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BIPRU 8.1 Application

BIPRU 8.1.1 R

1This chapter applies to:

  1. (1)

    a BIPRU firm that is a member of a UK consolidation group;

  2. (2)

    a BIPRU firm that is a member of a non-EEA sub-group; and2

  3. (3)

    [deleted]2

    2
  4. (4)

    a firm that is not a BIPRU firm and is a parent financial holding company in a Member State in a UK consolidation group.

BIPRU 8.1.2 R

This chapter does not apply to a firm in BIPRU 8.1.1R (1) to BIPRU 8.1.1R (3) which is a member of the UK consolidation group or non-EEA sub-group if the interest of the relevant UK consolidation group or non-EEA sub-group in that firm is no more than a participation.

BIPRU 8.1.2A R

3A firm is not subject to consolidated supervision under BIPRU 8 where any of the following conditions are fulfilled:

  1. (1)

    the firm is included in the supervision on a consolidated basis of the group of which it is a member by the FCA or PRA under the EUCRR; or

  2. (2)

    the firm is included in the supervision on a consolidated basis of the group of which it is a member by a competent authority other than the FCA under the EUCRR as implemented by that competent authority.

BIPRU 8.1.2B R

3Where a group includes one or more BIPRU firms and one or more IFPRU investment firms which has permission under article 19 of the EUCRR (Exclusion from the scope of prudential consolidation) from the FCA not to be included in the supervision on a consolidated basis of the group of which it is a member, consolidated supervision under BIPRU 8 applies to those IFPRU investment firms and the BIPRU firms.

Purpose

BIPRU 8.1.3 G

Pursuant to the third paragraph of article 95(2) of the EUCRR, this3 chapter implements articles 71, 73(1) and (2), 125, 126, 127(1), 133 and 134 of the Banking Consolidation Directive and articles 2 (in part), 22-27 and 37(1) (in part) of the Capital Adequacy Directive.

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How this chapter is organised

BIPRU 8.1.4 G

BIPRU 8.2 sets out the definition of UK consolidation group and the basic requirement to apply financial resources and concentration risk requirements to that group on a consolidated basis.

BIPRU 8.1.5 G

BIPRU 8.3 sets out the definition of a non-EEA sub-group and the basic requirement to apply financial resources and concentration risk requirements to that group on a consolidated basis.

BIPRU 8.1.6 G

BIPRU 8.4 sets out how a group of CAD investment firms can apply for a waiver from consolidated capital requirements although remaining subject to consolidated supervision (including reporting requirements).

BIPRU 8.1.7 G

BIPRU 8.5 sets out the basis for including and excluding undertakings within the group for the purposes of consolidation.

BIPRU 8.1.8 G

BIPRU 8.6 sets out the calculation of the consolidated capital resources of a group and the limits that apply.

BIPRU 8.1.9 G

BIPRU 8.7 sets out the calculation of the consolidated capital resources requirement of a group.

BIPRU 8.1.10 G

BIPRU 8.8 deals with the application of advanced prudential calculation approach on a consolidated basis.

BIPRU 8.1.11 G

BIPRU 8.9 sets out consolidated concentration risk requirements.

Consolidation requirements for BIPRU firms elsewhere in the Handbook

BIPRU 8.1.12 G

SYSC 12 (Group risk systems and controls requirement) deals with systems and controls requirements for groups.

BIPRU 8.1.13 G

GENPRU 1.2 (Adequacy of financial resources) deals with the detail about how GENPRU 1.2 applies on a consolidated basis although the underlying requirement to apply it on a consolidated basis is in BIPRU 8.2 and BIPRU 8.3.

BIPRU 8.1.14 G

BIPRU 11 (Disclosure) itself deals with how that chapter is applied on a consolidated basis.

BIPRU 8.1.15 G

GENPRU 3.1 (Cross sector groups) deals with financial conglomerates.

BIPRU 8.1.16 G

GENPRU 3.2 (Prudential rules for third country groups) deals, amongst other things, with banking and investment services groups headed by a parent undertaking outside the EEA.

BIPRU 8.2 Scope and basic consolidation requirements for UK consolidation groups

Main consolidation rule for UK consolidation groups

BIPRU 8.2.1 R

A firm that is a member of a UK consolidation group must comply, to the extent and in the manner prescribed in BIPRU 8.5, with the obligations laid down in GENPRU 1.2 (Adequacy of financial resources) and4 the main BIPRU firm Pillar 1 rules (but not the base capital resources requirement) on the basis of the consolidated financial position of:

4 2 4
  1. (1)

    where either Test 1A or Test 1B in BIPRU 8 Annex 1 (Decision tree identifying a UK consolidation group) apply, the parent institution in a Member State in the UK consolidation group; or

  2. (2)

    where either Test 1C or Test 1D in BIPRU 8 Annex 1 apply, the parent financial holding company in a Member State or the parent mixed financial holding company in a Member State3.

BIPRU 8.2.2 R

Further to BIPRU 8.2.1 R, a firm that is a member of a UK consolidation group must at all times ensure that the consolidated capital resources of the UK consolidation group are equal to or exceed its consolidated capital resources requirement.

BIPRU 8.2.3 G

The base capital resources requirement does not apply on a consolidated basis.

