Group risk consolidation

Part

BIPRU Prudential sourcebook for Banks, Building Societies and Investment Firms

Chapter

Group risk consolidation

Printed on: 06/11/2024

Rulebook at: 04/10/2013

BIPRU 8

Group risk consolidation

BIPRU 8.1

Application

01/01/2007

BIPRU 8.1.1

This chapter applies to:

(1) a BIPRU firm that is a member of a UK consolidation group;
(2) a BIPRU firm that is a member of a non-EEA sub-group; and
(3) [deleted]
(4) a firm that is not a BIPRU firm and is a parent financial holding company in a Member State in a UK consolidation group.

01/04/2013

BIPRU 8.1.2

This chapter does not apply to a firm in BIPRU 8.1.1R (1) to BIPRU 8.1.1R (3) which is a member of the UK consolidation group or non-EEA sub-group if the interest of the relevant UK consolidation group or non-EEA sub-group in that firm is no more than a participation.

01/04/2013

Purpose

BIPRU 8.1.3

This chapter implements articles 71, 73(1) and (2), 125, 126, 127(1), 133 and 134 of the Banking Consolidation Directive and articles 2 (in part), 22-27 and 37(1) (in part) of the Capital Adequacy Directive.

01/04/2013

How this chapter is organised

BIPRU 8.1.4

BIPRU 8.2 sets out the definition of UK consolidation group and the basic requirement to apply financial resources and concentration risk requirements to that group on a consolidated basis.

01/04/2013

BIPRU 8.1.5

BIPRU 8.3 sets out the definition of a non-EEA sub-group and the basic requirement to apply financial resources and concentration risk requirements to that group on a consolidated basis.

01/04/2013

BIPRU 8.1.6

BIPRU 8.4 sets out how a group of CAD investment firms can apply for a waiver from consolidated capital requirements although remaining subject to consolidated supervision (including reporting requirements).

01/04/2013

BIPRU 8.1.7

BIPRU 8.5 sets out the basis for including and excluding undertakings within the group for the purposes of consolidation.

01/04/2013

BIPRU 8.1.8

BIPRU 8.6 sets out the calculation of the consolidated capital resources of a group and the limits that apply.

01/04/2013

BIPRU 8.1.9

BIPRU 8.7 sets out the calculation of the consolidated capital resources requirement of a group.

01/04/2013

BIPRU 8.1.10

BIPRU 8.8 deals with the application of advanced prudential calculation approach on a consolidated basis.

01/04/2013

BIPRU 8.1.11

BIPRU 8.9 sets out consolidated concentration risk requirements.

01/04/2013

Consolidation requirements for BIPRU firms elsewhere in the Handbook

BIPRU 8.1.12

SYSC 12 (Group risk systems and controls requirement) deals with systems and controls requirements for groups.

01/04/2013

BIPRU 8.1.13

GENPRU 1.2 (Adequacy of financial resources) deals with the detail about how GENPRU 1.2 applies on a consolidated basis although the underlying requirement to apply it on a consolidated basis is in BIPRU 8.2 and BIPRU 8.3.

01/04/2013

BIPRU 8.1.14

BIPRU 11 (Disclosure) itself deals with how that chapter is applied on a consolidated basis.

01/04/2013

BIPRU 8.1.15

GENPRU 3.1 (Cross sector groups) deals with financial conglomerates.

01/04/2013

BIPRU 8.1.16

GENPRU 3.2 (Prudential rules for third country groups) deals, amongst other things, with banking and investment services groups headed by a parent undertaking outside the EEA.

01/04/2013

BIPRU 8.2

Scope and basic consolidation requirements for UK consolidation groups

01/01/2007

Main consolidation rule for UK consolidation groups

BIPRU 8.2.1

A firm that is a member of a UK consolidation group must comply, to the extent and in the manner prescribed in BIPRU 8.5, with the obligations laid down in GENPRU 1.2 (Adequacy of financial resources), the main BIPRU firm Pillar 1 rules (but not the base capital resources requirement) and BIPRU 10 (Large exposures requirements) on the basis of the consolidated financial position of:

(1) where either Test 1A or Test 1B in BIPRU 8 Annex 1 (Decision tree identifying a UK consolidation group) apply, the parent institution in a Member State in the UK consolidation group; or
(2) where either Test 1C or Test 1D in BIPRU 8 Annex 1 apply, the parent financial holding company in a Member State or the parent mixed financial holding company in a Member State.

10/06/2013

BIPRU 8.2.2

Further to BIPRU 8.2.1 R, a firm that is a member of a UK consolidation group must at all times ensure that the consolidated capital resources of the UK consolidation group are equal to or exceed its consolidated capital resources requirement.

01/04/2013

BIPRU 8.2.3

The base capital resources requirement does not apply on a consolidated basis.

