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GENPRU 3.1 Application

GENPRU 3.1.1 R

1

  1. (1)

    Unless otherwise stated,8GENPRU 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.

    5

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

  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 3.1.3A G

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 3.1.4 G

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

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

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

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

  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 3.1.9 R

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

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

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

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

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 3.1.14 G

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

GENPRU 3.1.15 G

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 3.1.16 G

4 GENPRU 3.1.29 R 4 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 3.1.17 G

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:

5 5
  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

    555
GENPRU 3.1.18 G

[deleted]5

GENPRU 3.1.19 G

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 3.1.20 G

  1. (1)

    [deleted]5

    5
  2. (2)

    [deleted]5

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GENPRU 3.1.21 G

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 3.1.22 G

[deleted]5

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GENPRU 3.1.23 G

[deleted]5

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GENPRU 3.1.24 G

[deleted]5

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Capital adequacy requirements: high level requirement

GENPRU 3.1.25 R

  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 3.1.26 R

[deleted]5

GENPRU 3.1.27 R

[deleted]5

GENPRU 3.1.28 R

  1. (1)

    [deleted]5

    5
  2. (2)

    [deleted]5

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

GENPRU 3.1.29 R

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 3.1.29A R

5 GENPRU 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 3.1.30 R

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 3.1.31 R

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.

5 5 5 5

Risk concentration and intra-group transactions: introduction

GENPRU 3.1.32 G

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

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 3.1.34 R

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 3.1.35 R

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 3.1.36 R

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 EUCRR

3 4 4

4Part Four of the EUCRR

4 3 4 4

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 3.1.37 R

[deleted]8

GENPRU 3.1.38 R

  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 3.1.39 R

  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 company4 or alternative investment fund manager is an investment firm.

GENPRU 3.2 Third-country groups

Application

GENPRU 3.2.1 R

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; or3

  5. (5)

    a bank; or3

  6. (6)

    a designated investment firm; or3

  7. (7)

    an insurer.3

GENPRU 3.2.1A R

3 GENPRU 3.2.9R (Supervision by analogy: rules for third-country banking and investment groups) applies in relation to the following:

  1. (1)

    a CAD investment firm; and

  2. (2)

    an investment firm that falls within the definition of “investment firm” in article 4(1)(2) of the EU CRR.

Purpose

GENPRU 3.2.2 G

GENPRU 3.2 implements in part article 183 of the Financial Groups Directive, article 1273 of the CRD and (in relation to BIPRU firms) article 143 of the BCD3.

1 1

Equivalence

GENPRU 3.2.3 G

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 article 2127(1) and (2)3 of the CRD does so with respect to third-country banking and investment groups, except where the investment firms in the group are CAD investment firms only, in which case article 143 of the BCD applies3.

1

Other methods: General

GENPRU 3.2.4 G

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,1 the methods set out in the CRD and EUCRR will apply or 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

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

The FCA3 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 4A permission of a in that third-country group.

1

Supervision by analogy: rules for third-country conglomerates

GENPRU 3.2.8 R

If the Part 4A 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

If the Part 4A 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 7GENPRU 3.1.29R)5

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.

[deleted]5

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[deleted]5

5

[deleted]5

5

6 Table

Types of financial conglomerate

4.3

(1) This paragraph sets out how to determine the category of financial conglomerate.

(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.

5

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 Part One, Title II, Chapter 2 of the EUCRR and the PRA Rulebook 4: Groups Part8) are applied; or

(2) an insurance holding company (if the rules in PRA Rulebook: Solvency II Firms: Group Supervision77 are applied).2

4

8 Table: PART 5: Principles applicable to all methods

Transfer-ability of capital

5.1

Capital may not be included in

(1) 4a firm'sconglomerate capital resources under GENPRU 3.1.29 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.

4 4

Double counting

5.2

Capital must not be included in4a firm'sconglomerate capital resources under GENPRU 3.1.29 R

if:

(1) 4it would involve double counting or multiple use of the same capital; or

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

4 4 4 4

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 1-28):

(1) the solvency requirements for each different financial sector represented in a financial conglomerate required by 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 3.1.29 R.

4 4

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) [deleted]8

(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 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 and 28) 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, approval or permission8 granted to a member of the financial conglomerate under those rules does not apply for the purposes of this annex.

7

Application of sectoral rules: Insurance sector

5.5

[deleted]8

Application of sectoral rules: Banking sector and investment services sector

5.6

In relation to a BIPRU firm that is a member of a financial conglomerate where there are no credit institutions or investment firms, the4 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.

[deleted]4

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

(4) (For the purposes of Parts 1 and 28 ), 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 and 28 ), BIPRU 8.5.9 R and BIPRU 8.5.10 R do not apply.

(6) (For the purposes of Part 35), 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.

(Other than as above) the CRD and EUCRR apply for the banking sector and the investment services sector.4

4 5 4 5 5 5 5 5

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 4GENPRU 3.1.29A R4 (Capital adequacy requirements: Application of5 Method 1 or 2 from 4Annex I of the Financial Groups Directive).