Definition of UK consolidation group

BIPRU 8.2.4 R

A firm'sUK consolidation group means a1 group that is identified as a UK consolidation group in accordance with the decision tree in BIPRU 8 Annex 1 R (Decision tree identifying a UK consolidation group); the members of that group are:1

1 1
  1. (1)

    1where either Test 1A or Test 1B in BIPRU 8 Annex 1 R apply, the members of the consolidation group made up of the sub-group of the parent institution in a Member State identified in BIPRU 8 Annex 1 R together with any other person who is a member of that consolidation group because of a consolidation Article 12(1) relationship or an Article 134 relationship; or

  2. (2)

    1where either Test 1C or Test 1D in BIPRU 8 Annex 1 R apply, the members of the consolidation group made up of the sub-group of the parent financial holding company in a Member State or the parent mixed financial holding company in a Member State3 identified in BIPRU 8 Annex 1 R together with any other person who is a member of that consolidation group because of a consolidation Article 12(1) relationship or an Article 134 relationship;

in each case only persons included under BIPRU 8.5 (Basis of consolidation) are included in the UK consolidation group.1

BIPRU 8.2.5 R

For the purposes of this chapter, what would otherwise be a UK consolidation group is not a UK consolidation group if all the members of that UK consolidation group wholly form part of another UK consolidation group.

BIPRU 8.2.7 G

BIPRU 8 Annex 1 (Decision tree identifying a UK consolidation group) shows that Articles 125 and 126 of the Banking Consolidation Directive are important in deciding whether the appropriate regulator is obliged to supervise a group or part of a group and hence whether that group or part of a group is a UK consolidation group. BIPRU 8 Annex 4 (Text of Articles 125 and 126 of the Banking Consolidation Directive) sets out these articles together with an explanation of how those articles should be read in the case of a group which also contains CAD investment firms.

BIPRU 8.3 Scope and basic consolidation requirements for non-EEA sub-groups

Main consolidation rule for non-EEA sub-groups

BIPRU 8.3.1 R

  1. (1)

    A BIPRU firm that is a subsidiary undertaking of a BIPRU firm or of a financial holding company or of a mixed financial holding company3 must apply the requirements laid down in GENPRU 1.2 (Adequacy of financial resources) and4 the main BIPRU firm Pillar 1 rules (but not the base capital resources requirement) on a sub-consolidated basis if the BIPRU firm, or the parent undertaking where it is a financial holding company or a mixed financial holding company3, have a third country investment services undertaking4 as a subsidiary undertaking or hold a participation in such an undertaking.

    4244
  2. (2)

    (1) only applies if the appropriate regulator is required by the Banking Consolidation Directive or the Capital Adequacy Directive to supervise the group established under (1) under Article 73(2) of the Banking Consolidation Directive (Non-EEA sub-groups).

BIPRU 8.3.2 R

Further to BIPRU 8.3.1 R, a firm that is a member of a non-EEA sub-group must at all times ensure that the consolidated capital resources of that non-EEA sub-group are equal to or exceed its consolidated capital resources requirement.

BIPRU 8.3.3 G

The base capital resources requirement does not apply on a consolidated basis.

BIPRU 8.3.4 G

The sub-group identified in BIPRU 8.3.1 R is called a non-EEA sub-group.

How to identify a non-EEA sub-group

BIPRU 8.3.6 G

The remainder of this section sets out a process for identifying a non-EEA sub-group in straightforward cases.

BIPRU 8.3.7 G

A firm will not be a member of a non-EEA sub-group unless it is1 also a member of a UK consolidation group. So the first step is to identify each undertaking in the firm'sUK consolidation group that satisfies the following conditions:

  1. (1)

    it isa CAD investment firm,4financial institution or asset management company whose head office is outside the EEA (a third country investment services undertaking4);

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  2. (2)

    one of the following applies:

    1. (a)

      it is a subsidiary undertaking of a BIPRU firm in that UK consolidation group; or

    2. (b)

      a BIPRU firm in that UK consolidation group holds a participation in it; and

  3. (3)

    that BIPRU firm is not a parent institution in a Member State.

BIPRU 8.3.8 G

The sub-group of the BIPRU firm identified in BIPRU 8.3.7G (2)(a) or BIPRU 8.3.7G (2)(b) is a potential non-EEA sub-group.

BIPRU 8.3.9 G

If more than one BIPRU firm is a direct or indirect parent undertaking in accordance with BIPRU 8.3.7G (2)(a) then the sub-groups of each of 1them are all potential non-EEA sub-groups.

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BIPRU 8.3.10 G

Similarly if there is more than one BIPRU firm that holds a participation in the third country investment services undertaking4 in accordance with BIPRU 8.3.7G (2)(b) then the sub-group of each such BIPRU firm is a potential non-EEA sub-group.

4
BIPRU 8.3.11 G

The effect of BIPRU 8.3.7G (3) is that a non-EEA sub-group cannot be headed by a parent institution in a Member State.

4
BIPRU 8.3.12 G

The firm should then identify each undertaking in the firm'sUK consolidation group that satisfies the following conditions:

  1. (1)

    it isa CAD investment firm,4financial institution or asset management company whose head office is outside the EEA (a third country banking or investment services undertaking);

    4
  2. (2)

    one of the following applies:

    1. (a)

      it is a subsidiary undertaking of a financial holding company in that UK consolidation group; or

    2. (b)

      a financial holding company in that UK consolidation group holds a participation in it;

  3. (3)

    the head office of that financial holding company is in the United Kingdom; and

  4. (4)

    that financial holding company has a subsidiary undertaking that is a BIPRU firm.

BIPRU 8.3.13 G
BIPRU 8.3.15 G

If more than one financial holding company is a direct or indirect parent undertaking in accordance with BIPRU 8.3.12G (2)(a) then the sub-groups of each of 1them are all potential non-EEA sub-groups.

