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GENPRU 3.1 Application

GENPRU 3.1.1 R RP

1

  1. (1)

    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; and

    4. (d)

      an ICVC.

  2. (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.

  3. (3)

    GENPRU 3.1.25 R (Capital adequacy requirements: high level requirement), GENPRU 3.1.26 R (Capital adequacy requirements: application of Method 4 from Annex I of the Financial Groups Directive), GENPRU 3.1.29 R (Capital adequacy requirements: application of Methods 1, 2 or 3 from Annex I of the Financial Groups Directive) 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.

Purpose

GENPRU 3.1.2 G

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 3.1.3 G RP

  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 FSA asks groups that may be financial conglomerates to fill out in order to decide whether or not they are.

Introduction: The role of other competent authorities

GENPRU 3.1.4 G RP

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 3.1.5 R RP

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 3.1.6 R RP

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 3.1.7 R RP

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 3.1.8 R RP

  1. (1)

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

  2. (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.

  3. (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 3.1.9 R RP

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 3.1.10 R RP

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 3.1.11 R RP

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 3.1.12 R RP

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 3.1.13 G RP

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;

  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 3.1.14 G RP

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

GENPRU 3.1.15 G RP

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

GENPRU 3.1.16 G RP

GENPRU 3.1.26 R 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 FSA 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 3.1.17 G RP

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

  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)

    Method 3 calculates capital adequacy using book values and the deduction of capital requirements. It is implemented by GENPRU 3.1.29 R to GENPRU 3.1.31 R and Part 3 of GENPRU 3 Annex 1

  4. (4)

    Method 4 consists of a combination of Methods 1, 2 and 3 from Annex I of the Financial Groups Directive, or a combination of two of those Methods. It is implemented by GENPRU 3.1.26 R to GENPRU 3.1.28 R, GENPRU 3.1.30 R and Part 4 of GENPRU 3 Annex 1.

GENPRU 3.1.18 G

Part 4 of GENPRU 3 Annex 1 (Use of Method 4 from Annex I of the Financial Groups Directive) applies the FSA'ssectoral rules with respect to the financial conglomerate as a whole, with some adjustments. Where Part 4 of GENPRU 3 Annex 1 applies the FSA'ssectoral rules for:

  1. (1)

    the insurance sector, that involves a combination of Methods 2 and 3; and

  2. (2)

    the banking sector and the investment services sector, that involves a combination of Methods 1 and 3.

GENPRU 3.1.19 G RP

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 FSA, 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 3.1.20 G

  1. (1)

    In the following cases, the FSA (acting as coordinator) may choose which of the four methods for calculating capital adequacy laid down in Annex I of the Financial Groups Directive should apply:

    1. (a)

      where a financial conglomerate is headed by a regulated entity that has been authorised by the FSA; or

    2. (b)

      the only relevant competent authority for the financial conglomerate is the FSA.

  2. (2)

    GENPRU 3.1.28 R automatically applies Method 4 from Annex I of the Financial Groups Directive in these circumstances except in the cases set out in GENPRU 3.1.28R (1)(e) and GENPRU 3.1.28R (1)(f). The process in GENPRU 3.1.22 G does not apply.

GENPRU 3.1.21 G RP

Where GENPRU 3.1.20 G does not apply, the Annex I method to be applied isdecided by the coordinator after consultation with the relevant competent authorities and the financial conglomerate itself.

GENPRU 3.1.22 G

The method of calculating capital adequacy chosen in respect of a financial conglomerate as described in GENPRU 3.1.21 G will be applied with respect to that financial conglomerate by varying the Part IV permission of a firm in that financial conglomerate to include a requirement. That requirement will have the effect of obliging the firm to ensure that the financial conglomerate has capital resources of the type and amount needed to comply with whichever of the methods in GENPRU 3 Annex 1 is to be applied with respect to that financial conglomerate. The powers in the Act relating to waivers and varying a firm'sPart IV permission can be used to implement one of the methods from Annex I of the Financial Groups Directive in a way that is different from that set out in GENPRU 3.1 and GENPRU 3 Annex 1 if that is necessary to reflect the consultations referred to in GENPRU 3.1.21 G.

GENPRU 3.1.23 G

If there is more than one firm in a financial conglomerate with a Part IV permission, the FSA would not normally expect to apply the requirement described in GENPRU 3.1.22 G to all of them. Normally it will only be necessary to apply it to one.

GENPRU 3.1.24 G

The FSA expects that in all or most cases falling into GENPRU 3.1.21 G, the rules in Part 4 of GENPRU 3 Annex 1 will be applied.

Capital adequacy requirements: high level requirement

GENPRU 3.1.25 R RP

  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.

Capital adequacy requirements: application of Method 4 from Annex I of the Financial Groups Directive

GENPRU 3.1.26 R

If this rule applies under GENPRU 3.1.27 R to a firm with respect to a financial conglomerate of which it is a member, the firm must at all times have capital resources of an amount and type:

  1. (1)

    that ensure that the financial conglomerate has capital resources of an amount and type that comply with the rules applicable with respect to that financial conglomerate under Part 4 of GENPRU 3 Annex 1 (as modified by that annex); and

  2. (2)

    that as a result ensure that the firm complies with those rules (as so modified) with respect to that financial conglomerate.

GENPRU 3.1.27 R

GENPRU 3.1.26 R applies to a firm with respect to a financial conglomerate of which it is a member if one of the following conditions is satisfied:

  1. (1)

    the condition in GENPRU 3.1.28 R is satisfied; or

  2. (2)

    this rule is applied to the firm with respect to that financial conglomerate as described in GENPRU 3.1.30 R.

