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GENPRU 3.1 Application

GENPRU 3.1.1RRP

1

  1. (1)

    Unless otherwise stated,8 GENPRU 3.1 applies to every firm that is a member of a financial conglomerate other than:

    1. (a)

      an incoming EEA firm;

    2. (b)

      an incoming Treaty firm;

    3. (c)

      a UCITS qualifier;

    4. (d)

      an ICVC;8

    5. (e)

      a bank;8

    6. (f)

      a designated investment firm; and8

    7. (g)

      an insurer.8

  2. (1A)

    GENPRU 3.1 (except GENPRU 3.1.5R to GENPRU 3.1.13G) applies to each of the following firms that is a member of a financial conglomerate:8

    1. (a)

      a bank;8

    2. (b)

      a designated investment firm; and8

    3. (c)

      an insurer that is a “UK Solvency II firm” as defined in the PRA Rulebook: Glossary.8

  3. (2)

    GENPRU 3.1 does not apply to a firm with respect to a financial conglomerate of which it is a member if the interest of the financial conglomerate in that firm is no more than a participation.

  4. (3)

    GENPRU 3.1.25 R (Capital adequacy requirements: high level requirement), and GENPRU 3.1.35 R (Risk concentration and intra group transactions: the main rule) do not apply with respect to a third-country financial conglomerate.

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Purpose

GENPRU 3.1.2G

GENPRU 3.1 implements the Financial Groups Directive. However, material on the following topics is to be found elsewhere in the Handbook as follows:

  1. (1)

    further material on third-country financial conglomerates can be found in GENPRU 3.2;

  2. (2)

    SUP 15.9 contains notification rules for members of financial conglomerates;

  3. (3)

    material on reporting obligations can be found in SUP 16.12.32 R and SUP 16.12.33 R2; and

    2
  4. (4)

    material on systems and controls in financial conglomerates can be found in SYSC 12.

Introduction: identifying a financial conglomerate

GENPRU 3.1.3GRP

  1. (1)

    In general the process in (2) to (8) applies for identifying financial conglomerates.

  2. (2)

    Competent authorities that have authorised regulated entities should try to identify any consolidation group that is a financial conglomerate. If a competent authority is of the opinion that a regulated entity authorised by that competent authority is a member of a consolidation group which may be a financial conglomerate it should communicate its view to the other competent authorities concerned.

  3. (3)

    A competent authority may start (as described in (2)) the process of deciding whether a group is a financial conglomerate even if it would not be the coordinator.

  4. (4)

    A member of a group may also start that process by notifying one of the competent authorities that have authorised group members that its group may be a financial conglomerate, for example by notification under SUP 15.9.

  5. (5)

    If a group member gives a notification in accordance with (4), that does not automatically mean that the group should be treated as a financial conglomerate. The process described in (6) to (9) still applies.

  6. (6)

    The competent authority that would be coordinator will take the lead in establishing whether a group is a financial conglomerate once the process has been started as described in (2) and (3).

  7. (7)

    The process of establishing whether a group is a financial conglomerate will normally involve discussions between the financial conglomerate and the competent authorities concerned.

  8. (8)

    A financial conglomerate should be notified by its coordinator that it has been identified as a financial conglomerate and of the appointment of the coordinator. The notification should be given to the parent undertaking at the head of the group or, in the absence of a parent undertaking, the regulated entity with the largest balance sheet total in the most important financial sector. That notification does not of itself make a group into a financial conglomerate; whether or not a group is a financial conglomerate is governed by the definition of financial conglomerate as set out in GENPRU 3.1.

  9. (9)

    GENPRU 3 Annex 3 is a questionnaire (together with its explanatory notes) that the FCA8 asks groups that may be financial conglomerates to fill out in order to decide whether or not they are.