BIPRU 8.3.16 G

Similarly if there is more than one financial holding company that holds a participation in the third country investment services undertaking4 in accordance with BIPRU 8.3.12G (2)(b) then the sub-group of each such financial holding company is a potential non-EEA sub-group.

4
BIPRU 8.3.17 G

The firm should apply the process in BIPRU 8.3.12 G to a third country banking services undertaking4 even though it may be also be part of a potential non-EEA sub-group under BIPRU 8.3.7 G.

4
BIPRU 8.3.18 G

Having identified potential non-EEA sub-groups for each third country investment services undertaking4 in its UK consolidation group the firm should then eliminate overlapping potential non-EEA sub-groups in the following way. If:

4
  1. (1)

    one potential non-EEA sub-group is 1contained within a wider potential non-EEA sub-group; and

  2. (2)

    the third country investment services undertakings4 in the two potential non-EEA sub-groups are the same;

    4

then the smaller potential non-EEA sub-group is eliminated.

BIPRU 8.3.19 G

If there is a chain of three or more potential non-EEA sub-groups, each with the same third country investment services undertakings,4 the elimination process may remove all but the highest.

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BIPRU 8.3.20 G

Each remaining potential non-EEA sub-group is a non-EEA sub-group, even though it may be part of a wider non-EEA sub-group.

BIPRU 8.3.22 G

If a UK consolidation group is headed by a parent financial holding company in a Member State the result of the elimination process may be that a firm'sUK consolidation group contains only onenon-EEA sub-group and that the non-EEA sub-group is the same as the UK consolidation group. In theory that means that there are two sets of consolidation requirements, one in relation to the UK consolidation group and one in relation to the non-EEA sub-group. However as the UK consolidation group and the non-EEA sub-group are the same, in practice this means that the additional non-EEA sub-group consolidation disappears.

4
BIPRU 8.3.23 G

Even where the requirements for a non-EEA sub-group are absorbed into those for the UK consolidation group a firm should still make clear in its regulatory reporting that the consolidation figures relate to a UK consolidation group and a non-EEA sub-group and that they both contain the same members.

BIPRU 8.3.24 G

The examples in this section have so far assumed that the only EEA State involved is the United Kingdom. If a potential non-EEA sub-group that would otherwise be regulated by the appropriate regulator contains a potential non-EEA sub-group in another EEA State then the United Kingdom one is eliminated if the third country investment services undertaking4 in the UK potential non-EEA sub-group and the potential non-EEA sub-group in the other EEA State are the same. The intention here is that the EEA competent authority closest to thethird country investment services undertaking4 should be responsible for the non-EEA sub-group subconsolidation. Example 6 in BIPRU 8 Annex 3 (Examples of how to identify a non-EEA sub-group) illustrates this situation.

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BIPRU 8.4 CAD Article 22 groups and investment firm consolidation waiver

Application

BIPRU 8.4.1 R

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

1
BIPRU 8.4.1A G

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 8.4.2 G

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 8.4.3 G

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 8.4.4 G

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 8.4.5 G

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 8.4.6 G

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 8.4.7 R

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 8.4.8 G

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 8.4.9 R

  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 or2credit institution2 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.

    1
BIPRU 8.4.10 G

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.

1 1 1

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

BIPRU 8.4.11 R

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 UKparent 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 8.4.12 R

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 8.4.13 R

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 8.4.14 R

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 8.4.15 G

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 8.4.16 R

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 8.4.17 R

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 8.4.18 R

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 8.4.19 G

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.

BIPRU 8.5 Basis of consolidation

Undertakings to be included in consolidation

BIPRU 8.5.1 R

A firm must include only the following types of undertaking in a UK consolidation group or non-EEA sub-group for the purposes of this chapter:

  1. (1)

    a BIPRU firm;

  2. (2)

    [deleted]4

    4
  3. (3)

    a financial institution;

  4. (4)

    an asset management company;

  5. (5)

    a financial holding company;

    3
  6. (6)

    a mixed financial holding company; and3

    3
  7. (7)

    an ancillary services undertaking.3

BIPRU 8.5.2 G

Although an undertaking falling outside BIPRU 8.5.1 R will not be included in a UK consolidation group or non-EEA sub-group it may be relevant in deciding whether one undertaking in the banking sector or the investment services sector is a subsidiary undertaking of another with the result that they should be included in the same UK consolidation group or non-EEA sub-group.

BIPRU 8.5.3 G

Basis of inclusion of undertakings in consolidation

BIPRU 8.5.4 R

A firm must include any subsidiary undertaking in the UK consolidation group or non-EEA sub-group in full in the calculations in this chapter.

BIPRU 8.5.5 R

In carrying out the calculations for the purposes of this chapter a firm must only include the relevant proportion of an undertaking that is a member of the UK consolidation group or non-EEA sub-group:

  1. (1)

    by virtue of a consolidation Article 12(1) relationship;

  2. (2)

    by virtue of an Article 134 relationship; or

  3. (3)

    because the group holds a participation in it.

BIPRU 8.5.6 R

In BIPRU 8.5.5 R, the relevant proportion is either:

  1. (1)

    (in the case of a participation) the proportion of shares issued by the undertaking held by the UK consolidation group or the non-EEA sub-group; or

  2. (2)

    (in the case of a consolidation Article 12(1) relationship or an Article 134 relationship), such proportion (if any) as stated in the Part 4A permission of the firm.

Basis of inclusion of collective portfolio management investment firms in consolidation2

BIPRU 8.5.7 R

GENPRU 2.1.46 R (Adjustment of the variable capital requirement calculation for collective portfolio management investment firms)2 does1 not apply for the purpose of this chapter.