[deleted]4

[deleted]4

(4) If:

[deleted]4

(b) GENPRU 3.1.29 R (Capital adequacy requirements: Application of Method 1 or 24 from 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 whichever of Part 1 or Part 2 of GENPRU 3 Annex 1 the firm has, under GENPRU 3.1.30 R, indicated to the FCA8 it will apply or, if applicable, in4 the requirement referred to in 4GENPRU 3.1.31 R4; and

(d) 4GENPRU 3.1.29 R4applies 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 .

[deleted]4

5 4 4 4 4 4 7 4

9 Table: PART 6: Definitions used in this Annex

Defining the financial sectors

6.1

For the purposes of Parts 1 and 25 of this annex:

(1) an asset management company is allocated in accordance with GENPRU 3.1.39 R;an alternative investment fund manager is allocated in accordance with GENPRU 3.1.39 R; and5

(3) a mixed financial holding company must be treated as being a member of the most important financial sector.5

5 5 5 5

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 own funds requirements4.

(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 EU CRR4 for calculating theown funds requirements4 of a bank.

(5) If:

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

(b) there is at least one investment firm4 in the financial conglomerate; and(c) all the investment firms4 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 theEUCRR4 for calculating theown funds requirements4 of:

(i) (if there is a limited activity firm in the financial conglomerate), an IFPRUlimited activity firm; or4

(ii) (in any other case),an IFPRUlimited licence firm.4

(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 EUCRR4 for calculating theown funds requirements4 of a6full-scope IFPRU investment firm.

(7) In relation to a BIPRU firm that is a member of a financial conglomerate where there are no credit institutions or investment firms, any4capital resources requirements4 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 capital resources requirements4 can be used under BIPRU 8.

4 2 2 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4

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.The7solo capital resources requirement of an undertaking8 in the insurance sector is:8

(a) in respect of a UK Solvency II firm, the SCR;8

(b) in respect of a Solvency II undertaking other than a UK Solvency II firm, the equivalent SCR as calculated in accordance with the Solvency II EEA implementing measures in the EEA State in which it has received authorisation in accordance with article 14 of the Solvency II Directive;8

(c) in respect of a third country insurance undertaking or third country reinsurance undertaking to which the PRA Rulebook: Solvency II Firms: Group Supervision, 10.4(2) applies, the equivalent of the SCR as calculated in accordance with the applicable requirements in that third country; and8

(d) in respect of any undertaking which is not within (a) to (c), the capital resources requirement calculated according to the rules for the calculation of the solo capital resources requirement applicable to that undertaking for the purposes of the calculation referred to in the PRA Rulebook: Solvency II Firms: Group Supervision and Chapter 1 of Title II of the delegated acts, or if no rules are applicable for that calculation under Group Supervision and Chapter 1 of Title II of the delegated acts, in accordance with the SCR Rules.8

For the purpose of this Part as it applies in relation to GENPRU 3.1, the following expressions bear the same meaning as defined in the PRA Rulebook: Glossary:8

(i) “UK Solvency II firm”;8

(ii) “Solvency II undertaking”;8

(iii) “delegated acts”;8

(iv) “third country insurance undertaking”; 8

(v) “third country reinsurance undertaking”; and8

(vi) “SCR Rules”.8

3 7 7 7 7 7

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 bank, building society, designated investment firm, IFPRU investment firm,4BIPRU 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 FCA’s8sectoral 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.

8Reference to “rules”

6.7A

A reference to “rules” in this annex includes any directly applicable Community regulation that is relevant to the purpose of which “rules” as used refers to.

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 8sectoral 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

Sectoral rules4

4 4

Banking sector

Part One, Title II, Chapter 2 of the EUCRR and IFPRU 8.18.

4 4

Insurance sector

PRA Rulebook: Solvency II Firms: Group Supervision.7

7

Investment services sector

4(in relation to an8IFPRU investment firm which is a member of a financial conglomerate for which the PRA is the coordinator) Part One, Title II, Chapter 2 of the EUCRR and the PRA Rulebook;

4(in relation to a designated investment firm or8 an IFPRU investment firm which is a member of a financial conglomerate for which the FCA is the coordinator) Part One, Title II, Chapter 2 of the EUCRR and IFPRU 8.1;

4(in relation to a BIPRU firm that is a member of a financial conglomerate where there are no credit institutions or investment firms for which the FCA is the coordinator) 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 GENPRU 3.1.29 R as1 applied under paragraph 1.3.

1 1

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 :

1

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.

24 Table: PART 4: Definition used in this Annex

4.1

This Part sets out the definition which a firm must apply for the purposes of this annex as it applies in relation to GENPRU 3.2.

4.2

A reference to “rules” in this annex includes any directly applicable Community regulation that is relevant to the purpose of which “rules” as used refers to.

GENPRU 3 Annex 3 Guidance Notes for Classification of Groups1

G

Classification of Groups (GENPRU 3.1.3 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 FCA4 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 FCA4 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 form4 can be found on the FCA's4 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 2 Capital Requirements Directive 2013/36/EU2
    • insurance activities are listed in - 3 schedule 1 to, and contracts of insurance defined in article 3(1) of, the Regulated Activities Order3 2 .
    • 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 FCA 4 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 FCA 4 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 FCA4 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 FCA4 . 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 FCA 4 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%