  10. (10)

    If a mixed financial holding company is subject to equivalent provisions under the EEA prudential sectoral legislation in relation to the banking and investment services sector8 and under GENPRU 3 (Cross sector groups) and the FCA8 is the coordinator, the FCA8 may, on application by a firm and after consulting other competent authorities responsible for the supervision of subsidiaries, disapply such provisions of the EEA prudential sectoral legislation in relation to the banking and investment services sector8 with regard to the mixed financial holding company and apply only the relevant provisions of GENPRU 3 to the mixed financial holding company.5

GENPRU 3.1.3AGRP

6If a mixed financial holding company is subject to equivalent provisions under this Chapter and under EEA prudential sectoral legislation in relation to the insurance sector as implemented in the United Kingdom and the FCA is the coordinator, the FCA may, on application by the firm and after consulting other relevant competent authorities, disapply such provisions of the EEA prudential sectoral legislation as implemented in the United Kingdom with regard to that undertaking which are considered by the FCA as equivalent to those applying to the firm under GENPRU 3.1.

[Note: article 120(2) of CRD]

Introduction: The role of other competent authorities

GENPRU 3.1.4GRP

A lead supervisor (called the coordinator) is appointed for each financial conglomerate. Article 10 of the Financial Groups Directive describes the criteria for deciding which competent authority is appointed as coordinator. Article 11 of the Financial Groups Directive sets out the tasks of the coordinator.

Definition of financial conglomerate: basic definition

GENPRU 3.1.5RRP

A financial conglomerate means a consolidation group that is identified as a financial conglomerate in accordance with the decision tree in GENPRU 3 Annex 4.

Definition of financial conglomerate: sub-groups

GENPRU 3.1.6RRP

A consolidation group is not prevented from being a financial conglomerate because it is part of a wider:

  1. (1)

    consolidation group; or

  2. (2)

    financial conglomerate; or

  3. (3)

    group of persons linked in some other way.

Definition of financial conglomerate: the financial sectors: general

GENPRU 3.1.7RRP

For the purpose of the definition of financial conglomerate, there are two financial sectors as follows:

  1. (1)

    the banking sector and the investment services sector, taken together; and

  2. (2)

    the insurance sector.

GENPRU 3.1.8RRP

  1. (1)

    This rule applies for the purpose of the definition of financial conglomerate and the financial conglomerate definition decision tree.

  2. (1A)

    In determining the investment services sector for the purpose of identifying a financial conglomerate in the boxes entitled Threshold Test 1, Threshold Test 2 and Threshold Test 3 in the financial conglomerate definition decision tree, any investment firm that does not fall within the definition of article 4(1)(2) of the EU CRR is excluded. 8

  3. (2)

    Any mixed financial holding company is considered to be outside the overall financial sector for the purpose of the tests set out in the boxes titled Threshold Test 1, Threshold Test 2 and Threshold Test 3 in the financial conglomerate definition decision tree.

  4. (3)

    Determining whether the tests set out in the boxes titled Threshold Test 2 and Threshold Test 3 in the financial conglomerate definition decision tree are passed is based on considering the consolidated and/or aggregated activities of the members of the consolidation group within the insurance sector and the consolidated and/or aggregated activities of the members of the consolidation group within the banking sector and the investment services sector.

Definition of financial conglomerate: adjustment of the percentages

GENPRU 3.1.9RRP

Once a financial conglomerate has become a financial conglomerate and subject to supervision in accordance with the Financial Groups Directive, the figures in the financial conglomerate definition decision tree are altered as follows:

  1. (1)

    the figure of 40% in the box titled Threshold Test 1 is replaced by 35%;

  2. (2)

    the figure of 10% in the box titled Threshold Test 2 is replaced by 8%; and

  3. (3)

    the figure of six billion Euro in the box titled Threshold Test 3 is replaced by five billion Euro.

GENPRU 3.1.10RRP

The alteration in GENPRU 3.1.9 R only applies to a financial conglomerate during the period that:

  1. (1)

    begins when the financial conglomerate would otherwise have stopped being a financial conglomerate because it does not meet one of the unaltered thresholds referred to in GENPRU 3.1.9 R; and

  2. (2)

    covers the three years following that date.

Definition of financial conglomerate: balance sheet totals

GENPRU 3.1.11RRP

The calculations referred to in the financial conglomerate definition decision tree regarding the balance sheet must be made on the basis of the aggregated balance sheet total of the members of the consolidation group, according to their annual accounts. For the purposes of this calculation, undertakings in which a participation is held must be taken into account as regards the amount of their balance sheet total corresponding to the aggregated proportional share held by the consolidation group. However, where consolidated accounts are available, they must be used instead of aggregated accounts.