Capital adequacy requirements: compulsory application of Method 4 from Annex I of the Financial Groups Directive

GENPRU 3.1.28 R

  1. (1)

    The condition in this rule is satisfied for the purpose of GENPRU 3.1.27R (1) with respect to a firm and a financial conglomerate of which it is a member (with the result that GENPRU 3.1.26 R automatically applies to that firm) if:

    1. (a)

      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 FSA is coordinator of that financial conglomerate;

    2. (b)

      the financial conglomerate is not part of a wider FSA regulated EEA financial conglomerate;

    3. (c)

      the financial conglomerate is not an FSA regulated EEA financial conglomerate under another rule or under paragraph (b) of the definition of FSA regulated EEA financial conglomerate (application of supplementary supervision through a firm'sPart IV permission);

    4. (d)

      one of the following conditions is satisfied:

      1. (i)

        the financial conglomerate is headed by a regulated entity that is a UK domestic firm; or

      2. (ii)

        the only relevant competent authority for that financial conglomerate is the FSA;

    5. (e)

      this rule is not disapplied under paragraph 5.7 of GENPRU 3 Annex 1 (No capital ties); and

    6. (f)

      the financial conglomerate meets the condition set out in the box titled Threshold Test 2 (10% average of balance sheet and solvency requirements) in the financial conglomerate definition decision tree.

  2. (2)

    Once GENPRU 3.1.26 R applies to a firm with respect to a financial conglomerate of which it is a member under GENPRU 3.1.27R (1), (1)(f) ceases to apply with respect to that financial conglomerate. Therefore the fact that the financial conglomerate subsequently ceases to meet the condition in (1)(f) does not mean that the condition in this rule is not satisfied.

Capital adequacy requirements: application of Methods 1, 2 or 3 from Annex I of the Financial Groups Directive

GENPRU 3.1.29 R RP

If with respect to a firm and a financial conglomerate of which it is a member, this rule is applied 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.

Capital adequacy requirements: use of Part IV permission to apply Annex I of the Financial Groups Directive

GENPRU 3.1.30 R RP

With respect to a firm and a financial conglomerate of which it is a member:

  1. (1)

    GENPRU 3.1.26 R (Method 4 from Annex I of the Financial Groups Directive) is applied to the firm with respect to that financial conglomerate for the purposes of GENPRU 3.1.27R (2); or

  2. (2)

    GENPRU 3.1.29 R (Methods 1 to 3 from Annex I of the Financial Groups Directive) is applied to the firm with respect to that financial conglomerate;

if the firm'sPart IV permission contains a requirement obliging the firm to comply with GENPRU 3.1.26 R or, as the case may be, GENPRU 3.1.29 R.

GENPRU 3.1.31 R RP

If GENPRU 3.1.29 R (Methods 1-3 from Annex I of the Financial Groups Directive) applies to a firm with respect to a financial conglomerate of which it is a member, 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, Part 2 or Part 3 of GENPRU 3 Annex 1 is specified in the requirement referred to in GENPRU 3.1.30 R.

Risk concentration and intra-group transactions: introduction

GENPRU 3.1.32 G RP

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 3.1.33 G RP

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 FSA may impose such obligations on a case by case basis.

Risk concentration and intra-group transactions: application

GENPRU 3.1.34 R RP

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 an FSA regulated EEA financial conglomerate.

Risk concentration and intra group transactions: the main rule

GENPRU 3.1.35 R RP

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 FSA'ssectoral rules for these purposes are those identified in the table in GENPRU 3.1.36 R.

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

GENPRU 3.1.36 R RP

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

3 BIPRU 8.9A (Consolidated large exposure3 requirements) including BIPRU TP as it applies to a UK consolidation group.

3

BIPRU 10 (Large exposures requirements)3 including BIPRU TP as it applies on a solo basis and relates to BIPRU 10.

3

Insurance sector

None

Rule 9.39 of IPRU(INS)

Note

Any waiver granted to a member of the financial conglomerate, on a solo or consolidated basis, shall not apply in respect of the financial conglomerate for the purposes of GENPRU 3.1.36 R.

GENPRU 3.1.37 R

  1. (1)

    Where the rules for the banking and investment services sector are being applied, a mixed financial holding company must be treated as being a financial holding company.

  2. (2)

    Where the rules for the insurance sector are being applied, a mixed financial holding company must be treated as being an insurance holding company.

GENPRU 3.1.38 R

  1. (1)

    This rule applies for the purposes of the definitions of:

    1. (a)

      a core concentration risk group counterparty;3 and

    2. (b)

      a non-core concentration risk group counterparty;3

      3

    as they apply for the purposes of the rules for the banking and investment services sector as applied by GENPRU 3.1.36 R.

  2. (2)

    For the purposes of BIPRU 10.9A.4 R (1) and BIPRU 10.9A.4 R (2)3 (as they apply to the definitions 3in GENPRU 3.1.38R (1))3, the conditions are also satisfied if the counterparty and the firm are included within the scope of consolidated supervision on a full basis with respect to the same financial conglomerate under GENPRU 3.1 or the relevant implementation measures in another EEA State for the Financial Groups Directive.

    33
  3. (3)

    [deleted]3

    3
  4. (4)

    [deleted]3

    3

The financial sectors: asset management companies

GENPRU 3.1.39 R RP

  1. (1)

    In accordance with Article 30 of the Financial Groups Directive (Asset management companies), this rule deals with the inclusion of an asset management company that is a member of a financial conglomerate in the scope of regulation of financial conglomerates. This rule does not apply to the definition of financial conglomerate.