01/04/2013

Definition of UK consolidation group

BIPRU 8.2.4

A firm's UK consolidation group means a group that is identified as a UK consolidation group in accordance with the decision tree in BIPRU 8 Annex 1 R (Decision tree identifying a UK consolidation group); the members of that group are:

(1) where either Test 1A or Test 1B in BIPRU 8 Annex 1 R apply, the members of the consolidation group made up of the sub-group of the parent institution in a Member State identified in BIPRU 8 Annex 1 R together with any other person who is a member of that consolidation group because of a consolidation Article 12(1) relationship or an Article 134 relationship; or
(2) where either Test 1C or Test 1D in BIPRU 8 Annex 1 R apply, the members of the consolidation group made up of the sub-group of the parent financial holding company in a Member State or the parent mixed financial holding company in a Member State identified in BIPRU 8 Annex 1 R together with any other person who is a member of that consolidation group because of a consolidation Article 12(1) relationship or an Article 134 relationship;

in each case only persons included under BIPRU 8.5 (Basis of consolidation) are included in the UK consolidation group.

10/06/2013

BIPRU 8.2.5

For the purposes of this chapter, what would otherwise be a UK consolidation group is not a UK consolidation group if all the members of that UK consolidation group wholly form part of another UK consolidation group.

01/04/2013

BIPRU 8.2.6

BIPRU 8 Annex 2 (Examples of how to identify a UK consolidation group) sets out examples of how to identify a UK consolidation group.

01/04/2013

BIPRU 8.2.7

BIPRU 8 Annex 1 (Decision tree identifying a UK consolidation group) shows that Articles 125 and 126 of the Banking Consolidation Directive are important in deciding whether the appropriate regulator is obliged to supervise a group or part of a group and hence whether that group or part of a group is a UK consolidation group. BIPRU 8 Annex 4 (Text of Articles 125 and 126 of the Banking Consolidation Directive) sets out these articles together with an explanation of how those articles should be read in the case of a group which also contains CAD investment firms.

01/04/2013

BIPRU 8.3

Scope and basic consolidation requirements for non-EEA sub-groups

01/01/2007

Main consolidation rule for non-EEA sub-groups

BIPRU 8.3.1

(1) A BIPRU firm that is a subsidiary undertaking of a BIPRU firm or of a financial holding company or of a mixed financial holding company must apply the requirements laid down in GENPRU 1.2 (Adequacy of financial resources), the main BIPRU firm Pillar 1 rules (but not the base capital resources requirement) and BIPRU 10(Large exposures requirements) on a sub-consolidated basis if the BIPRU firm, or the parent undertaking where it is a financial holding company or a mixed financial holding company, have a third country banking or investment services undertaking as a subsidiary undertaking or hold a participation in such an undertaking.
(2) (1) only applies if the appropriate regulator is required by the Banking Consolidation Directive or the Capital Adequacy Directive to supervise the group established under (1) under Article 73(2) of the Banking Consolidation Directive (Non-EEA sub-groups).

10/06/2013

BIPRU 8.3.2

Further to BIPRU 8.3.1 R, a firm that is a member of a non-EEA sub-group must at all times ensure that the consolidated capital resources of that non-EEA sub-group are equal to or exceed its consolidated capital resources requirement.

01/04/2013

BIPRU 8.3.3

The base capital resources requirement does not apply on a consolidated basis.

01/04/2013

BIPRU 8.3.4

The sub-group identified in BIPRU 8.3.1 R is called a non-EEA sub-group.

01/04/2013

How to identify a non-EEA sub-group

BIPRU 8.3.5

BIPRU 8 Annex 3 (Examples of how to identify a non-EEA sub-group) sets out examples of how to identify a non-EEA sub-group.

01/04/2013

BIPRU 8.3.6

The remainder of this section sets out a process for identifying a non-EEA sub-group in straightforward cases.

01/04/2013

BIPRU 8.3.7

A firm will not be a member of a non-EEA sub-group unless it is also a member of a UK consolidation group. So the first step is to identify each undertaking in the firm's UK consolidation group that satisfies the following conditions:

(1) it is an institution, financial institution or asset management company whose head office is outside the EEA (a third country banking or investment services undertaking);
(2) one of the following applies:

(a) it is a subsidiary undertaking of a BIPRU firm in that UK consolidation group; or
(b) a BIPRU firm in that UK consolidation group holds a participation in it; and

(3) that BIPRU firm is not a parent institution in a Member State.

01/04/2013

BIPRU 8.3.8

The sub-group of the BIPRU firm identified in BIPRU 8.3.7G (2)(a) or BIPRU 8.3.7G (2)(b) is a potential non-EEA sub-group.

01/04/2013

BIPRU 8.3.9

If more than one BIPRU firm is a direct or indirect parent undertaking in accordance with BIPRU 8.3.7G (2)(a) then the sub-groups of each of them are all potential non-EEA sub-groups. This is illustrated in example three in BIPRU 8 Annex 3 (Examples of how to identify a non-EEA sub-group), where the sub-group of UK bank 1 and the sub-group of UK bank 2 are potential non-EEA sub-groups.

01/04/2013

BIPRU 8.3.10

Similarly if there is more than one BIPRU firm that holds a participation in the third country banking or investment services undertaking in accordance with BIPRU 8.3.7G (2)(b) then the sub-group of each such BIPRU firm is a potential non-EEA sub-group.