2 1
BIPRU 8.5.8 G

In general a collective portfolio management investment firm2 only calculates its capital and concentration risk requirements in relation to its designated investment business and does not calculate them with respect tomanaging an AIF or managing a UCITS. 2 The effect of BIPRU 8.5.7 R is that this does not apply on a consolidated basis. For the purpose of this chapter the calculations are carried out2 with respect to the whole of the activities of a collective portfolio management investment firm.2

2 2 2

Exclusion of undertakings from consolidation: Balance sheet size

BIPRU 8.5.9 R

A firm may, having first notified the appropriate regulator in writing in accordance with SUP 15.7 (Form and method of notification), exclude a BIPRU firm,4asset management company, financial institution or ancillary services undertaking that is a subsidiary undertaking in, or an undertaking in which a participation is held by, the UK consolidation group or non-EEA sub-group if the balance sheet total of that undertaking is less than the smaller of the following two amounts:

4
  1. (1)

    10 million Euros;

  2. (2)

    1% of the balance sheet total of the parent undertaking or the undertaking that holds the participation.

BIPRU 8.5.10 R

A firm must include undertakings, to which BIPRU 8.5.9 R would otherwise apply, if the balance sheet total of those undertakings taken together breaches the limit in BIPRU 8.5.9 R.

Exclusion of undertakings from consolidation: Other reasons

BIPRU 8.5.11 G

Article 73(1) of the Banking Consolidation Directive allows the appropriate regulator to decide to exclude a BIPRU firm,4financial institution, asset management company or ancillary services undertaking that is a subsidiary undertaking in, or an undertaking in which a participation is held by, the UK consolidation group or non-EEA sub-group for the purposes of this chapter in the following circumstances:

4
  1. (1)

    where the head office of the undertaking concerned is situated in a country outside the EEA where there are legal impediments to the transfer of the necessary information; or

  2. (2)

    where, in the opinion of the appropriate regulator, the undertaking concerned is of negligible interest only with respect to the objectives of monitoringBIPRU firms;4 or

    4
  3. (3)

    where, in the opinion of the appropriate regulator, the consolidation of the financial situation of the undertaking concerned would be inappropriate or misleading as far as the objectives of the supervision of BIPRU firms4 are concerned.

    4
BIPRU 8.5.12 G

If a firm wishes to exclude an undertaking on the basis of any of the grounds set out in BIPRU 8.5.11 G it should apply to the appropriate regulator for a waiver. The appropriate regulator will consider such applications in the light of the criteria in Section 138A of the Act.

BIPRU 8.5.13 G

If several undertakings meet the criteria in BIPRU 8.5.11G (2), the appropriate regulator will not agree to a waiver to exclude them all from consolidation where collectively they are of non-negligible interest with respect to the objectives of the supervision of institutions.

Information about excluded undertakings

BIPRU 8.5.14 G

The appropriate regulator may require a firm to provide information about the undertakings excluded from consolidation of the UK consolidation group or non-EEA sub-group pursuant to this section.

BIPRU 8.6 Consolidated capital resources

General

BIPRU 8.6.1 R

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 8.6.1A R

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'scapital resources or consolidated capital resources of its UK consolidation group or non-EEA sub-group.

BIPRU 8.6.1B R

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 groupundertaking 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 groupundertaking intends to issue a capital instrument listed in BIPRU 8.6.1E R.

BIPRU 8.6.1C R

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 8.6.1D R

3If a groupundertaking 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 8.6.1E R

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

  1. (1)

    ordinary shares issued by a groupundertaking which:

    1. (a)

      are the most deeply subordinated capital instrument issued by that groupundertaking;

    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 groupundertaking;

  2. (2)

    debt instruments issued from a debt securities program established by a groupundertaking, 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 groupundertaking for inclusion in the firm'scapital resources or consolidated capital resources of its UK consolidation group or non-EEA sub-group.

BIPRU 8.6.1F R

3A firm must notify the appropriate regulator in writing, no later than the date of issue, of the intention of a groupundertaking 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 groupundertaking.

Limits on the use of different forms of capital

BIPRU 8.6.2 R

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 8.6.3 G

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'sconsolidated 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 8.6.4 G

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 8.6.5 G

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 8.6.8 R

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).

4 4 4
BIPRU 8.6.9 R

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 8.6.10 R

  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 8.6.11 R

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 8.6.12 R

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 8.6.13 R

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 8.6.14 R

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 8.6.15 R

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 8.6.16 R

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'sUK consolidation group or non-EEA sub-group as the case may be; and

  2. (2)

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

BIPRU 8.6.17 R

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'sgroup are to the firm'sUK 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 8.6.18 R

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 8.6.19 R

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 8.6.20 R

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.

BIPRU 8.7 Consolidated capital resources requirements

General approach

BIPRU 8.7.1 G

The calculation of the consolidated capital resources requirement of a firm's UK consolidation group or non-EEA sub-group involves taking the individual components that make up the capital resources requirement on a solo basis and applying them on a consolidated basis. Those components are the capital charge for credit risk (the credit risk capital requirement), the capital charge for market risk (the market risk capital requirement), the capital charge for operational risk (the operational risk capital requirement) and the fixed overheads requirement.

BIPRU 8.7.2 G

Each of the capital charges in BIPRU 8.7.1 G, as applied on a consolidated basis, is called a consolidated requirement component. The name of each consolidated requirement component reflects the solo capital charge on which it is based. Solo capital charges are called risk capital requirements. Thus for example the consolidated requirement component for market risk is called the consolidated market risk requirement. The calculation of the consolidated market risk requirement is based on the calculation of the capital charge for market risk that applies on a solo basis (the market risk capital requirement). So the risk capital requirement applicable to the consolidated market risk requirement is the market risk capital requirement.