  2. (2)

    An asset management company is in the overall financial sector and is a regulated entity for the purpose of:

    1. (a)

      GENPRU 3.1.26 R 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 Handbook relating to the supervision of financial conglomerates.

  3. (3)

    In the case of a financial conglomerate for which the FSA is the coordinator, all asset management companies must be allocated to one financial sector 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 FSA in accordance with (4)(d), an asset management company must be allocated to the investment services sector.

  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 that are members of the financial conglomerate from time to time;

    3. (c)

      cannot be changed; and

    4. (d)

      must be notified to the FSA 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 a BIPRU investment firm; or

    2. (b)

      an asset management company is an investment firm.

GENPRU 3.2 Third-country groups

Application

GENPRU 3.2.1 R RP

GENPRU 3.2 applies to every firm that is a member of a third-country group. But it does not apply to:

  1. (1)

    an incoming EEA firm; or

  2. (2)

    an incoming Treaty firm; or

  3. (3)

    a UCITS qualifier; or

  4. (4)

    an ICVC.

Purpose

GENPRU 3.2.2 G RP

GENPRU 3.2 implements in part Article 18 of the Financial Groups Directive, Article 143 of the Banking Consolidation Directive.

Equivalence

GENPRU 3.2.3 G RP

The first question that must be asked about a third-country financial group is whether the EEA regulated entities in that third-country group are subject to supervision by a third-country competent authority, which is equivalent to that provided for by the Financial Groups Directive (in the case of a financial conglomerate) or the EEA prudential sectoral legislation for the banking sector or the investment services sector (in the case of a banking and investment group). Article 18(1) of the Financial Groups Directive sets out the process for establishing equivalence with respect to third-country financial conglomerates and Article143 (1) and (2) of the Banking Consolidation Directive does so with respect to third-country banking and investment groups.

Other methods: General

GENPRU 3.2.4 G RP

If the supervision of a third-country group by a third-country competent authority does not meet the equivalence test referred to in GENPRU 3.2.3 G, competent authorities may apply other methods that ensure appropriate supervision of the EEA regulated entities in that third-country group in accordance with the aims of supplementary supervision under the Financial Groups Directive or consolidated supervision under the applicable EEA prudential sectoral legislation.

Supervision by analogy: introduction

GENPRU 3.2.5 G RP

If the supervision of a third-country group by a third-country competent authority does not meet the equivalence test referred to in GENPRU 3.2.3 G, a competent authority may, rather than take the measures described in GENPRU 3.2.4 G, apply, by analogy, the provisions concerning supplementary supervision under the Financial Groups Directive or, as applicable, consolidated supervision under the applicable EEA prudential sectoral legislation, to the EEA regulated entities in the banking sector, investment services sector and (in the case of a financial conglomerate ) insurance sector.

GENPRU 3.2.6 G RP

The FSA believes that it will only be right to adopt the option in GENPRU 3.2.5 G in response to very unusual group structures.

GENPRU 3.2.7 G

GENPRU 3.2.8 R and GENPRU 3.2.9 R and GENPRU 3 Annex 2 set out rules to deal with the situation covered in GENPRU 3.2.5 G. Those rules do not apply automatically. Instead, they can only be applied with respect to a particular third-country group through the Part IV permission of a in that third-country group. Broadly speaking the procedure described in GENPRU 3.1.22 G also applies to this process.firm

Supervision by analogy: rules for third-country conglomerates

GENPRU 3.2.8 R RP

If the Part IV permission of a firm contains a requirement obliging it to comply with this rule with respect to a third-country financial conglomerate of which it is a member, it must comply, with respect to that third-country financial conglomerate, with the rules in Part 1 of GENPRU 3 Annex 2, as adjusted by Part 3 of that annex.

Supervision by analogy: rules for third-country banking and investment groups

GENPRU 3.2.9 R RP

If the Part IV permission of a firm contains a requirement obliging it to comply with this rule with respect to a third-country banking and investment group of which it is a member, it must comply, with respect to that third-country banking and investment group, with the rules in Part 2 of GENPRU 3 Annex 2, as adjusted by Part 3 of that annex.

GENPRU 3 Annex 1 Capital adequacy calculations for financial conglomerates (GENPRU 3.1.26R and GENPRU 3.1.29R)

1 Table: PART 1: Method of Annex I of the Financial Groups Directive (Accounting Consolidation Method)

Capital resources

1.1

The conglomerate capital resources of a financial conglomerate calculated in accordance with this Part are the capital of that financial conglomerate, calculated on an accounting consolidation basis, that qualifies under paragraph 1.2.

1.2

The elements of capital that qualify for the purposes of paragraph 1.1 are those that qualify in accordance with the applicable sectoral rules, in accordance with the following:

(1)

the conglomerate capital resources requirement is divided up in accordance with the contribution of each financial sector to it; and

(2)

the portion of the conglomerate capital resources requirement attributable to a particular financial sector must be met by capital resources that are eligible in accordance with the applicable sectoral rules for that financial sector.

Capital resources requirement

1.3

The conglomerate capital resources requirement of a financial conglomerate calculated in accordance with this Part is equal to the sum of the capital adequacy and solvency requirements for each financial sector calculated in accordance with the applicable sectoral rules for that financial sector.