01/04/2013

BIPRU 8.3.11

The effect of BIPRU 8.3.7G (3) is that a non-EEA sub-group cannot be headed by a parent institution in a Member State. This is illustrated in example one of BIPRU 8 Annex 3 (Examples of how to identify a non-EEA sub-group).

01/04/2013

BIPRU 8.3.12

The firm should then identify each undertaking in the firm's UK consolidation group that satisfies the following conditions:

(1) it is an institution, financial institution or asset management company whose head office is outside the EEA (a third country banking or investment services undertaking);
(2) one of the following applies:

(a) it is a subsidiary undertaking of a financial holding company in that UK consolidation group; or
(b) a financial holding company in that UK consolidation group holds a participation in it;

(3) the head office of that financial holding company is in the United Kingdom; and
(4) that financial holding company has a subsidiary undertaking that is a BIPRU firm.

01/04/2013

BIPRU 8.3.13

The sub-group of the financial holding company identified in BIPRU 8.3.12G (2)(a) or BIPRU 8.3.12G (2)(b) is a potential non-EEA sub-group.

01/04/2013

BIPRU 8.3.14

The financial holding company identified in BIPRU 8.3.12 G may be a parent financial holding company in a Member State. This is illustrated by example 2 of BIPRU 8 Annex 3 (Examples of how to identify a non-EEA sub-group).

01/04/2013

BIPRU 8.3.15

If more than one financial holding company is a direct or indirect parent undertaking in accordance with BIPRU 8.3.12G (2)(a) then the sub-groups of each of them are all potential non-EEA sub-groups.

01/04/2013

BIPRU 8.3.16

Similarly if there is more than one financial holding company that holds a participation in the third country banking or investment services undertaking in accordance with BIPRU 8.3.12G (2)(b) then the sub-group of each such financial holding company is a potential non-EEA sub-group.

01/04/2013

BIPRU 8.3.17

The firm should apply the process in BIPRU 8.3.12 G to a third country banking or investment services undertaking even though it may be also be part of a potential non-EEA sub-group under BIPRU 8.3.7 G.

01/04/2013

BIPRU 8.3.18

Having identified potential non-EEA sub-groups for each third country banking or investment services undertaking in its UK consolidation group the firm should then eliminate overlapping potential non-EEA sub-groups in the following way. If:

(1) one potential non-EEA sub-group is contained within a wider potential non-EEA sub-group; and
(2) the third country banking or investment services undertakings in the two potential non-EEA sub-groups are the same;

then the smaller potential non-EEA sub-group is eliminated.

01/04/2013

BIPRU 8.3.19

If there is a chain of three or more potential non-EEA sub-groups, each with the same third country banking or investment services undertakings, the elimination process may remove all but the highest. This is illustrated in example three in BIPRU 8 Annex 3 (Examples of how to identify a non-EEA sub-group). In this example there are four potential non-EEA sub-groups and the elimination process results in just one remaining (the one headed by the UK parent financial holding company in a Member State).

01/04/2013

BIPRU 8.3.20

Each remaining potential non-EEA sub-group is a non-EEA sub-group, even though it may be part of a wider non-EEA sub-group.

01/04/2013

BIPRU 8.3.21

Examples four and five in BIPRU 8 Annex 3 (Examples of how to identify a non-EEA sub-group) show how the same group may contain two non-EEA sub-groups even though the smaller potential non-EEA sub-group is part of a bigger one. The reason for there being two non-EEA sub-groups in these examples is that one of the third country banking or investment services undertakings is not a member of both potential non-EEA sub-groups.

01/04/2013

BIPRU 8.3.22

If a UK consolidation group is headed by a parent financial holding company in a Member State the result of the elimination process may be that a firm's UK consolidation group contains only one non-EEA sub-group and that the non-EEA sub-group is the same as the UK consolidation group. In theory that means that there are two sets of consolidation requirements, one in relation to the UK consolidation group and one in relation to the non-EEA sub-group. However as the UK consolidation group and the non-EEA sub-group are the same, in practice this means that the additional non-EEA sub-group consolidation disappears. This is illustrated in example three in BIPRU 8 Annex 3 (Examples of how to identify a non-EEA sub-group). The effect of BIPRU 8.3.7G (3) is that this is not the case if the UK consolidation group is headed by a parent institution in a Member State, as illustrated in example 1 in BIPRU 8 Annex 3.

01/04/2013

BIPRU 8.3.23

Even where the requirements for a non-EEA sub-group are absorbed into those for the UK consolidation group a firm should still make clear in its regulatory reporting that the consolidation figures relate to a UK consolidation group and a non-EEA sub-group and that they both contain the same members.