BIPRU 8.7.5 G

In general a firm should calculate each consolidated requirement component using the appropriate regulator'srules, even in the case of group members who are subject to the capital requirements of an overseas regulator. However this section sets out certain circumstances in which a firm may use the capital requirements of an overseas regulator.

BIPRU 8.7.6 G

BIPRU 8.8 (Advanced prudential calculation approaches) says that a firm should not apply an advanced prudential calculation approach on a consolidated basis unless the advanced prudential calculation approach permission allowing the firm to use the advanced prudential calculation approach specifically allows it to be used on consolidated basis.

BIPRU 8.7.7 G

BIPRU 8.8 (Advanced prudential calculation approaches) has further details about how capital requirements are calculated on a consolidated basis if a firm uses an advanced prudential calculation approach.

BIPRU 8.7.8 G

A firm has a choice about how it should apply a risk capital requirement to the group. It may do this by treating the whole of the group as a single entity and applying the risk capital requirement to the group (a line by line approach), calculating a separate risk capital requirement for each group member (an aggregation approach) or a mixture of the two.

BIPRU 8.7.9 G

A firm may make the choice between an aggregation and a line by line approach differently for each consolidated requirement component. So for example a firm may decide to calculate the consolidated market risk requirement on an aggregation basis and the consolidated fixed overheads requirement on a line by line basis.

Method of calculation to be used

Calculation of the consolidated requirement components

BIPRU 8.7.11 R

A firm must calculate a consolidated requirement component by applying the risk capital requirement applicable to that consolidated requirement component to the UK consolidation group or non-EEA sub-group in accordance with BIPRU 8.7.13 R. Except where BIPRU 8.7.34 R to BIPRU 8.7.38 R allow the requirements of another regulator to be used, the risk capital requirement must be calculated in accordance with the appropriate regulator'srules. The risk capital requirement applicable to a consolidated requirement component is the one specified in the second column of the table in BIPRU 8.7.12 R.

Choice of consolidation method

BIPRU 8.7.13 R

  1. (1)

    A firm must calculate a consolidated requirement component by using one of the methods in this rule.

  2. (2)

    Under the first method a firm must:

    1. (a)

      apply the risk capital requirement set out in BIPRU 8.7.12 R to each undertaking in the UK consolidation group or non-EEA sub-group; and

    2. (b)

      add the risk capital requirements together.

  3. (3)

    Under the second method a firm must:

    1. (a)

      treat the whole UK consolidation group or non-EEA sub-group as a single undertaking; and

    2. (b)

      apply the risk capital requirement set out in BIPRU 8.7.12 R to the group on an accounting consolidation basis.

  4. (4)

    The third method is a mixture of methods one and two. Under the third method a firm must:

    1. (a)

      treat one or more parts of the UK consolidation group or non-EEA sub-group as separate single undertakings;

    2. (b)

      apply the risk capital requirement set out in BIPRU 8.7.12 R to each such part of the group on an accounting consolidation basis;

    3. (c)

      apply the risk capital requirement set out in BIPRU 8.7.12 R to each of the remaining undertakings in the UK consolidation group or non-EEA sub-group (if any); and

    4. (d)

      add the risk capital requirements together.

  5. (5)

    A firm may use different methods for different consolidated requirement components.

BIPRU 8.7.14 G

An accounting consolidation basis means applying the rules in BIPRU 8.7.12 R on a line by line consolidation basis rather than an aggregation basis.

BIPRU 8.7.15 G

The provisions of this section on credit risk and market risk restrict the choice given by BIPRU 8.7.13 R in certain circumstances.

Notifying the appropriate regulator of the choice of consolidation technique

BIPRU 8.7.16 R

A firm must notify the appropriate regulator which method under BIPRU 8.7.13 R it applies for which consolidated requirement component and to which parts of the UK consolidation group or non-EEA sub-group it is applying an aggregation approach and to which parts it is applying an accounting consolidation approach.

Special rules for the consolidated credit risk requirement

BIPRU 8.7.17 R
BIPRU 8.7.18 G

The credit risk capital requirement (on which the consolidated credit risk requirement is based) is split into two3capital charges. One relates to credit risk in the non-trading book (the credit risk capital component). One relates to credit risk in the trading book (the counterparty risk capital component).

3 1 3 1
BIPRU 8.7.19 G

[deleted]1

1
BIPRU 8.7.20 R

A firm may use a combination of the CCR standardised method, the CCR mark to market method and the CCR internal model method on a permanent basis with respect to the firm's UK consolidation group or non-EEA sub-group for the purposes of calculating the consolidated credit risk requirement. In particular, where the firm is permitted to apply the CCR internal model method on a consolidated basis with respect to its UK consolidation group or non-EEA sub-group, it may combine the use of CCR standardised method and CCR mark to market method on a permanent basis for financial derivative instruments and long settlement transaction not covered by its CCR internal model method permission.

BIPRU 8.7.21 R

BIPRU 9.4.1 R (Minimum requirements for recognition of significant credit risk transfer) as applied on a consolidated basis requires the transfer to be to a person outside the UK consolidation group or non-EEA sub-group.