Consolidation

1.4

The information required for the purpose of establishing whether or not a firm is complying with GENPRU 3.1.29 R (insofar as the definitions in this Part are applied for the purpose of that rule) must be based on the consolidated accounts of the financial conglomerate, together with such other sources of information as appropriate.

1.5

The applicable sectoral rules that are applied under this Part are the applicable sectoral consolidation rules. Other applicable sectoral rules must be applied if required.

2 Table: PART 2: Method 2 of Annex I of the Financial Groups Directive(Deduction and aggregation Method)

Capital resources

2.1

The conglomerate capital resources of a financial conglomerate calculated in accordance with this Part are equal to the sum of the following amounts (so far as they qualify under paragraph 2.3) for each member of the overall financial sector:

(1) (for the person at the head of the financial conglomerate) its solo capital resources;

(2) (for any other member):

(a) its solo capital resources; less

(b) the book value of the financial conglomerate's investment in that member, to the extent not already deducted in the calculation of the solo capital resources for:1

(i) the person at the head of the financial conglomerate; or 1

(ii) any other member.1

2.2

The deduction in paragraph 2.1(2) must be carried out separately for each type of capital represented by the financial conglomerate's investment in the member concerned.

2.3

The elements of capital that qualify for the purposes of paragraph 2.1 are those that qualify in accordance with the applicable sectoral rules. In particular, the portion of the conglomerate capital resources requirement attributable to a particular member of a financial sector must be met by capital resources that would be eligible under the sectoral rules that apply to the calculation of its solo capital resources.

Capital resources requirement

2.4

The conglomerate capital resources requirement of a financial conglomerate calculated in accordance with this Part is equal to the sum of the solo capital resources requirement for each member of the financial conglomerate that is in the overall financial sector.

Partial inclusion

2.5

The capital resources and capital resources requirements of a member of the financial conglomerate in the overall financial sector must be included proportionally. If however the member is a subsidiary undertaking and it has a solvency deficit, they must be included in full.

Accounts

2.6

The information required for the purpose of establishing whether or not a firm is complying with GENPRU 3.1.29 R (insofar as the definitions in this Part are applied for the purpose of that rule) must be based on the individual accounts of members of the financial conglomerate, together with such other sources of information as appropriate.

3. Table: PART 3: Method 3 of Annex I of the Financial Groups Directive(Book value/Requirement Method)

Capital resources

3.1

The conglomerate capital resources of a financial conglomerate calculated in accordance with this Part are equal to the capital resources of the person at the head of the financial conglomerate that qualify under paragraph 3.2.

3.2

The elements of capital that qualify for the purposes of paragraph 3.1 are those that qualify in accordance with the applicable sectoral rules. In particular, the portion of the conglomerate capital resources requirement attributable to a particular member of a financial sector must be met by capital resources that would be eligible under the sectoral rules that apply to the calculation of its solo capital resources.

Capital resources requirement

3.3

The conglomerate capital resources requirement of a financial conglomerate calculated in accordance with this Part is equal to the sum of the following amounts for each member of the overall financial sector:

3.4

A participation may be valued using the equity method of accounting.

Partial inclusion

3.5

The capital resources requirement of a member of the financial conglomerate in the overall financial sector must be included proportionally. If however the member has a solvency deficit and is a subsidiary undertaking, it must be included in full.

Accounts

3.6

The information required for the purpose of establishing whether or not a firm is complying with GENPRU 3.1.29 R (insofar as the definitions in this Part are applied for the purpose of that rule) must be based on the individual accounts of members of the financial conglomerate, together with such other sources of information as appropriate.

4 Table: PART 4: Method 4 of Annex I of the Financial Groups Directive(Combination of Methods 1, 2 and 3)

Applicable sectoral rules

4.1

The rules that apply with respect to a particular financial conglomerate under GENPRU 3.1.26 R are those relating to capital adequacy and solvency set out in the table in paragraph 4.2.

5 Table: Paragraph 4.2: Application of sectoral consolidation rules

Type of financial conglomerate

Applicable sectoral consolidation rules

Banking and investment services conglomerate

BIPRU 8 and BIPRU TP, subject to paragraph 4.5.

Insurance conglomerate

INSPRU 6.1 amended in accordance with Part 5.

6 Table

Types of financial conglomerate

4.3

(1) This paragraph sets out how to determine the category of financial conglomerate for the purposes of paragraphs 4.1 and 4.2.

(2) If there is an EEA regulated entity at the head of the financial conglomerate, then:

(a) if that entity is in the banking sector or the investment services sector, the financial conglomerate is a banking and investment services conglomerate; or

(b) if that entity is in the insurance sector, the financial conglomerate is an insurance conglomerate.

(3) If (2) does not apply and the most important financial sector is the banking and investment services sector, it is a banking and investment services conglomerate.

(4) If (2) and (3) does not apply, it is an insurance conglomerate.

7 Table

A mixed financial holding company

4.4

A mixed financial holding company must be treated in the same way as:

(1) a financial holding company (if the rules in BIPRU 8 ) are applied; or

(2) an insurance holding company (if the rules in INSPRU 6.1 are applied).2

8 Table: PART 5: Principles applicable to all methods

Transfer-ability of capital

5.1

Capital may not be included in:

(1) a firm'sconglomerate capital resources under GENPRU 3.1.29 R; or

(2) in the capital resources of the financial conglomerate for the purposes of GENPRU 3.1.26 R;

if the effectiveness of the transferability and availability of the capital across the different members of the financial conglomerate is insufficient, given the objectives (as referred to in the third unnumbered sub-paragraph of paragraph 2(ii) of Annex I of the Financial Groups Directive (Technical principles)) of the capital adequacy rules for financial conglomerates.

