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BIPRU TP 19 Large exposures: Exemptions for intra-group exposures on a consolidated basis

1Application

19.1

R

This section applies to any firm to which BIPRU 8 (Group risk - consolidation) applies.

Purpose

19.2

G

The purpose of this section is to deal with how BIPRU TP 17 (Large exposures: Exemptions for intra-group exposures for banks and investment firms) and BIPRU TP 18 (Large exposures: Exemptions for intra-group exposures for building societies) are applied on a consolidated basis.

Duration of transitional

19.3

R

(1) This section applies until 31 December 2009.

General rule

19.4

R

A firm may apply BIPRU TP 17 (Large exposures: Exemptions for intra-group exposures for banks and investment firms) and BIPRU TP 18 (Large exposures: Exemptions for intra-group exposures for building societies) on a consolidated basis with respect to a UK consolidation group or non-EEA sub-group for the purposes of BIPRU 8.9 (Consolidated concentration risk requirements). If a firm applies BIPRU TP 17 or BIPRU TP 18 on a consolidated basis, it must do so in the way set out in this section.

Effect of this section on exemptions for intra-group exposures under BIPRU 8.9

19.5

R

If a firm applies this section, BIPRU 8.9.8 R to BIPRU 8.9.26 R (Application of integrated groups policy on a consolidated basis) do not apply and a firm may not otherwise apply BIPRU 10.8 to BIPRU 10.10 (Integrated groups) on a consolidated basis.

19.6

G

The purpose of BIPRU TP 19.5R is that a firm should choose between applying the BIPRU 8.9 integrated group regime to intra-group exposures or applying the regime in this section but that it should not mix the two approaches.

Parts of BIPRU TP 17 and BIPRU TP 18 that apply on a consolidated basis

19.7

R

The table in BIPRU TP 19.8R sets out what parts of BIPRU TP 17 (Large exposures: Exemptions for intra-group exposures for banks and investment firms) and BIPRU TP 18 (Large exposures: Exemptions for intra-group exposures for building societies) are applied on a consolidated basis under BIPRU TP 19.4R. The answer depends on which of the categories in the first column of that table the UK consolidation group or non-EEA sub-group in question falls into.

19.8

R

Table: Parts of BIPRU TP 17 and BIPRU TP 18 that apply on a consolidated basis

This table belongs to BIPRU TP 19.7R

Category of group

Applicable parts of BIPRU TP 17 and BIPRU TP 18

Remarks

Building society group

BIPRU TP 18 (Large exposures: Exemptions for intra-group exposures for building societies)

Banking group

The provisions in BIPRU TP 17 (Large exposures: Exemptions for intra-group exposures for banks and investment firms) that apply to a bank

If the group is a non-EEA sub-group, the exemption in BIPRU TP 17.15R (Integrated banking groups) applies.

If the group is a UK consolidation group, the exemption in BIPRU TP 17.15R does not apply.

Investment services group

The provisions in BIPRU TP 17 (Large exposures: Exemptions for intra-group exposures for banks and investment firms) that apply to the main BIPRU investment firm

Main BIPRU investment firm has the same meaning as it does in BIPRU TP 10.5R (Pre CRD capital requirements applying on a consolidated basis during 2007)

Note: The classes of group in the first column are defined in BIPRU TP 1.7R (Classification of groups for certain consolidation rules)

19.9

G

The reason that BIPRU TP 17.15R (Integrated banking groups) does not apply to a UK consolidation group is that BIPRU TP 17.15R requires the firm and the counterparty to be in the same UK consolidation group. The application of BIPRU TP 17.15R on a consolidated basis to a UK consolidation group would involve applying BIPRU TP 17.15R to exposures of members of the UK consolidation group to counterparties outside the UK consolidation group. Therefore the exemption in BIPRU TP 17.15R cannot apply to a UK consolidation group.

How this section applies to banking and investment services groups

19.10

R

(1)

If a firm applies BIPRU TP 17 (Large exposures: Exemptions for intra-group exposures for banks and investment firms) under this section it must do so in accordance with the principles in this rule.

(2)

A firm may only apply BIPRU TP 17 to exposures between members of its UK consolidation group or non-EEA sub-group and its consolidation concentration risk group counterparties.

(3)

A firm must treat each category of exposure in the first column of the table in BIPRU TP 19.11R in accordance with the corresponding treatment in the second column.

19.11

R

Table: Treatment for types of group counterparty

This table belongs to BIPRU TP 19.10R

Type of exposure

Treatment

(A) Exposures meeting the following conditions: (a) the member of the group that has the exposure is a domestic undertaking and (b) the exposure is to a consolidation concentration risk group counterparty that qualifies for inclusion in the group's consolidation UK integrated group

Exempt

(B) The exposure is to a consolidation concentration risk group counterparty that meets the following conditions: (a) the counterparty is a domestic undertaking and (b) the counterparty does not meet the other conditions for inclusion in the group's consolidation UK integrated group

Not exempt or partially exempt unless an exemption outside this section is available

(C) Exposures meeting either of the following conditions:

Exempt if would be exempt under BIPRU TP 17.11R (Treatment of non-UK intra-group exposures)

Partially exempt if would be partially exempt under BIPRU TP 17.11R

Not exempt or partially exempt if would not qualify as exempt or partially exempt under BIPRU TP 17.11R unless an exemption outside this section is available

"Group" means the UK consolidation group or non-EEA sub-group in question

An undertaking is a domestic undertaking if it meets the condition in BIPRU 10.8.4 R (4) (Establishment in the United Kingdom)

An undertaking is foreign if it does not meet the condition in BIPRU 10.8.4 R (4)

19.12

G

This section as it applies to banking groups and investment services groups (as defined in BIPRU TP 1.7R (Classification of groups for certain consolidation rules)) feeds back into the calculations in BIPRU 8.9 (Consolidated concentration risk requirements). So if an intra-group exposure is exempt under this section it is exempt for the purposes of BIPRU 8.9. Likewise, if an intra-group exposure is partially exempt under this section it is partially exempt for the purposes of BIPRU 8.9.

