

Calculation of consolidated capital resources for a BIPRU firm group4

BIPRU 8.6.8R

A firm must calculate the consolidated capital resources of its UK consolidation group or non-EEA sub-group4 using the calculation of capital resources in GENPRU 2 Annex 4 (Capital resources table for a BIPRU firm deducting material holdings) or GENPRU 2 Annex 5 (Capital resources table for a BIPRU firm deducting illiquid assets).

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BIPRU 8.6.9R

A firm must give one Month's prior notice to the appropriate regulator before starting to use or stopping using the method in GENPRU 2 Annex 5 (Capital resources table for a BIPRU investment firm deducting illiquid assets).

Treatment of minority interests

BIPRU 8.6.10R

  1. (1)

    This rule sets out how to determine whether minority interests in an undertaking in a UK consolidation group or non-EEA sub-group may be included in tier one capital, tier two capital or tier three capital for the purpose of calculating consolidated capital resources (each referred to as a "tier" of capital in this rule).

  2. (2)

    A firm must identify the item of capital of the undertaking in question that gives rise to that minority interest.

  3. (3)

    A firm must include the minority interest in the tier of capital in which that undertaking would have to include the capital referred to in (2) if it were a firm calculating its capital resources on a solo basis under whichever method applies to the group under BIPRU 8.6.6 R to BIPRU 8.6.8 R1.

  4. (4)

    This rule does not apply to a minority interest created by consolidated indirectly issued capital.

Indirectly issued capital and group capital resources

BIPRU 8.6.11R

For the purposes of this chapter, GENPRU 2.2.123 R to GENPRU 2.2.137 R (Indirectly issued tier one capital (BIPRU firm only)) do not apply. A firm may only include consolidated indirectly issued capital in consolidated capital resources (whether as a minority interest or otherwise) in accordance with this section.

BIPRU 8.6.12R

Consolidated indirectly issued capital means any capital instrument issued by a member of the UK consolidation group or non-EEA sub-group where:

  1. (1)

    some or all of the following conditions are satisfied:

    1. (a)

      that capital is issued to an SPV; or

    2. (b)

      that capital is issued by an SPV; or

    3. (c)

      the subscription for the capital issued by the member of the group in question is funded directly or indirectly by an SPV; and

  2. (2)

    any of the SPVs referred to in (1) is a member of the UK consolidation group or non-EEA sub-group or a subsidiary undertaking of any member of the UK consolidation group or non-EEA sub-group.

BIPRU 8.6.13R

A firm may only include consolidated indirectly issued capital in the consolidated capital resources of its UK consolidation group or non-EEA sub-group if:

  1. (1)

    it is issued by an SPV that is a member of the UK consolidation group or non-EEA sub-group to persons who are not members of the UK consolidation group or non-EEA sub-group; and

  2. (2)

    the conditions in BIPRU 8.6.16 R to BIPRU 8.6.18 R are satisfied.

BIPRU 8.6.14R

Consolidated indirectly issued capital that is eligible for inclusion in the consolidated capital resources of a UK consolidation group or non-EEA sub-group may only be included as a minority interest created by the capital instrument issued by the SPV referred to in BIPRU 8.6.13 R. If it is eligible, it is innovative tier one capital.

BIPRU 8.6.15R

For the purposes of this section, an undertaking is an SPV if the main activity of the SPV is to raise funds for undertakings in:

  1. (1)

    (in the case of a UK consolidation group) that UK consolidation group; or

  2. (2)

    (in the case of a non-EEA sub-group) that non-EEA sub-group or any UK consolidation group of which it forms part.

BIPRU 8.6.16R

The SPV referred to in BIPRU 8.6.13 R must satisfy the conditions in GENPRU 2.2.127 R (Conditions that an SPV has to satisfy if indirectly issued capital is to be included in capital resources on a solo basis) as modified by the following:

  1. (1)

    references in GENPRU 2.2.127R (1) to being controlled by the firm are to being controlled by a member of the firm's UK consolidation group or non-EEA sub-group as the case may be; and

  2. (2)

    references to the firm's group are to the firm's UK consolidation group or non-EEA sub-group as the case may be.

BIPRU 8.6.17R

The capital issued by the SPV referred to in BIPRU 8.6.13 R must satisfy the conditions in GENPRU 2.2.129 R (Conditions that capital issued by an SPV has to satisfy if indirectly issued capital is to be included in capital resources on a solo basis) as modified by the following:

  1. (1)

    references to the firm's group are to the firm's UK consolidation group or non-EEA sub-group as the case may be;

  2. (2)

    the substitution obligation in GENPRU 2.2.129R (2) need not be the firm's but may apply to any member of the UK consolidation group or non-EEA sub-group as the case may be; and

  3. (3)

    that substitution obligation applies if the consolidated capital resources of the UK consolidation group or non-EEA sub-group, as the case may be, fall, or are likely to fall, below its consolidated capital resources requirement.

BIPRU 8.6.18R

The SPV referred to in BIPRU 8.6.13 R must invest the funds raised from the issue of capital by the SPV by subscribing for capital resources issued by an undertaking that is a member of the UK consolidation group or non-EEA sub-group. Those capital resources must satisfy the following conditions:

  1. (1)

    those capital resources must at least comply with the requirements for lower tier two capital; and

  2. (2)

    the first call date or fixed maturity date (if any) of those capital resources must not arise before the first call date on the instrument issued by the SPV.

BIPRU 8.6.19R

In relation to the obligation to substitute described in BIPRU 8.6.17R (2), a firm must take all reasonable steps to ensure that the undertaking in question has at all times sufficient authorised and unissued tier one instruments other than innovative tier one instruments (and authority to issue them) to enable it to discharge the obligation to substitute.

BIPRU 8.6.20R

A firm must comply with the requirements set out in GENPRU 2.2.135R (Notifying the appropriate regulator of unusual transactions in relation to indirectly issued capital) and GENPRU 2.2.137 R (Contents of marketing documents in relation to indirectly issued capital) in relation to consolidated indirectly issued capital included in consolidated capital resources.