01/04/2013

BIPRU 8.3.24

The examples in this section have so far assumed that the only EEA State involved is the United Kingdom. If a potential non-EEA sub-group that would otherwise be regulated by the appropriate regulator contains a potential non-EEA sub-group in another EEA State then the United Kingdom one is eliminated if the third country banking or investment services undertaking in the UK potential non-EEA sub-group and the potential non-EEA sub-group in the other EEA State are the same. The intention here is that the EEA competent authority closest to the third country banking or investment services undertaking should be responsible for the non-EEA sub-group subconsolidation. Example 6 in BIPRU 8 Annex 3 (Examples of how to identify a non-EEA sub-group) illustrates this situation.

01/04/2013

BIPRU 8.5

Basis of consolidation

01/01/2007

Undertakings to be included in consolidation

BIPRU 8.5.1

A firm must include only the following types of undertaking in a UK consolidation group or non-EEA sub-group for the purposes of this chapter:

(1) a BIPRU firm;
(2) an institution;
(3) a financial institution;
(4) an asset management company;
(5) a financial holding company;
(6) a mixed financial holding company; and
(7) an ancillary services undertaking.

10/06/2013

BIPRU 8.5.2

Although an undertaking falling outside BIPRU 8.5.1 R will not be included in a UK consolidation group or non-EEA sub-group it may be relevant in deciding whether one undertaking in the banking sector or the investment services sector is a subsidiary undertaking of another with the result that they should be included in the same UK consolidation group or non-EEA sub-group.

01/04/2013

BIPRU 8.5.3

An example of BIPRU 8.5.2 G is as follows. Say that the undertaking at the head of a bank's UK group is a parent financial holding company in a Member State. One of its subsidiary undertakings is the bank . The parent financial holding company in a Member State also has an insurer as a subsidiary undertaking. That insurer has several investment firms as subsidiary undertakings. Say that the UK group is not a financial conglomerate. The UK consolidation group will include the parent financial holding company in a Member State and the bank . It will also include the investment firms that are subsidiary undertakings of the insurer. This is because the investment firms are subsidiary undertakings of the parent financial holding company in a Member State through the parent financial holding company in a Member State's holding in the insurer. However it will not include the insurer itself.

01/04/2013

Basis of inclusion of undertakings in consolidation

BIPRU 8.5.4

A firm must include any subsidiary undertaking in the UK consolidation group or non-EEA sub-group in full in the calculations in this chapter.

01/04/2013

BIPRU 8.5.5

In carrying out the calculations for the purposes of this chapter a firm must only include the relevant proportion of an undertaking that is a member of the UK consolidation group or non-EEA sub-group:

(1) by virtue of a consolidation Article 12(1) relationship;
(2) by virtue of an Article 134 relationship; or
(3) because the group holds a participation in it.

01/04/2013

BIPRU 8.5.6

In BIPRU 8.5.5 R, the relevant proportion is either:

(1) (in the case of a participation) the proportion of shares issued by the undertaking held by the UK consolidation group or the non-EEA sub-group; or
(2) (in the case of a consolidation Article 12(1) relationship or an Article 134 relationship), such proportion (if any) as stated in the Part 4A permission of the firm.

01/04/2013

Basis of inclusion of collective portfolio management investment firms in consolidation

BIPRU 8.5.7

GENPRU 2.1.46 R (Adjustment of the variable capital requirement calculation for collective portfolio management investment firms) does not apply for the purpose of this chapter.

23/07/2013

BIPRU 8.5.8

In general a collective portfolio management investment firm only calculates its capital and concentration risk requirements in relation to its designated investment business and does not calculate them with respect to managing an AIF or managing a UCITS. The effect of BIPRU 8.5.7 R is that this does not apply on a consolidated basis. For the purpose of this chapter the calculations are carried out with respect to the whole of the activities of a collective portfolio management investment firm.

23/07/2013

Exclusion of undertakings from consolidation: Balance sheet size

BIPRU 8.5.9

A firm may, having first notified the appropriate regulator in writing in accordance with SUP 15.7 (Form and method of notification), exclude an institution, asset management company, financial institution or ancillary services undertaking that is a subsidiary undertaking in, or an undertaking in which a participation is held by, the UK consolidation group or non-EEA sub-group if the balance sheet total of that undertaking is less than the smaller of the following two amounts:

(1) 10 million Euros;
(2) 1% of the balance sheet total of the parent undertaking or the undertaking that holds the participation.

01/04/2013

BIPRU 8.5.10

A firm must include undertakings, to which BIPRU 8.5.9 R would otherwise apply, if the balance sheet total of those undertakings taken together breaches the limit in BIPRU 8.5.9 R.

01/04/2013

Exclusion of undertakings from consolidation: Other reasons

BIPRU 8.5.11

Article 73(1) of the Banking Consolidation Directive allows the appropriate regulator to decide to exclude an institution, financial institution, asset management company or ancillary services undertaking that is a subsidiary undertaking in, or an undertaking in which a participation is held by, the UK consolidation group or non-EEA sub-group for the purposes of this chapter in the following circumstances:

(1) where the head office of the undertaking concerned is situated in a country outside the EEA where there are legal impediments to the transfer of the necessary information; or
(2) where, in the opinion of the appropriate regulator, the undertaking concerned is of negligible interest only with respect to the objectives of monitoring institutions; or
(3) where, in the opinion of the appropriate regulator, the consolidation of the financial situation of the undertaking concerned would be inappropriate or misleading as far as the objectives of the supervision of institutions are concerned.