Double counting

5.2

Capital must not be included in:

(1) a firm'sconglomerate capital resources under GENPRU 3.1.29 R; or

(2) the capital resources of the financial conglomerate for the purposes of GENPRU 3.1.26 R;

if:

(3) it would involve double counting or multiple use of the same capital; or

(4) it results from any inappropriate intra-group creation of capital.

Cross sectoral capital

5.3

In accordance with the second sub-paragraph of paragraph 2(ii) of Section I of Annex I of the Financial Groups Directive (Other technical principles and insofar as not already required in Parts 1-3):

(1) the solvency requirements for each different financial sector represented in a financial conglomerate required by GENPRU 3.1.26 R or, as the case may be, GENPRU 3.1.29 R must be covered by own funds elements in accordance with the corresponding applicable sectoral rules; and

(2) if there is a deficit of own funds at the financial conglomerate level, only cross sectoral capital (as referred to in that sub-paragraph) shall qualify for verification of compliance with the additional solvency requirement required by GENPRU 3.1.26 R or, as the case may be, GENPRU 3.1.29 R.

Application of sectoral rules: General

5.4

The following adjustments apply to the applicable sectoral rules as they are applied by the rules in this annex.

(1) The scope of those rules will be extended to cover any mixed financial holding company and each other member of the overall financial sector.

(2) If any of those rules would otherwise not apply to a situation in which they are applied by GENPRU 3 Annex 1, those rules nevertheless still apply (and in particular, any of those rules that would otherwise have the effect of disapplying consolidated supervision(or, in the case of the insurance sector, supplementary supervision) do not apply).

(3) (If it would not otherwise have been included) an ancillary insurance services undertaking is included in the insurance sector.

(4) The scope of those rules is amended so as to remove restrictions relating to where members of the financial conglomerate are incorporated or have their head office, so that the scope covers every member of the financial conglomerate that would have been included in the scope of those rules if those members had their head offices in an EEA State.

(5) (For the purposes of Parts 1

to 3) those rules must be adjusted, if necessary, when calculating the capital resources, capital resources requirements or solvency requirements for a particular financial sector to exclude those for a member of another financial sector.

(6) Any waiver granted to a member of the financial conglomerate under those rules does not apply for the purposes of this annex.

Application of sectoral rules: Insurance sector

5.5

(1) This rule applies an adjustment to the applicable sectoral rules for the insurance sector as they are applied by the rules in this annex.

(2) To the extent that:

(a) those rules merely require a report on whether or not a specified level of solvency is met (a soft limit); or

(b) the requirements in those rules concern having certain net assets of an amount at or above certain levels;

those requirements are restated so as to include an obligation at all times actually to have capital at or above that level (a hard limit), thereby turning a soft limit into a hard limit and turning a limit drafted by reference to assets and liabilities into a requirement that the level of capital be maintained at or above a specified level. If those rules apply both a hard and a soft limit, and the level of the soft limit is higher, that soft limit is applied under this annex, but translated into a hard limit in accordance with the earlier provisions of this rule.

Application of sectoral rules: Banking sector and investment services sector

5.6

The following adjustments apply to the applicable sectoral rules for the banking sector and the investment services sector as they are applied by the rules in this annex.

(1) References in those rules to non-EEA sub-groups do not apply.

(2) (For the purposes of Parts 1 to 3), where those rules require a group to be treated as if it were a single undertaking, those rules apply to the banking sector and investment services sector taken together.

(3) Any investment firm consolidation waivers granted to members of the financial conglomerate do not apply.

(4) (For the purposes of Parts 1 to 4), without prejudice to the application of requirements in BIPRU 8 preventing the use of an advanced prudential calculation approach on a consolidated basis, any advanced prudential calculation approach permission that applies for the purpose of BIPRU 8 does not apply.

(5) (For the purposes of Parts 1 to 4), BIPRU 8.5.9 R and BIPRU 8.5.10 R do not apply.

(6) (For the purposes of Parts 1 to 4), where the financial conglomerate does not include a credit institution, the method in GENPRU 2 Annex 4 must be used for calculating the capital resources and BIPRU 8.6.8 R does not apply.

No capital ties

5.7

(1) This rule deals with a financial conglomerate in which some of the members are not linked by capital ties at the time of the notification referred to in GENPRU 3.1.28R (1) (Capital adequacy requirements: Compulsory application of Method 4 fromAnnex I of the Financial Groups Directive).

(2) If:

(a) GENPRU 3.1.26 R (Capital adequacy requirements: Application of Method 4 from Annex I of the Financial Groups Directive) would otherwise apply with respect to a financial conglomerate under GENPRU 3.1.28 R; and

(b) all members of that financial conglomerate are linked directly or indirectly with each other by capital ties except for members that collectively are of negligible interest with respect to the objectives of supplementary supervision of regulated entities in a financial conglomerate (the "peripheral members");

GENPRU 3.1.28 R continues to apply. Otherwise GENPRU 3.1.28 R does not apply with respect to a financial conglomerate falling into (1).

(3) If GENPRU 3.1.28 R applies with respect to a financial conglomerate in accordance with (2) the peripheral members must be excluded from the calculations under GENPRU 3.1.26 R.