Definition of financial conglomerate: solvency requirement

GENPRU 3.1.12RRP

The solvency and capital adequacy requirements referred to in the financial conglomerate definition decision tree must be calculated in accordance with the provisions of the relevant sectoral rules.

Definition of financial conglomerate: discretionary changes to the definition

GENPRU 3.1.13GRP

Articles 3(3) to 3(6), Article 5(4) and Article 6(5) of the Financial Groups Directive allow competent authorities, on a case by case basis, to:

  1. (1)

    change the definition of financial conglomerate and the obligations applying with respect to a financial conglomerate (which would include, where the appropriate regulator would be the coordinator under GENPRU 3.1.3G (6), permitting firms to apply, on an annual basis and subject to publication and notification to the relevant competent authorities, for a group of which it is a member not to be regarded as a financial conglomerate on the basis of Article 3(3) of the Financial Groups Directive (for a group that, in terms of the tests in GENPRU 3 Annex 4, does not meet Threshold Test 2 but meets Threshold Test 3) or Article 3(3a) of the Financial Groups Directive (for a group that, in terms of the tests in GENPRU 3 Annex 4, meets Threshold Test 2 but not Threshold Test 3)5;

  2. (2)

    apply the scheme in the Financial Groups Directive to EEA regulated entities in specified kinds of group structures that do not come within the definition of financial conglomerate; and

  3. (3)

    exclude a particular entity in the scope of capital adequacy requirements that apply with respect to a financial conglomerate.

Capital adequacy requirements: introduction

GENPRU 3.1.14GRP

The capital adequacy provisions of GENPRU 3.1 are designed to be applied to EEA-based financial conglomerates.

GENPRU 3.1.15GRP

GENPRU 3.1.25 R is a high level capital adequacy rule. It applies whether or not the FCA8 is the coordinator of the financial conglomerate concerned.

GENPRU 3.1.16GRP

4GENPRU 3.1.29 R4 to GENPRU 3.1.31 R and GENPRU 3 Annex 1 implement the detailed capital adequacy requirements of the Financial Groups Directive. They only deal with a financial conglomerate for which the FCA8 is the coordinator. If another competent authority is coordinator of a financial conglomerate, those rules do not apply with respect to that financial conglomerate and instead that coordinator will be responsible for implementing those detailed requirements.

GENPRU 3.1.17GRP

Annex I of the Financial Groups Directive lays down three5 methods for calculating capital adequacy at the level of a financial conglomerate. Those three5 methods are implemented as follows:

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  1. (1)

    Method 1 calculates capital adequacy using accounting consolidation. It is implemented by GENPRU 3.1.29 R to GENPRU 3.1.31 R and Part 1 of GENPRU 3 Annex 1.

  2. (2)

    Method 2 calculates capital adequacy using a deduction and aggregation approach. It is implemented by GENPRU 3.1.29 R to GENPRU 3.1.31 R and Part 2 of GENPRU 3 Annex 1.

  3. (3)

    [deleted]5

    5
  4. (4)

    Method 35 consists of a combination of Methods 1 and 25 from Annex I of the Financial Groups Directive and would be implemented by means of a requirement.5

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GENPRU 3.1.18G

[deleted]5

GENPRU 3.1.19GRP

Paragraph 5.7 of GENPRU 3 Annex 1 (Capital adequacy calculations for financial conglomerates) deals with a case in which there are no capital ties between entities in a financial conglomerate. In particular, the FCA8 , after consultation with the other relevant competent authorities and in accordance with Annex I of the Financial Groups Directive, will determine which proportional share of a solvency deficit in such an entity will have to be taken into account, bearing in mind the liability to which the existing relationship gives rise.