01/04/2013

BIPRU 8.5.12

If a firm wishes to exclude an undertaking on the basis of any of the grounds set out in BIPRU 8.5.11 G it should apply to the appropriate regulator for a waiver. The appropriate regulator will consider such applications in the light of the criteria in Section 138A of the Act.

01/04/2013

BIPRU 8.5.13

If several undertakings meet the criteria in BIPRU 8.5.11G (2), the appropriate regulator will not agree to a waiver to exclude them all from consolidation where collectively they are of non-negligible interest with respect to the objectives of the supervision of institutions.

01/04/2013

Information about excluded undertakings

BIPRU 8.5.14

The appropriate regulator may require a firm to provide information about the undertakings excluded from consolidation of the UK consolidation group or non-EEA sub-group pursuant to this section.

01/04/2013

BIPRU 8.6

Consolidated capital resources

01/01/2007

General

BIPRU 8.6.1

A firm must calculate the consolidated capital resources of its UK consolidation group or its non-EEA sub-group by applying GENPRU 2.2 (Capital resources) to its UK consolidation group or non-EEA sub-group on an accounting consolidation basis, treating the UK consolidation group or non-EEA sub-group as a single undertaking. The firm must adjust GENPRU 2.2 in accordance with this section for this purpose.

01/04/2013

Notification of issuance of capital instruments

BIPRU 8.6.1A

This section applies to a firm if another member of its group intends to issue a capital instrument on or after 1 March 2012 for inclusion in the firm's capital resources or consolidated capital resources of its UK consolidation group or non-EEA sub-group.

01/04/2013

BIPRU 8.6.1B

A firm must notify the appropriate regulator in writing of the intention of another member of its group which is not a firm to issue a capital instrument which the firm intends to include within its capital resources or the consolidated capital resources of its UK consolidation group or non-EEA sub-group as soon as it becomes aware of the intention of the group undertaking to issue the capital instrument. When giving notice, a firm must:

(1) provide details of the amount of capital to be raised through the intended issue and whether the capital is intended to be issued to external investors or within its group;
(2) identify the stage of the capital resources table the capital instrument is intended to fall within;
(3) include confirmation from a senior manager of the firm responsible for authorising the inclusion of the issue within capital resources or consolidated capital resources that the capital instrument complies with the rules applicable to instruments included in the stage of the capital resources table identified in (2); and
(4) provide details of any features of the capital instrument which are novel, unusual or different from a capital instrument of a similar nature previously issued by the firm or widely available in the market or not specifically contemplated by GENPRU 2.2.

This rule does not apply to a firm if a group undertaking intends to issue a capital instrument listed in BIPRU 8.6.1E R.

01/04/2013

BIPRU 8.6.1C

A firm must provide a further notification to the appropriate regulator in writing including all the information required in BIPRU 8.6.1BR (1) to (4) as soon as it becomes aware of any changes that are proposed to the intended date of issue, amount of issue, type of investors, stage of capital or any other feature of the capital instrument previously notified to the appropriate regulator.

01/04/2013

BIPRU 8.6.1D

If a group undertaking proposes to establish a debt securities program for the issue of capital instruments which the firm intends to include within its capital resources or the consolidated capital resources of its UK consolidation group or non-EEA sub-group, it must:

(1) notify the appropriate regulator of the establishment of the program; and
(2) provide the information required by BIPRU 8.6.1BR (1) to (4);

as soon as it becomes aware of the proposed establishment. The appropriate regulator must be notified of any changes, in accordance with BIPRU 8.6.1C R.

01/04/2013

BIPRU 8.6.1E

The capital instruments to which BIPRU 8.6.1B R does not apply are:

(1) ordinary shares issued by a group undertaking which:

(a) are the most deeply subordinated capital instrument issued by that group undertaking;
(b) meet the criteria set out in GENPRU 2.2.83R (2) and GENPRU 2.2.83R (3) and GENPRU 2.2.83A R; and
(c) are the same as ordinary shares previously issued by that group undertaking;

(2) debt instruments issued from a debt securities program established by a group undertaking, provided the program was notified to the appropriate regulator prior to its first drawdown, in accordance with BIPRU 8.6.1D R; and
(3) capital instruments which are not materially different in terms of their characteristics and eligibility for inclusion in a particular tier of capital to capital instruments previously issued by a group undertaking for inclusion in the firm's capital resources or consolidated capital resources of its UK consolidation group or non-EEA sub-group.

01/04/2013

BIPRU 8.6.1F

A firm must notify the appropriate regulator in writing, no later than the date of issue, of the intention of a group undertaking to issue a capital instrument listed in BIPRU 8.6.1E R which the firm intends to include within its capital resources or the consolidated capital resources of its UK consolidation group or non-EEA sub-group. When giving notice a firm must:

(1) provide the information set out at BIPRU 8.6.1BR (1) to (3); and
(2) confirm that the terms of the capital instrument have not changed since the previous issue of that type of capital instrument by that group undertaking.