(4) If:

(a) GENPRU 3.1.26 R applies with respect to financial conglomerate falling into (1) under GENPRU 3.1.27R (2) (Use of Part IV permission to apply Annex I of the Financial Groups Directive); or

(b) GENPRU 3.1.29 R (Capital adequacy requirements: Application of Methods 1, 2 or 3from Annex I of the Financial Groups Directive) applies with respect to a financial conglomerate falling into (1);

then:

(c) the treatment of the links in (1) (including the treatment of any solvency deficit) is as provided for in the requirement referred to in GENPRU 3.1.30 R; and

(d) GENPRU 3.1.26 R or GENPRU 3.1.29 R, as the case may be, apply even if the applicable sectoral rules do not deal with how undertakings not linked by capital ties are to be dealt with for the purposes of consolidated supervision (or, in the case of the insurance sector, supplementary supervision).

(5) Once GENPRU 3.1.26 R applies to a firm with respect to a financial conglomerate of which it is a member under GENPRU 3.1.27R (1) (automatic application of Method 4 from Annex I of the Financial Groups Directive on satisfaction of the condition in GENPRU 3.1.28 R), the disapplication of GENPRU 3.1.28 R under (2) ceases to apply with respect to that financial conglomerate.

9 Table: PART 6: Definitions used in this Annex

Defining the financial sectors

6.1

For the purposes of Parts 1 to 3 of this annex (but, not for the purposes of the definition of most important financial sector):

(1) an asset management company is allocated in accordance with GENPRU 3.1.39 R; and

(2) a mixed financial holding company must be treated as being a member of the most important financial sector.

Solo capital resources requirement: Banking sector and investment service sector

6.2

(1) The solo capital resources requirement of an undertaking in the banking sector or the investment services sector must be calculated in accordance with this rule, subject to paragraphs 6.5 and 6.6.

(2) The solo capital resources requirement of a building society is its CRR.

(3) The solo capital resources requirement of an electronic money institution is the capital resources requirement that applies to it under the Electronic Money Regulations.2

(4) If there is a credit institution in the financial conglomerate, the solo capital resources requirement for any undertaking in the banking sector or the investment services sector is, subject to (2) and (3), calculated in accordance with the rules for calculating the CRR of a bank that is a BIPRU firm.

(5) If:

(a) the financial conglomerate does not include a credit institution;

(b) there is at least one CAD investment firm in the financial conglomerate; and(c) all the CAD investment firms in the financial conglomerate are limited licence firms or limited activity firms;

the solo capital resources requirement for any undertaking in the banking sector or the investment services sector is calculated in accordance with the rules for calculating the CRR of:

(d) (if there is a limited activity firm in the financial conglomerate), a BIPRU limited activity firm; or

(e) (in any other case), a BIPRU limited licence firm.

(6) If:

(a) the financial conglomerate does not include a credit institution; and

(b) (5) does not apply;

the solo capital resources requirement for any undertaking in the banking sector or the investment services sector is calculated in accordance with the rules for calculating the CRR of a full scope BIPRU investment firm.Any CRR calculated under a BIPRU TP may be used for the purposes of the solo capital resources requirement in this rule in the same way that the CRR can be used under BIPRU 8.

2 2

Solo capital resources requirement: application of rules

6.3

Any exemption that would otherwise apply under any rules applied by paragraph 6.2 do not apply for the purposes of this Annex.

Solo capital resources requirement: Insurance sector

6.4

(1) The solo capital resources requirement of an undertaking in the insurance sector must be calculated in accordance with this rule.

(2) Subject to (3), the solo capital resources requirement of an undertaking in the insurance sector is the capital resources requirement identified inINSPRU 6.1.34 R (1) to (8) as applying to that undertaking.

(3) INSPRU 6.1.34 R (1)(b) does not apply for the purposes of this annex.

Solo capital resources requirement: EEA firms in the banking sector or investment services sector

6.5

The solo capital resources requirement for an EEA regulated entity (other than a BIPRU firm, an insurer or an EEA insurer) that is subject to the solo capital adequacy sectoral rules for its financial sector of the competent authority that authorised it is equal to the amount of capital it is obliged to hold under those sectoral rules provided that the following conditions are satisfied:

(1) (for the purposes of the banking sector and the investment services sector) those sectoral rules must correspond to the FSA'ssectoral rules identified in paragraph 6.2 as applying to that financial sector;

(2) the entity must be subject to those sectoral rules in (1); and

(3) paragraph 6.3 applies to the entity and those sectoral rules.

Solo capital resources requirement: non-EEA firms subject to equivalent regimes in the banking sector or investment services sector

6.6

The solo capital resources requirement for a recognised third country credit institution or a recognised third country investment firm is the amount of capital resources that it is obliged to hold under the sectoral rules for its financial sector that apply to it in the state or territory in which it has its head office provided that:

(1) there is no reason for the firm applying the rules in this annex to believe that the use of those sectoral rules would produce a lower figure than would be produced under paragraph 6.2; and

(2) paragraph 6.3 applies to the entity and those sectoral rules.

Solo capital resources requirement: mixed financial holding company

6.7

The solo capital resources requirement of a mixed financial holding company is a notional capital requirement. It is the capital adequacy requirement that applies to regulated entities in the most important financial sector under the table in paragraph 6.10.

10 Table

Solo capital resources requirement: the insurance sector

6.8

References to capital requirements in the provisions of GENPRU 3 Annex 1 defining solo capital resources requirement must be interpreted in accordance with paragraph 5.4.

Applicable sectoral consolidation rules

6.9

The applicable sectoral consolidation rules for a financial sector are the FSA'ssectoral rules about capital adequacy and solvency on a consolidated basis that are applied in the table in paragraph 6.10.