GENPRU 3.1.20G

  1. (1)

    [deleted]5

    5
  2. (2)

    [deleted]5

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GENPRU 3.1.21GRP

The5 Annex I method to be applied may be5 decided by the coordinator after consultation with the relevant competent authorities and the financial conglomerate itself. Where the FCA8 acts as coordinator, the financial conglomerate itself may choose which of Method 1 or Method 2 from Annex I it will apply, unless the firm is subject to a requirement obliging the firm to apply a particular method.5

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GENPRU 3.1.22G

[deleted]5

5
GENPRU 3.1.23G

[deleted]5

5
GENPRU 3.1.24G

[deleted]5

5

Capital adequacy requirements: high level requirement

GENPRU 3.1.25RRP

  1. (1)

    A firm that is a member of a financial conglomerate must at all times have capital resources of such an amount and type that results in the capital resources of the financial conglomerate taken as a whole being adequate.

  2. (2)

    This rule does not apply with respect to any financial conglomerate until notification has been made that it has been identified as a financial conglomerate as contemplated by Article 4(2) of the Financial Groups Directive.

GENPRU 3.1.26R

[deleted]5

GENPRU 3.1.27R

[deleted]5

GENPRU 3.1.28R

  1. (1)

    [deleted]5

    5
  2. (2)

    [deleted]5

    5

Capital adequacy requirements: application of Method 1 or 2 from Annex I of the Financial Groups Directive5

GENPRU 3.1.29RRP

If,5 with respect to a firm and a financial conglomerate of which it is a member, this rule applies under GENPRU 3.1.29A R5 to the firm with respect to that financial conglomerate as described in GENPRU 3.1.30 R, the firm must at all times have capital resources of an amount and type that ensures that the conglomerate capital resources of that financial conglomerate at all times equal or exceed its conglomerate capital resources requirement.

5
GENPRU 3.1.29ARRP

5GENPRU 3.1.29 R applies to a firm with respect to the financial conglomerate of which it is a member if notification has been made in accordance with regulation 2 of the Financial Groups Directive Regulations that the financial conglomerate is a financial conglomerate and that the FCA8 is coordinator of that financial conglomerate.

Capital adequacy requirements: use of requirement to apply Annex I of the Financial Groups Directive5

GENPRU 3.1.30RRP

If GENPRU 3.1.29 R (application of Method 1 or 2 from Annex I of the Financial Groups Directive) applies to a firm with respect to the financial conglomerate of which it is a member, then with respect to the firm and the financial conglomerate:

5
  1. (1)

    the definitions of conglomerate capital resources and conglomerate capital resources requirement that apply for the purposes of that rule are the ones from whichever of Part 1 or Part 2 of GENPRU 3 Annex 1 the firm has indicated to the FCA8 it will apply, unless the firm is subject to a requirement obliging the firm to apply a specific part of GENPRU 3 Annex 1, in which case GENPRU 3.1.31 R will apply; and5

    5
  2. (2)

    the firm must indicate to the FCA8 in advance which Part of GENPRU 3 Annex 1 the firm intends to apply.5

    5
5
GENPRU 3.1.31RRP

If GENPRU 3.1.29 R (application of Method 1 or 25 from Annex I of the Financial Groups Directive) applies to a firm with respect to a financial conglomerate of which it is a member, and the firm is subject to a requirement obliging the firm to apply a specific part of GENPRU 3 Annex 1,5 the definitions of conglomerate capital resources and conglomerate capital resources requirement that apply for the purposes of that rule are the ones from whichever of Part 1 or5 Part 2 of GENPRU 3 Annex 1 is specified in the requirement.

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Risk concentration and intra-group transactions: introduction

GENPRU 3.1.32GRP

GENPRU 3.1.35 R implements Article 7(4) and Article 8(4) of the Financial Groups Directive, which provide that where a financial conglomerate is headed by a mixed financial holding company, the sectoral rules regarding risk concentration and intra-group transactions of the most important financial sector in the financial conglomerate, if any, shall apply to that sector as a whole, including the mixed financial holding company.

GENPRU 3.1.33GRP

Articles 7(3) (Risk concentration) and 8(3) (Intra-group transactions) and Annex II (Technical application of the provisions on intra-group transactions and risk concentration) of the Financial Groups Directive say that Member States may apply at the level of the financial conglomerate the provisions of the sectoral rules on risk concentrations and intra-group transactions. GENPRU 3.1 does not take up that option, although the FCA8 may impose such obligations on a case by case basis.

