Subject to rule 14.1.2, consolidated supervision and this chapter apply to a firm which is a member of a group if:
It is:
a securities and futures firm, subject to the financial rules in Chapter 3, which is a broad scope firm but not a venture capital firm.
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A firm is not subject to consolidated supervision under the rules in this Chapter where any of the following conditions are fulfilled:
the firm is included in the supervision on a consolidated basis of the group of which it is a member by a competent authority other than the FCA; or
the firm is included in the supervision on a consolidated basis of the group of which it is a member by the FCA under MIFIDPRU 2.5 (prudential consolidation); or
the firm is subject, along with a MIFIDPRU investment firm, to the group capital test in MIFIDPRU 2.6 (the group capital test).
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Where there is more than one authorised firm in the group, subject to the rules of this chapter, one consolidated supervision return may be submitted on behalf of all the firms in the group in accordance with SUP 16.3.25G.
A firm need not meet the requirements in rules 14.3.1 and 14.3.2 if:
there is no credit institution in the group;
no firm in the group deals in investments as principal, except where it is dealing solely as a result of its activity of operating a collective investment scheme
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the firm notifies the FCA of any serious risk that could undermine the financial stability of the group as soon as it becomes aware of that risk;
the firm reports to the FCA all group large exposures as at the end of each quarter, and within the period specified in SUP 16;
the firm meets the conditions in rule 14.1.5; and
the firm has first notified the FCA in writing that it intends to rely on this rule.
If the firm notifies the FCA under rule 14.1.4 that it will not apply the rules in this section, it must:
submit to FCA a consolidated supervision return within the time period specified by SUP 16, together with a consolidated profit and loss account;
ensure that each firm in the group deducts from its solo financial resources any quantifiable contingent liability in respect of other group entities;
ensure that the solo financial resources requirement of each firm in the group incorporates the full value of the expenditures of the firm wherever they are incurred on behalf of the firm; and
make a note in its audited financial statements that it is not subject to regulatory consolidated capital requirements.
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The conditions in rule 14.1.5 aim to ensure that the firm is protected from weaknesses in other group entities.
In rule 14.1.5(2), contingent liabilities includes direct and indirect guarantees.
14.1.5(3) aims to ensure that the expenditure-based requirement incorporates the firm's actual ongoing annual expenditures (including any share of depreciation on fixed assets) where these have been met by another group entity.
The FCA may require further information from the firm if it considers that the firm's consolidated financial position raises undue risks to consumers. It may also seek reassurance that the firm has sufficiently robust client money and asset controls - for example, it may require a skilled person's report. The FCA may also use its own initiative power to impose conditions on the firm. This could include raising additional capital or further limitations on the firm's intra-group exposures.
Rule 14.1.4(5) refers to large exposures, which should be measured against group consolidated own funds or (if this would result in all exposures being classified as large exposures) by aggregating all the exposures of the individual entities in the group and measuring them against the own funds of the individual firm giving rise to the consolidated supervision requirement. If there is more than one firm in the group giving rise to the consolidated supervision requirement, the group large exposures should be measured against the firm with the smallest own funds.