BIPRU 8.7.22 R
BIPRU 8.7.23 R

  1. (1)

    A firm may only treat an exposure as exempt under BIPRU 3.2.25 R (Zero risk-weighting for intra-group exposures) as applied on a consolidated basis if the member of the UK consolidation group or non-EEA sub-group that has the exposure:

    1. (a)

      is a BIPRU firm and that exposure is exempt under BIPRU 3.2.25 R as it applies to that BIPRU firm on a solo basis; or

    2. (b)

      meets the conditions in BIPRU 3.2.25 R (1)(d) (Condition relating to establishment in the UK) and that exposure would be exempt under (a) if that member was a BIPRU firm.

  2. (2)

    The notification obligation in BIPRU 3.2.35 R applies.

Special rules for the consolidated market risk requirement

BIPRU 8.7.24 R

For the purposes of calculating the consolidated market risk requirement of a UK consolidation group or non-EEA sub-group, a firm must apply BIPRU 1.2.3 R (Definition of the trading book) and BIPRU 1.2.17 R (Size thresholds for the purposes of the definition of the trading book) to the whole UK consolidation group or non-EEA sub-group as if the group were a single undertaking.

BIPRU 8.7.25 R

A firm may not apply the second method in BIPRU 8.7.13R (3) (accounting consolidation for the whole group) or apply accounting consolidation to parts of its UK consolidation group or non-EEA sub-group under method three as described in BIPRU 8.7.13R (4)(a) for the purposes of the calculation of the consolidated market risk requirement unless the group or sub-group and the undertakings in that group or sub-group satisfy the conditions in this rule. Instead the firm must use the aggregation approach described in BIPRU 8.7.13R (2) (method one) or BIPRU 8.7.13R (4)(c). Those conditions are as follows:

  1. (1)

    each of the undertakings in that group or sub-group is an institution that is:

    1. (a)

      a BIPRU firm;

    2. (b)

      an EEA firmthat is a CAD investment firm; or3

      3
    3. (c)

      [deleted]3

      3
    4. (d)

      a recognised third country investment firm;

  2. (2)

    each of the undertakings referred to in (1) that is a BIPRU firm has capital resources that are equal to or in excess of its capital resources requirement ;

    13
  3. (3)

    each of the undertakings referred to in (1) that is an EEA firm complies with the CRD implementation measures in its EEA State that correspond to the requirements in (2);

  4. (4)

    each of the undertakings referred to in (1) that is a recognised third country investment firm complies with laws in the state or territory in which it has its head office that are equivalent to the requirements of the Banking Consolidation Directive or Capital Adequacy Directive relating to capital adequacy;

    33
  5. (5)

    there is no material legal, regulatory or contractual impediment to the transfer of funds between those undertakings in that group or sub-group;

  6. (6)

    there is no material legal, regulatory or contractual impediment to mutual financial support between those undertakings in that group or sub-group;

  7. (7)

    the market riskposition of the undertakings are monitored and managed on a co-ordinated basis; and

  8. (8)

    there is satisfactory allocation of capital within the group or sub-group.

Special rules for the consolidated operational risk requirement

BIPRU 8.7.26 R

For the purposes of calculating the consolidated operational risk requirement, a firm must apply BIPRU 6.2.9 R to BIPRU 6.2.12 R (Combination of different methodologies) to the whole UK consolidation group or non-EEA sub-group as if the group were a single undertaking.

BIPRU 8.7.27 R

  1. (1)

    This rule sets out how BIPRU 6.3.2 R (3) (Negative figure arising in calculation of the relevant indicator under the basic indicator approach) applies on a consolidated basis.

  2. (2)

    If the calculation for any individual undertaking under method one in BIPRU 8.7.13R (2) (application of aggregation approach to the whole group) or method three as described in BIPRU 8.7.13R (4)(c) (mixture of aggregation and accounting consolidation) or for any sub-group created under method three as described in BIPRU 8.7.13R (4)(a) results in a figure of zero or a negative figure, that figure must be excluded.

  3. (3)

    If a firm is using method two in BIPRU 8.7.13 R (accounting consolidation approach for the whole group), BIPRU 6.3.2 R (3) applies to the UK consolidation group or non-EEA sub-group as if it were a single undertaking.

  4. (4)

    (3) also applies to a sub-group created under method 3 as described in BIPRU 8.7.13R (4)(a).

Special rules for calculating specific consolidated requirement components

BIPRU 8.7.28 G

BIPRU 8.7.21 R to BIPRU 8.7.26 R are generally examples of the application of the general principles in BIPRU 8.2.1 R (Main consolidation rule for UK consolidation groups) and BIPRU 8.3.1 R (Main consolidation rule for non-EEA sub-groups). BIPRU 8.7.20 R and BIPRU 8.7.25 R are exceptions to those principles.

Elimination of intra-group transactions

BIPRU 8.7.29 R

In accordance with BIPRU 8.2.1 R and BIPRU 8.3.1 R (The basic consolidation rules for a UK consolidation group or non-EEA sub-group), a firm may exclude that part of the risk capital requirement that arises as a result of:

  1. (1)

    (in respect of the consolidated credit risk requirement) intra-group balances; or

  2. (2)

    (in respect of the consolidated operational risk requirement and consolidated fixed overheads requirement) intra-group transactions;

with other undertakings in the UK consolidation group or non-EEA sub-group.

Other provisions about calculating risk capital requirements

BIPRU 8.7.31 G

If a firm is calculating a risk capital requirement for an undertaking that is not a BIPRU firm it should calculate it as if the undertaking were a BIPRU firm.

BIPRU 8.7.33 G

A firm should not use an advanced prudential calculation approach for calculating a risk capital requirement unless this is permitted as explained in BIPRU 8.8 (Advanced prudential calculation approaches).

