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Status: Please note you should read all Brexit changes to the FCA Handbook and BTS alongside the main FCA transitional directions. Where these directions apply the 'standstill', firms have the choice between complying with the pre-IP completion day rules, or the post-IP completion day rules. To see a full list of Handbook modules affected, please see Annex B to the main FCA transitional directions.

You are viewing the version of the document as on 2021-01-01.

Article 9 Applicable forms and nature of indirect funding of capital instruments for the purposes of Article 28(1)(b) and 52(1)(c) and 63(c) of Regulation (EU) No 575/2013

  1. (1)

    The applicable forms and nature of indirect funding of the purchase of an institution's capital instruments shall include the following:

    1. (a)

      funding of an investor's purchase, at issuance or thereafter, of an institution's capital instruments by any entities on which the institution has a direct or indirect control or by entities included in any of the following:

      1. (1)

        the scope of accounting or prudential consolidation of the institution;

      2. (2)
      3. (3)

        the scope of supplementary supervision of the institution in accordance with Directive 2002/87/EC UK law;

    2. (b)

      funding of an investor's purchase, at issuance or thereafter, of an institution's capital instruments by external entities that are protected by a guarantee or by the use of a credit derivative or are secured in some other way so that the credit risk is transferred to the institution or to any entities on which the institution has a direct or indirect control or any entities included in any of the following:

      1. (1)

        the scope of accounting or prudential consolidation of the institution;

      2. (2)
      3. (3)

        the scope of supplementary supervision of the institution in accordance with Directive 2002/87/EC UK law;

    3. (c)

      funding of a borrower that passes the funding on to the ultimate investor for the purchase, at issuance or thereafter, of an institution's capital instruments.

  2. (2)

    In order to be considered as indirect funding for the purposes of paragraph 1, the following conditions shall also be met, where applicable:

    1. (a)

      the investor is not included in any of the following:

      1. (1)

        the scope of accounting or prudential consolidation of the institution;

      2. (2)
      3. (3)

        the scope of the supplementary supervision of the institution in accordance with Directive 2002/87/EC UK law;

    2. (b)

      the external entity is not included in any of the following:

      1. (1)

        the scope of accounting or prudential consolidation of the institution;

      2. (2)
      3. (3)

        the scope of the supplementary supervision of the institution in accordance with Directive 2002/87/EC UK law.

  3. (3)

    When establishing whether the purchase of a capital instrument involves direct or indirect funding in accordance with Article 8, the amount to be considered shall be net of any individually assessed impairment allowance made.

  4. (4)

    In order to avoid a qualification of direct or indirect funding in accordance with Article 8 and where the loan or other form of funding or guarantees is granted to any natural or legal person who has a qualifying holding in the credit institution or who is deemed to be a related party as referred to in paragraph 3, the institution shall ensure on an on-going basis that it has not provided the loan or other form of funding or guarantees for the purpose of subscribing directly or indirectly capital instruments of the institution. Where the loan or other form of funding or guarantees is granted to other types of parties, the institution shall make this control on a best effort basis.

  5. (5)

    With regard to mutuals, cooperative societies and similar institutions, where there is an obligation under the law of the United Kingdom (or any part of it) or the statutes of the institution for a customer to subscribe capital instruments in order to receive a loan, that loan shall not be considered as a direct or indirect funding where all of the following conditions are met

    1. (a)

      the amount of the subscription is considered immaterial by the competent authority;

    2. (b)

      the purpose of the loan is not the purchase of capital instruments of the institution providing the loan;

    3. (c)

      the subscription of one or more capital instruments of the institution is necessary in order for the beneficiary of the loan to become a member of the mutual, cooperative society or similar institution.