11 Table: Paragraph 6.10: Application of sectoral consolidation rules

Financial sector

FSA's sectoral rules

Banking sector

BIPRU 8 and BIPRU TP, as adjusted under paragraph 4.5

Insurance sector

INSPRU 6.1 .

Investment services sector

BIPRU 8 and BIPRU TP

12 Table:

Part 5

1

This Part 6 is subject to Part 5 of this Annex.

GENPRU 3 Annex 2 Prudential rules for third country groups (GENPRU 3.2.8R to GENPRU 3.2.9R)

1 Table: PART 1: Third-country financial conglomerates

1.1

This Part of this annex sets out the rules with which a firm must comply under GENPRU 3.2.8 R with respect to a financial conglomerate of which it is a member.

1.2

A firm must comply, with respect to the financial conglomerate referred to in paragraph 1.1, with whichever of GENPRU 3.1.26 R and GENPRU 3.1.29 R is applied under paragraph 1.3.

1.3

For the purposes of paragraph 1.2:

1.4

If 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) with respect to the financial conglomerate referred to in paragraph 1.1 the firm must also comply with GENPRU 3.1.35 R (as adjusted in accordance with paragraph 3.1) with respect to that financial conglomerate.

1.5

A firm must comply with the following with respect to the financial conglomerate referred to in paragraph 1.1:

2 Table: PART 2: Third-country banking and investment groups

2.1

This Part of this annex sets out the rules with which a firm must comply under GENPRU 3.2.9 R with respect to a third-country banking and investment group of which it is a member.

2.2

A firm must comply with one of the sets of rules specified in paragraph 2.3 as adjusted under paragraph 3.1 with respect to the third-country banking and investment group referred to in paragraph 2.1.

2.3

The rules referred to in paragraph 2.2 are as follows:

2.4

The set of rules from paragraph 2.3 that apply with respect to a particular third-country banking and investment group (as referred to in paragraph 2.1) are those that would apply if they were adjusted in accordance with paragraph 3.1.

2.5

The sectoral rules applied by Part 2 of this annex cover all prudential rules applying on a consolidated basis including those relating to large exposures.

2.6

A firm must comply with SYSC 12 (as it applies to banking and investment groups and as adjusted under paragraph 3.1) with respect to the third-country banking and investment group referred to in paragraph 2.1.

3 Table: PART 3: Adjustment of scope

3.1

The adjustments that must be carried out under this paragraph are that the scope of the rules referred in Part 1 or Part 2 of this annex, as the case may be, are amended:

  • so as to remove any provisions disapplying those rules for third-country groups;
  • so as to remove all limitations relating to where a member of the third-country group is incorporated or has its head office; and
  • so that the scope covers every member of the third-country group that would have been included in the scope of those rules if those members had their head offices in, and were incorporated in, an EEA State .

GENPRU 3 Annex 3 Guidance Notes for Classification of Groups1

G

This annex consists only of one or more forms. Forms are to be found through the following address. genpru_ch3_annex3G.pdf

Purpose and scope

The form is designed to identify groups and sub-groups that are likely to be financial conglomerates under the Financial Groups Directive. A group may be a financial conglomerate if it contains both insurance and banking/investment businesses and meets certain threshold tests. The FSA needs to identify conglomerates with their head offices in the EEA and those with their head offices outside the EEA, although this does not necessarily mean that the latter will be subject to EEA conglomerate supervision.

This form’s purpose is to enable the FSA to obtain sufficient information so as to be able to determine how likely a group/sub-group is to be a financial conglomerate. In certain cases this can only be determined after consultation with the other EU relevant competent authorities. A second purpose of the form is therefore to identify any groups and sub-groups that may need such consultation so that this can be made as soon as possible. This should allow firms time to prepare to comply.

The third purpose of the form is to gain information from firms on the most efficient way to implement the threshold calculations in detail (consistently with the directive). We have, therefore, asked for some additional information in part 4 of the form.

A copy of this form will can be found on the FSA's Financial Groups Website with current contact details.

Please include workings showing the method employed to determine the percentages in part 2 (for the threshold conditions) and giving details of all important assumptions / approximations made in doing the calculations.

The definition of financial conglomerate includes not only conventional groups made up of parent-subsidiary relationships but groups linked by control and "consolidation Article 12(1) relationships". If this is the case for your group, please submit along with this form a statement that this is the case. Please include in that statement an explanation of how you have included group members not linked by capital ties in the questionnaire calculations.

A consolidation Article 12(1) relationship arises between undertakings in the circumstances set out in Article 12(1) of the Seventh Company Law Directive. These are set out in the Handbook Glossary (in the definition of consolidation Article 12(1) relationship). Broadly speaking, undertakings come within this definition if they do not form a conventional group but:

  • are managed on a unified basis; or
  • have common management.

General guidance

We would like this to be completed based on the most senior parent in the group, and, if applicable, for the company heading the most senior conglomerate group in the EEA. If appropriate, please also attach a list of all other likely conglomerate sub-groups.

Please use the most recent accounts for the top level company in the group together with the corresponding accounts for all subsidiaries and participations that are included in the consolidated accounts. Please indicate the names of any significant subsidiaries with a different year-end from the group’s year-end.