Use of the solo requirements of another EEA competent authority

BIPRU 8.7.34 R

A firm may calculate the risk capital requirement for an institution in the firm'sUK consolidation group or non-EEA sub-group that is an EEA firm in accordance with the CRD implementation measures in the EEA firm'sEEA State that correspond to the appropriate regulator'srules that would otherwise apply under this section if the institution is subject to those CRD implementation measures.

2
BIPRU 8.7.35 R
  1. (1)

    [deleted]2

  2. (2)

    [deleted]2

BIPRU 8.7.36 G

[deleted]2

2

Use of the consolidated requirements of another EEA competent authority

BIPRU 8.7.37 R
  1. (1)

    This rule applies if:

    1. (a)

      a firm is applying an accounting consolidation approach to part of its UK consolidation group or non-EEA sub-group under method three as described in BIPRU 8.7.13R (4)(a); and

    2. (b)

      the part of the group in (a) constitutes the whole of a group subject to the consolidated capital requirements of a competent authority under the CRD implementation measures relating to consolidation under the Banking Consolidation Directive or the Capital Adequacy Directive.

  2. (2)

    If the conditions in this rule are satisfied, a firm may apply the consolidated capital requirement in (1)(b) as the risk capital requirement for the group identified in (1)(a) so far as that consolidated capital requirement corresponds to the appropriate regulator'srules that would otherwise apply under this section.

2
BIPRU 8.7.38 R

[deleted]2

Prohibition on using the standardised rules of a regulator outside the EEA

BIPRU 8.7.38A R
  1. (1)

    2This rule applies to a firm if:

    1. (a)

      an institution in its UK consolidation group or non-EEA sub-group is subject to any of the rules or requirements of, or administered by, a third-country competent authority applicable to its financial sector that correspond to the sectoral rules applicable to that financial sector (“corresponding sectoral rules”); or

    2. (b)

      a part of its UK consolidation group or non-EEA sub-group constitutes the whole of a group subject to the consolidated capital requirements of a third-country competent authority under the corresponding sectoral rules applicable to the banking sector or the investment services sector for a state or territory outside the EEA.

  2. (2)

    A firm may not use the requirements under any of the corresponding sectoral rules of a state or territory outside the EEA in order to calculate the consolidated capital resources requirement of its UK consolidation group or non-EEA sub-group for the purpose of this chapter.

Use of an advanced prudential calculation approach under the rules of an overseas regulator

BIPRU 8.7.39 G

A firm should not use the requirements of an overseas regulator if that would involve the use of an advanced prudential calculation approach unless this is permitted under BIPRU 8.8 (Advanced prudential calculation approaches).

BIPRU 8.8 Advanced prudential calculation approaches

General

BIPRU 8.8.1 R

A firm must not apply any advanced prudential calculation approach for the purposes of this chapter unless it has an advanced prudential calculation approach permission and that advanced prudential calculation approach permission requires the firm to use that advanced prudential calculation approach for those purposes.

BIPRU 8.8.2 G

BIPRU 1.3 (Applications for advanced approaches) deals with how to apply for an advanced prudential calculation approach permission.

Prohibition on using the rules of an overseas regulator

BIPRU 8.8.3 R

Even if a firm has an advanced prudential calculation approach permission that allows it to use an advanced prudential calculation approach for the purposes of this chapter, the firm may not use the requirements of another state or territory to the extent they provide for that advanced prudential calculation approach. Therefore a firm may not use BIPRU 8.7.34 R and 2BIPRU 8.7.37 R2 (Use of the capital requirements of another EEA competent authority)2 if that would involve using an advanced prudential calculation approach.

Special provisions relating to the internal ratings based approach

BIPRU 8.8.4 R

The conditions in BIPRU 4.2.26 R (Combined use of methodologies under the IRB approach) apply to a firm'sUK consolidation group or non-EEA sub-group as if that group were a single undertaking.

Special provisions relating to the CCR internal model method

BIPRU 8.8.8 G

BIPRU 8.7.17 R deals with the combination of the CCR internal model method with other approaches to calculating exposure values on a group level.

Corporate governance arrangement for the IRB approach and the AMA

BIPRU 8.8.9 G

The governance arrangements that apply to the governing body, the senior management and any designated committee of a firm in relation to the IRB approach also apply to the body or persons with equivalent powers with respect to the UK consolidation group or non-EEA sub-group. Where the parent undertaking and its subsidiary undertakings use rating systems on a unified basis, the approval and reporting process described in BIPRU 4.3.12 G (Approval and reporting arrangements for the IRB approach where rating systems are used on a unified group basis) apply for the purpose of this paragraph too.

3 3

BIPRU 8.9 [deleted]2

2

BIPRU 8 Annex 1 Decision tree identifying a UK consolidation group

BIPRU8_annex1_20130401

BIPRU 8 Annex 4 Text of Articles 125 and 126 of the Banking Consolidation Directive

Article 125

1.

Where a parent undertaking is a parent credit institution in a Member State or an EU parent credit institution, supervision on a consolidated basis shall be exercised by the competent authorities that authorised it under Article 6.

2.

Where the parent of a credit institution is a parent financial holding company in a Member State, a parent mixed financial holding company in a Member State1 an EU parent financial holding company or an EU parent mixed financial holding company,1 supervision on a consolidated basis shall be exercised by the competent authorities that authorised that credit institution under Article 6.

1 1

Article 126

1.