01/04/2013

Limits on the use of different forms of capital

BIPRU 8.6.2

The capital resources gearing rules apply for the purposes of calculating consolidated capital resources. They apply to the UK consolidation group or non-EEA sub-group on an accounting consolidation basis, treating the UK consolidation group or non-EEA sub-group as a single undertaking.

01/04/2013

BIPRU 8.6.3

As the various components of capital differ in the degree of protection that they offer, the capital resources gearing rules as applied on a consolidated basis place restrictions on the extent to which certain types of capital are eligible for inclusion in a UK consolidation group or non-EEA sub-group's consolidated capital resources. GENPRU 2.2.25 R (Limits on the use of different forms of capital: Use of higher tier capital in lower tiers) also applies.

01/04/2013

BIPRU 8.6.4

The prohibition in GENPRU 2.2 (Capital resources) on including innovative tier one capital in tier one capital for the purposes of meeting capital resources requirements applies under this section. However GENPRU 2.2.27 R (innovative tier one capital may be included in lower stages of capital when excluded from tier one capital) also applies. So, for example, a firm should not include consolidated indirectly issued capital in tier one capital but should generally include it as upper tier two capital.

01/04/2013

BIPRU 8.6.5

The rules in GENPRU 2.2 (Capital resources) on what tier two capital and tier three capital can be used for also apply under this section.

01/04/2013

Calculation of consolidated capital resources if there is a building society in the group

BIPRU 8.6.6

Where a firm's UK consolidation group or non-EEA sub-group includes a building society, the firm must calculate that group's consolidated capital resources using the calculation of capital resources for building societies.

01/04/2013

Calculation of consolidated capital resources if there is a bank or credit institution in the group

BIPRU 8.6.7

Where a firm's UK consolidation group or non-EEA sub-group includes a bank or credit institution but not a building society, the firm must calculate that group's consolidated capital resources using the calculation of capital resources for banks.

01/04/2013

Calculation of consolidated capital resources for an investment firm group

BIPRU 8.6.8

Where a firm's UK consolidation group or non-EEA sub-group does not include a bank, building society or credit institution, the firm must calculate that group's consolidated capital resources using the calculation of capital resources in GENPRU 2 Annex 4 (Capital resources table for a BIPRU investment firm deducting material holdings) or GENPRU 2 Annex 5 (Capital resources table for a BIPRU investment firm deducting illiquid assets).

01/04/2013

BIPRU 8.6.9

A firm must give one Month's prior notice to the appropriate regulator before starting to use or stopping using the method in GENPRU 2 Annex 5 (Capital resources table for a BIPRU investment firm deducting illiquid assets).

01/04/2013

Treatment of minority interests

BIPRU 8.6.10

(1) This rule sets out how to determine whether minority interests in an undertaking in a UK consolidation group or non-EEA sub-group may be included in tier one capital, tier two capital or tier three capital for the purpose of calculating consolidated capital resources (each referred to as a "tier" of capital in this rule).
(2) A firm must identify the item of capital of the undertaking in question that gives rise to that minority interest.
(3) A firm must include the minority interest in the tier of capital in which that undertaking would have to include the capital referred to in (2) if it were a firm calculating its capital resources on a solo basis under whichever method applies to the group under BIPRU 8.6.6 R to BIPRU 8.6.8 R.
(4) This rule does not apply to a minority interest created by consolidated indirectly issued capital.

01/04/2013

Indirectly issued capital and group capital resources

BIPRU 8.6.11

For the purposes of this chapter, GENPRU 2.2.123 R to GENPRU 2.2.137 R (Indirectly issued tier one capital (BIPRU firm only)) do not apply. A firm may only include consolidated indirectly issued capital in consolidated capital resources (whether as a minority interest or otherwise) in accordance with this section.

01/04/2013

BIPRU 8.6.12

Consolidated indirectly issued capital means any capital instrument issued by a member of the UK consolidation group or non-EEA sub-group where:

(1) some or all of the following conditions are satisfied:

(a) that capital is issued to an SPV; or
(b) that capital is issued by an SPV; or
(c) the subscription for the capital issued by the member of the group in question is funded directly or indirectly by an SPV; and

(2) any of the SPVs referred to in (1) is a member of the UK consolidation group or non-EEA sub-group or a subsidiary undertaking of any member of the UK consolidation group or non-EEA sub-group.

01/04/2013

BIPRU 8.6.13

A firm may only include consolidated indirectly issued capital in the consolidated capital resources of its UK consolidation group or non-EEA sub-group if:

(1) it is issued by an SPV that is a member of the UK consolidation group or non-EEA sub-group to persons who are not members of the UK consolidation group or non-EEA sub-group; and
(2) the conditions in BIPRU 8.6.16 R to BIPRU 8.6.18 R are satisfied.