19.13

G

(1)

This paragraph describes the effect of BIPRU TP 19.11R

(2)

An exposure between a UK member of the group and a UK counterparty that meets the consolidated integrated group conditions in BIPRU 8.9.9 R (Definition of consolidation UK integrated group) is exempt. Therefore this exemption is only available if both the group member and the counterparty are UK undertakings.

(3)

A firm may apply the IPRU treatments in the table in BIPRU TP 17.11R (Treatment of exposures to non-UK undertakings) to an exposure between an overseas member of the group and a UK counterparty that meets the consolidated integrated group conditions in BIPRU 8.9.9 R.

(4)

A firm may also apply the IPRU and other treatments in the table in BIPRU TP 17.11R if the counterparty is foreign.

(5)

exposures to UK undertakings that do not meet the consolidated integrated group conditions in BIPRU 8.9.9 R are not exempt. Nor do they benefit from the exemptions and partial exemptions under BIPRU TP 17.11R.

(6)

The treatment in this paragraph only relates to counterparties who fall within the definition of consolidation concentration risk group counterparty.

(7)

In this paragraph "group" means the UK consolidation group or non-EEA sub-group in question.

19.14

G

(1)

A consolidation concentration risk group counterparty is defined in BIPRU 8.9.11 R. It is the equivalent of a concentration risk group counterparty for the purposes of consolidation. Basically it means a counterparty that is not a member of the UK consolidation group or non-EEA sub-group but is a parent undertaking of a member of the UK consolidation group or non-EEA sub-group or a subsidiary undertaking of such a parent undertaking. It also includes a subsidiary undertaking of a member of the UK consolidation group or non-EEA sub-group that is not itself a member of the UK consolidation group or non-EEA sub-group.

(2)

The group and the counterparty should both be subject to consolidated supervision as part of a wider group by the FSA, another EEA competent authority or a third country competent authority that carries out consolidated supervision to equivalent standards. If this is not the case the counterparty is not a consolidation concentration risk group counterparty. exposures to such a counterparty fall outside this section.

(3)

In this paragraph "group" means the UK consolidation group or non-EEA sub-group.

Integrated banking groups

19.15

G

If BIPRU TP 17.15R (Integrated banking groups) applies on a consolidated basis, a firm may treat an exposure between a member of the non-EEA sub-group and a non-UK counterparty as exempt if the counterparty and the non-EEA sub-group are part of the same UK consolidation group and also part of the same integrated banking group. If the counterparty is set up in the UK the exposure will be exempt if it meets the conditions for inclusion in the group's consolidation UK integrated group, whether or not it meets the conditions in BIPRU TP 17.15R. If the counterparty is set up in the UK and does not meet the conditions for inclusion in the group's consolidation UK integrated group, there is no exemption, whether or not it meets the conditions in BIPRU TP 17.15R.

Building society groups

19.16

G

If BIPRU TP 18 (Large exposures: Exemptions for intra-group exposures for building societies) applies on a consolidated basis to a non-EEA sub-group under this section there are two limits. Firstly the total amount of the exposures of the non-EEA sub-group to any single subsidiary undertaking in the UK consolidation group of which the non-EEA sub-group forms part or any sub-group of such subsidiary undertakings should not exceed 20% of the consolidated capital resources of the non-EEA sub-group. Secondly the total amount of the exposures of members of the non-EEA sub-group to subsidiary undertakings of the parent building society who are not part of the UK consolidation group should not exceed 20% of the consolidated capital resources of the non-EEA sub-group.

19.17

G

If BIPRU TP 18 (Large exposures: Exemptions for intra-group exposures for building societies) applies on a consolidated basis to a UK consolidation group under this section the total amount of the exposures of the UK consolidation group to subsidiary undertakings of the parent building society who are not part of the UK consolidation group should not exceed 20% of the consolidated capital resources of the UK consolidation group. exposures within the UK consolidation group are eliminated on consolidation in the usual way.

19.18

G

The consolidated 25% exposure limit in BIPRU 8.9 (Consolidated concentration risk requirements) does not apply to subsidiary undertakings of the parent building society where the treatment described in BIPRU TP 19.16G or BIPRU TP 19.17G applies.

Notification

19.19

R

BIPRU TP 17.18R to BIPRU TP 17.22R (Notification) apply to this section as they do to BIPRU TP 17. The notice referred to in BIPRU TP 17.18R must state what kind of group listed in BIPRU TP 1.7R (Classification of groups for certain consolidation rules) the firm belongs to rather than what category the firm falls into.