Where credit institutions authorised in two or more Member States have as their parent the same parent financial holding company in a Member State, the same mixed parent financial holding company in a Member State,1 the same EU parent financial holding company or the same EU parent mixed financial holding company,1 supervision on a consolidated basis shall be exercised by the competent authorities of the credit institution authorised in the Member State in which the financial holding company or mixed financial holding company is established.1

1 1

Where the parents of credit institutions authorised in two or more Member States comprise more than one financial holding company or mixed financial holding company which have their1head offices in different Member States and there is a credit institution in each of these States, supervision on a consolidated basis shall be exercised by the competent authority of the credit institution with the largest balance sheet total.

1

2.

Where more than one credit institution authorised in the Union1 has as its parent the same financial holding company or the same mixed financial holding company1 and none of these credit institutions has been authorised in the Member State in which the financial holding company or the mixed financial holding company is established1, supervision on a consolidated basis shall be exercised by the competent authority that authorised the credit institution with the largest balance sheet total, which shall be considered, for the purposes of this Directive, as the credit institution controlled by an EU parent financial holding company or an EU parent mixed financial holding company1.

1 1

3.

In particular cases, the competent authorities may by common agreement waive the criteria referred to in paragraphs 1 and 2 if their application would be inappropriate, taking into account the credit institutions and the relative importance of their activities in different countries, and appoint a different competent authority to exercise supervision on a consolidated basis. In these cases, before taking their decision, the competent authorities shall give the EU parent credit institution, EU parent financial holding company, the EU parent mixed financial holding company,1 or credit institution with the largest balance sheet total, as appropriate, an opportunity to state its opinion on that decision.

1

4.

[Omitted]

Note

The Capital Adequacy Directive says that generally references in Articles 125 and 126 of the Banking Consolidation Directive to credit institution should be read as including ones to CAD investment firms. Also, the Banking Consolidation Directive and the Capital Adequacy Directive apply to the EEA. Therefore for the purposes of BIPRU 8 Articles 125 and 126 of the Banking Consolidation Directive should be read with the following adjustments:

(1)

a reference to a credit institution should be read as being one to a credit institution or CAD investment firm;

(2)

a reference to a parent credit institution in a Member State should be read as being one to a parent institution in a Member State;

(3)

a reference to a EU parent credit institution should be read as being one to an EEA parent institution;

(4)

a reference to a EU parent financial holding company should be read as being one to an EEA parent financial holding company;1

1(4a)

a reference to a EU parent mixed financial holding company should be read as being one to an EEA parent mixed financial holding company;

(5)

a reference to a Member State should be read as being one to an EEA State;

(6)

a reference to a credit institution authorised in the Community should be read as being to a credit institution or CAD investment firm authorised in an EEA State.

Parent financial holding company in a Member State,1 financial holding company, parent mixed financial holding company in a Member State and mixed financial holding company1 have the same meaning as they do in the Glossary.

1

BIPRU 8 Annex 6 Non–EEA regulators' requirements deemed CRD-equivalent for individual risks

Part 1 (Non–EEA banking regulators' requirements deemed CRD-equivalent for individual risks)

Regime regulators

Market risk

Credit

risk

Operational Risk

USA

Office of the Comptroller of the Currency

Board of Governors of the Federal Reserve System

* a US banking subsidiary will be deemed equivalent for credit risk if:

  • it is categorised as well capitalised: and
  • it scales up its US Basel 1 credit risk requirement by 25%

X*

X*

X

X

Australia

Australian Prudential Regulation Authority [APRA]

X

Canada

Office of the Superintendent of Financial Institutions [OSFI]

Switzerland Swiss Financial Market Supervisory Authority [FINMA]2

2

√ See note 2

Japan

Financial Services Agency, Japan [JFSA]

X

X

South Africa

South African Reserve Bank [SARB]

Hong Kong

Hong Kong Monetary Authority [HKMA]

Singapore

Monetary Authority of Singapore [MAS]

India

Reserve Bank of India [RBI]

Korea

Financial Supervisory Service [FSS]

X

X

1 Jersey

1 Guernsey

X

1 Isle of Man

X

Note 1: A √ denotes that the requirements have been assessed as equivalent to EEA standards.

A X denotes that the requirements have been assessed as not being equivalent to EEA standards.

Note 2: √ International standardised approach only. The treatment of the Lombard loans is not equivalent and they must be treated under the appropriate regulator'srules.

Part 2 (Non–EEA investment firm regulators' requirements deemed CRD-equivalent for individual risks)

Regime regulators

Market risk

Credit risk

Operational Risk

Australia

Sydney Futures Exchange

Australian Stock Exchange

X

X

X

X

Canada

Ontario Securities Commission

Quebec Securities Commission

British Columbia Securities Commission

Alberta Securities Commission

Investment dealers Association of Canada

X

X

X

X

X

X

X

X

X

X

Hong Kong

Hong Kong Monetary Authority [HKMA]

Hong Kong Securities and Futures Commission

X

X

X

X

Japan

Financial Services Agency, Japan [JFSA]

X

X

Singapore

Monetary Authority of Singapore [MAS]

Stock Exchange of Singapore

X

X

X

X

South Africa

South African Futures Exchange

Johannesburg Stock Exchange

Bond Exchange of South Africa

X

X

X

X

X

X

Switzerland

Swiss Federal Banking Commission [EBK]

√ Note 2

USA

Securities & Exchange Commission (SEC): Net Capital rule only

Commodities and Futures Trading Commission

√ Note 3

1

X

X

X

Note 1: A √ denotes that the requirements have been assessed as equivalent to EEA standards.

A X denotes that the requirements have been assessed as not being equivalent to EEA standards.

Note 2: √ International standardised approach only. The treatment of Lombard loans is not equivalent and they must be treated under the appropriate regulator'srules.

Note 3: √ Where entities are subject to a local regulatory capital requirement.