Please note the following:

  • Branches should be included as part of the parent entity.
  • Include in the calculations overseas entities owned by the relevant group or sub-group.
  • There are only two sectors for this purpose: banking/investment and insurance.
  • You will need to assign non-regulated financial entities to one of these sectors:
    • banking/investment activities are listed in – Annex 1 to the Banking Consolidation Directive
    • insurance activities are listed in - IPRU Insurers Annex 11.1 and 11.2 p 163-168 .
    • Any operator of a UCITS scheme, insurance intermediary, mortgage broker and mixed financial holding company does not fall into the directive definitions of either financial sector or insurance sector and should be treated for these purposes as being outside the financial sector. They should therefore be ignored for the purposes of these calculations.

Threshold tests

For the purpose of completing section 2 of the form relating to the threshold tests, the following guidance should be used. However, if you consider that for your group there is a more appropriate calculation then you may use this calculation so long as the method of computation is submitted with the form.

Calculating balance sheet totals

Generally, use total (gross) assets for the balance sheet total of a group/entity. However, investments in other entities that are part of the group will need to be deducted from the sector that has made the investment and the balance sheet total of the entity is added to the sector in which it operates.

Our expectation of how this may be achieved efficiently is as follows:

  • Off-balance-sheet items should be excluded.
  • Where off-balance sheet treatment of funds under management and on-balance sheet treatment of policy holders' funds may distort the threshold calculation, groups should consult the FSA on the appropriateness of using other measures under article 3.5 of the Financial Groups Directive.
  • If consolidated accounts exist for a sub-group consisting of financial entities from only one of the two sectors, these consolidated accounts should be used to measure the balance-sheet total of the sub-group (i.e. total assets less investments in entities in the other sector). If consolidated accounts do not exist, intra-group balances should be netted out when calculating the balance sheet total of a single sector (but cross-sector intra-group balances should not be netted out).
  • Where consolidated accounts are used, minority interests should be excluded and goodwill should be included.
  • Where accounting standards differ between entities, groups should consult the FSA if they believe this is likely materially to affect the threshold calculation.
  • Where there is a subsidiary or participation in the opposite sector from its parent (i.e. insurance sector for a banking/investment firm parent and vice versa), the balance sheet amount of the subsidiary or participation should be allocated to its sector using its individual accounts.
  • The balance-sheet total of the parent entity/sub-group is measured as total assets of the parent/sub-group less the book value of its subsidiaries or participations in the other sector (i.e. the value of the subsidiary or participation in the parent's consolidated accounts is deducted from the parent's consolidated assets).
  • The cross-sector subsidiaries or participations referred to above, valued according to their own accounts, are allocated pro-rata, according to the aggregated share owned by the parent/sub-group, to their own sector.
  • If the cross-sector entities above themselves own group entities in the first sector (i.e. that of the top parent/sub-group) these should (in accordance with the methods above) be excluded from the second sector and added to the first sector using individual accounts.

Solvency (capital adequacy) requirements

Generally, the solvency requirements should be according to sectoral rules of the FSA that would apply to the type of entity. However, you can use EEA rules or local rules in the circumstances set out in Part 6 of GENPRU 3 Annex 1. But if this choice makes a significant difference, either with respect to whether the group is a financial conglomerate or with respect to which sector is the biggest, you should consult with the FSA. Non-regulated financial entities should have proxy requirements calculated on the basis of the most appropriate sector. If sub-groups submit single sector consolidated returns then the solvency requirement may be taken from those returns.

Our expectation of how this may be achieved efficiently is as follows:

  • If you complete a solvency return for a sub-group consisting of financial entities from only one of the two sectors, the total solvency requirement for the sub-group should be used.
  • Solvency requirements taken must include any deductions from available capital so as to allow the appropriate aggregation of requirements.
  • Where there is a regulated subsidiary or participation in the opposite sector from its parent/sub-group, the solvency requirement of the subsidiary or participation should be from its individual regulatory return. If there is an identifiable contribution to the parent’s solvency requirement in respect of the cross-sector subsidiary or participation, the parent’s solvency requirement may be adjusted to exclude this.
  • Where there is an unregulated financial undertaking in the opposite sector from its parent/sub-group, the solvency requirement of the subsidiary or participation should be one of the following:
    • as if the entity were regulated by the FSA under the appropriate sectoral rules;
    • using EU minimum requirements for the appropriate sector; or
    • using non-EU local requirements* for the appropriate sector.
  • Please note on the form which of these options you have used, according to the country and sector, and whether this is the same treatment as in your latest overall group solvency calculation.
  • For banking/investment requirements, use the total amount of capital required.
  • For insurance requirements, use the total amount of capital required.

Market share measures

These are not defined by the directive. The aim is to identify any standard industry approaches to measuring market share in individual EU countries by sector, or any data sources which are commonly used as a proxy.

Article I.

Article II. Threshold tests

Test F2

B/S of banking/investment + insurance sector = result %

B/S total

Test F3/F4/F5

B/S of insurance sector

B/S of banking/investment sector + insurance sector = A%

B/S of banking/investment sector

B/S of banking/investment sector + insurance sector = B%

Solvency requirement of insurance sector

Solvency requirement of banking/investment sector +insurance sector = C%

Solvency requirement of banking/investment sector

Solvency requirement of banking/investment sector +insurance sector = D%

The relevant percentage for the insurance sector is:

(A% + C%)/2 = I %

The relevant percentage for the banking/investment sector is:

(B% + D%)/2 = BI %

The smallest sector is the sector with the smallest relevant percentage.

Article III. If I% < BI% then F3 is insurance, F4 = A%, and F5 = C%

Article IV. If BI% < I% then F3 is banking/investment, F4 = B% and F5 = D%