01/04/2013

BIPRU 8.6.14

Consolidated indirectly issued capital that is eligible for inclusion in the consolidated capital resources of a UK consolidation group or non-EEA sub-group may only be included as a minority interest created by the capital instrument issued by the SPV referred to in BIPRU 8.6.13 R. If it is eligible, it is innovative tier one capital.

01/04/2013

BIPRU 8.6.15

For the purposes of this section, an undertaking is an SPV if the main activity of the SPV is to raise funds for undertakings in:

(1) (in the case of a UK consolidation group) that UK consolidation group; or
(2) (in the case of a non-EEA sub-group) that non-EEA sub-group or any UK consolidation group of which it forms part.

01/04/2013

BIPRU 8.6.16

The SPV referred to in BIPRU 8.6.13 R must satisfy the conditions in GENPRU 2.2.127 R (Conditions that an SPV has to satisfy if indirectly issued capital is to be included in capital resources on a solo basis) as modified by the following:

(1) references in GENPRU 2.2.127R (1) to being controlled by the firm are to being controlled by a member of the firm's UK consolidation group or non-EEA sub-group as the case may be; and
(2) references to the firm's group are to the firm's UK consolidation group or non-EEA sub-group as the case may be.

01/04/2013

BIPRU 8.6.17

The capital issued by the SPV referred to in BIPRU 8.6.13 R must satisfy the conditions in GENPRU 2.2.129 R (Conditions that capital issued by an SPV has to satisfy if indirectly issued capital is to be included in capital resources on a solo basis) as modified by the following:

(1) references to the firm's group are to the firm's UK consolidation group or non-EEA sub-group as the case may be;
(2) the substitution obligation in GENPRU 2.2.129R (2) need not be the firm's but may apply to any member of the UK consolidation group or non-EEA sub-group as the case may be; and
(3) that substitution obligation applies if the consolidated capital resources of the UK consolidation group or non-EEA sub-group, as the case may be, fall, or are likely to fall, below its consolidated capital resources requirement.

01/04/2013

BIPRU 8.6.18

The SPV referred to in BIPRU 8.6.13 R must invest the funds raised from the issue of capital by the SPV by subscribing for capital resources issued by an undertaking that is a member of the UK consolidation group or non-EEA sub-group. Those capital resources must satisfy the following conditions:

(1) those capital resources must at least comply with the requirements for lower tier two capital; and
(2) the first call date or fixed maturity date (if any) of those capital resources must not arise before the first call date on the instrument issued by the SPV.

01/04/2013

BIPRU 8.6.19

In relation to the obligation to substitute described in BIPRU 8.6.17R (2), a firm must take all reasonable steps to ensure that the undertaking in question has at all times sufficient authorised and unissued tier one instruments other than innovative tier one instruments (and authority to issue them) to enable it to discharge the obligation to substitute.

01/04/2013

BIPRU 8.6.20

A firm must comply with the requirements set out in GENPRU 2.2.135R (Notifying the appropriate regulator of unusual transactions in relation to indirectly issued capital) and GENPRU 2.2.137 R (Contents of marketing documents in relation to indirectly issued capital) in relation to consolidated indirectly issued capital included in consolidated capital resources.

01/04/2013

Venture Capital Investments

BIPRU 8.6.21

Part 2 of stage M in the capital resources table for banks in GENPRU 2 Annex 2 and the capital resources table for building societies in GENPRU 2 Annex 3 is adjusted so as to read as follows in relation to the deduction of investments in subsidiary undertakings and participations:

Deductions from the totals of tier one and tier two

(M)

...

...

Investments in subsidiary undertakings and participations excluding:

...

GENPRU 2.2.216A G

(Part 2 of stage M)

(1)

any amount which is already deducted as material holdings or qualifying holdings; and

(2)

any investment in an undertaking that meets the following conditions:

(a)

the investment has been made by a Venture Capital Investor and the firm is entitled to ignore (i) the Venture Capital Investor making that investment in accordance with GENPRU 2.2.209R (2) or (ii) the Venture Capital Holding Company (or a proportion of it) which holds the Venture Capital Investor in accordance with GENPRU 2.2.209R (3) for the purposes of determining whether there is a material holding;

(b)

the investment is a venture capital investment; and

(c)

the undertaking is not (i) a credit institution or (ii) financial institution the principal activity of which is to perform any activity other than the acquisition of holdings in other undertakings.

01/04/2013

BIPRU 8.7

Consolidated capital resources requirements

01/01/2007

General approach

BIPRU 8.7.1

The calculation of the consolidated capital resources requirement of a firm's UK consolidation group or non-EEA sub-group involves taking the individual components that make up the capital resources requirement on a solo basis and applying them on a consolidated basis. Those components are the capital charge for credit risk (the credit risk capital requirement), the capital charge for market risk (the market risk capital requirement), the capital charge for operational risk (the operational risk capital requirement) and the fixed overheads requirement.