Risk concentration and intra-group transactions: application

GENPRU 3.1.34RRP

GENPRU 3.1.35 R applies to a firm with respect to a financial conglomerate of which it is a member if:

  1. (1)

    the condition in Articles 7(4) and 8(4) of the Financial Groups Directive is satisfied (the financial conglomerate is headed by a mixed financial holding company); and

  2. (2)

    that financial conglomerate is a UK regulated EEA financial conglomerate.9

    9

Risk concentration and intra group transactions: the main rule

GENPRU 3.1.35RRP

A firm must ensure that the sectoral rules regarding risk concentration and intra-group transactions of the most important financial sector in the financial conglomerate referred to in GENPRU 3.1.34 R are complied with with respect to that financial sector as a whole, including the mixed financial holding company. The sectoral rules for these purposes are those identified in the table in GENPRU 3.1.36 R.

4

Risk concentration and intra-group transactions: Table of applicable sectoral rules

GENPRU 3.1.36RRP

Table: application of sectoral rules

This table belongs to GENPRU 3.1.35 R

The most important financial sector

Applicable sectoral rules

Risk concentration

Intra-group transactions

Banking and investment services sector

4the EU CRR

344

4Part Four of the EU CRR

4344

Insurance sector

PRA Rulebook7: Solvency II Firms Group Supervision 16.18

7

PRA Rulebook: Solvency II Firms: Groups: 16.28

7

Note

Any waiver, approval or permission8 granted to a member of the financial conglomerate, on a solo (or individual for the purposes of the EU CRR)8 or consolidated basis, shall not apply in respect of the financial conglomerate for the purposes of GENPRU 3.1.36 R. For this purpose, “permission” refers to a consent, approval or agreement conferred on the appropriate regulator as competent authority under the EU CRR.8

GENPRU 3.1.37R

[deleted]8

GENPRU 3.1.38R

  1. (1) 4

    [deleted]4

    4
  2. (2)

    [deleted]4

    434444344
  3. (3)

    [deleted]3

    3
  4. (4)

    [deleted]3

    3

The financial sectors: asset management companies and alternative investment fund managers5

GENPRU 3.1.39RRP

  1. (1)

    In accordance with Articles5 30 and 30a5 of the Financial Groups Directive (Asset management companies and Alternative investment fund managers5), this rule deals with the inclusion of an asset management company or an alternative investment fund manager5 that is a member of a financial conglomerate in the scope of regulation of financial conglomerates.

    55
  2. (2)

    An asset management company or an alternative investment fund manager5 is in the overall financial sector and is a regulated entity for the purpose of:

    1. (a)

      5GENPRU 3.1.29 R5 to GENPRU 3.1.36 R;

    2. (b)

      GENPRU 3 Annex 1 (Capital adequacy calculations for financial conglomerates) and GENPRU 3 Annex 2 (Prudential rules for third country groups); and

    3. (c)

      any other provision of the Handbook8 relating to the supervision of financial conglomerates.

      4
  3. (3)

    In the case of a financial conglomerate for which the FCA8 is the coordinator, all asset management companies and all alternative investment fund managers5 must be allocated to one financial sector to which they belong5 for the purposes in (2), being either the investment services sector or the insurance sector. But if that choice has not been made in accordance with (4) and notified to the FCA8 in accordance with (4)(d), an asset management company or an alternative investment fund manager5 must be allocated to the smallest financial sector.5

    5
  4. (4)

    The choice in (3):

    1. (a)

      must be made by the undertaking in the financial conglomerate holding the position referred to in Article 4(2) of the Financial Groups Directive (group member to whom notice must be given that the group has been found to be a financial conglomerate);

    2. (b)

      applies to all asset management companies and all alternative investment fund managers5 that are members of the financial conglomerate from time to time;

    3. (c)

      cannot be changed; and

    4. (d)

      must be notified to the FCA8 as soon as reasonably practicable after the notification in (4)(a).

  5. (5)

    This rule applies even if:

    1. (a)

      a UCITS management company is an IFPRU investment firm4; or

      4
    2. (b)

      an asset management company 4 or alternative investment fund manager is an investment firm.