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Status: You are viewing the version of the handbook as on 2012-01-07.

BIPRU 8.6 Consolidated capital resources

General

BIPRU 8.6.1RRP

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.

Limits on the use of different forms of capital

BIPRU 8.6.2RRP

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 8.6.3GRP

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 8.6.4GRP

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 8.6.5GRP

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 if there is a building society in the group

BIPRU 8.6.6R

Where a firm's UK consolidation group or non-EEA sub-group includes a building society, the firm must calculate that group's consolidated capital resources using the calculation of capital resources for building societies.

Calculation of consolidated capital resources if there is a bank or credit institution in the group

BIPRU 8.6.7R

Where a firm's UK consolidation group or non-EEA sub-group includes a bank or credit institution but not a building society, the firm must calculate that group's consolidated capital resources using the calculation of capital resources for banks.

Calculation of consolidated capital resources for an investment firm group

BIPRU 8.6.8RRP

Where a firm's UK consolidation group or non-EEA sub-group does not include a bank, building society or credit institution, the firm must calculate that group's consolidated capital resources using the calculation of capital resources in GENPRU 2 Annex 4 (Capital resources table for a BIPRU investment firm deducting material holdings) or GENPRU 2 Annex 5 (Capital resources table for a BIPRU investment firm deducting illiquid assets).

BIPRU 8.6.9RRP

A firm must give one Month's prior notice to the FSA 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 8.6.10RRP

  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 8.6.11RRP

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 8.6.12RRP

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 8.6.13RRP

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 8.6.14RRP

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 8.6.15RRP

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 8.6.16RRP

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 8.6.17RRP

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 8.6.18RRP

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 8.6.19RRP

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 8.6.20RRP

A firm must comply with the requirements set out in GENPRU 2.2.135R (Notifying the FSA 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.

Venture Capital Investments

BIPRU 8.6.21R

2Part 2 of stage M in the capital resources table for banks in GENPRU 2 Annex 2 and the capital resources table for building societies in GENPRU 2 Annex 3 is adjusted so as to read as follows in relation to the deduction of investments in subsidiary undertakings and participations:

Deductions from the totals of tier one and tier two

(M)

...

...

...

...

Investments in subsidiary undertakings and participations excluding:

(1) any amount which is already deducted as material holdings or qualifying holdings; and

(2) any investment in an undertaking that meets the following conditions:

(a) the investment has been made by a Venture Capital Investor and the firm is entitled to ignore (i) the Venture Capital Investor making that investment in accordance with GENPRU 2.2.209R (2) or (ii) the Venture Capital Holding Company (or a proportion of it) which holds the Venture Capital Investor in accordance with GENPRU 2.2.209R (3) for the purposes of determining whether there is a material holding;

(b) the investment is a venture capital investment; and

(c) the undertaking is not (i) a credit institution or (ii) financial institution the principal activity of which is to perform any activity other than the acquisition of holdings in other undertakings.

...

GENPRU 2.2.216A G

(Part 2 of stage M)