01/04/2013

BIPRU 8.7.2

Each of the capital charges in BIPRU 8.7.1 G, as applied on a consolidated basis, is called a consolidated requirement component. The name of each consolidated requirement component reflects the solo capital charge on which it is based. Solo capital charges are called risk capital requirements. Thus for example the consolidated requirement component for market risk is called the consolidated market risk requirement. The calculation of the consolidated market risk requirement is based on the calculation of the capital charge for market risk that applies on a solo basis (the market risk capital requirement). So the risk capital requirement applicable to the consolidated market risk requirement is the market risk capital requirement.

01/04/2013

BIPRU 8.7.3

The first step is for a firm to identify what sort of group it belongs to as the calculation of the consolidated capital resources requirement differs between different types of groups. This is set out in BIPRU 8 Annex 5 (Decision tree for identifying the consolidated capital resources requirement of a UK consolidation group or a non-EEA sub-group). BIPRU 8 Annex 5 shows, for each type of group:

(1) which of the consolidated requirement components apply and which do not; and
(2) how to add up the different consolidated requirement components to reach the overall consolidated capital resources requirement.

01/04/2013

BIPRU 8.7.4

BIPRU 8 Annex 5 (Decision tree for identifying the consolidated capital resources requirement of a UK consolidation group or a non-EEA sub-group) categorises groups by reference to what kind of undertakings they contain (credit institutions, limited licence firms, limited activity firms or CAD full scope firms).

01/04/2013

BIPRU 8.7.5

In general a firm should calculate each consolidated requirement component using the appropriate regulator's rules, even in the case of group members who are subject to the capital requirements of an overseas regulator. However this section sets out certain circumstances in which a firm may use the capital requirements of an overseas regulator.

01/04/2013

BIPRU 8.7.6

BIPRU 8.8 (Advanced prudential calculation approaches) says that a firm should not apply an advanced prudential calculation approach on a consolidated basis unless the advanced prudential calculation approach permission allowing the firm to use the advanced prudential calculation approach specifically allows it to be used on consolidated basis.

01/04/2013

BIPRU 8.7.7

BIPRU 8.8 (Advanced prudential calculation approaches) has further details about how capital requirements are calculated on a consolidated basis if a firm uses an advanced prudential calculation approach.

01/04/2013

BIPRU 8.7.8

A firm has a choice about how it should apply a risk capital requirement to the group. It may do this by treating the whole of the group as a single entity and applying the risk capital requirement to the group (a line by line approach), calculating a separate risk capital requirement for each group member (an aggregation approach) or a mixture of the two.

01/04/2013

BIPRU 8.7.9

A firm may make the choice between an aggregation and a line by line approach differently for each consolidated requirement component. So for example a firm may decide to calculate the consolidated market risk requirement on an aggregation basis and the consolidated fixed overheads requirement on a line by line basis.

01/04/2013

Method of calculation to be used

BIPRU 8.7.10

A firm must calculate the consolidated capital resources requirement of its UK consolidation group or non-EEA sub-group in accordance with the method identified by the decision tree in BIPRU 8 Annex 5 (Decision tree for identifying the consolidated capital resources requirement of a UK consolidation group or a non-EEA sub-group).

01/04/2013

Calculation of the consolidated requirement components

BIPRU 8.7.11

A firm must calculate a consolidated requirement component by applying the risk capital requirement applicable to that consolidated requirement component to the UK consolidation group or non-EEA sub-group in accordance with BIPRU 8.7.13 R. Except where BIPRU 8.7.34 R to BIPRU 8.7.38 R allow the requirements of another regulator to be used, the risk capital requirement must be calculated in accordance with the appropriate regulator's rules. The risk capital requirement applicable to a consolidated requirement component is the one specified in the second column of the table in BIPRU 8.7.12 R.

01/04/2013

BIPRU 8.7.12

Table: Capital charges relating to consolidated requirement components
This table belongs to BIPRU 8.7.11 R

Consolidated requirement component

Rules on which the consolidated requirement component are based (the applicable risk capital requirement)

Consolidated credit risk requirement

Credit risk capital requirement

Consolidated fixed overheads requirement

Fixed overheads requirement

Consolidated market risk requirement

Market risk capital requirement

Consolidated operational risk requirement

Operational risk capital requirement

01/04/2013

Choice of consolidation method

BIPRU 8.7.13

(1) A firm must calculate a consolidated requirement component by using one of the methods in this rule.
(2) Under the first method a firm must:

(a) apply the risk capital requirement set out in BIPRU 8.7.12 R to each undertaking in the UK consolidation group or non-EEA sub-group; and
(b) add the risk capital requirements together.

(3) Under the second method a firm must:

(a) treat the whole UK consolidation group or non-EEA sub-group as a single undertaking; and
(b) apply the risk capital requirement set out in BIPRU 8.7.12 R to the group on an accounting consolidation basis.

(4) The third method is a mixture of methods one and two. Under the third method a firm must:

(a) treat one or more parts of the UK consolidation group or non-EEA sub-group as separate single undertakings;
(b) apply the risk capital requirement set out in BIPRU 8.7.12 R to each such part of the group on an accounting consolidation basis;
(c) apply the risk capital requirement set out in BIPRU 8.7.12 R to each of the remaining undertakings in the UK consolidation group or non-EEA sub-group (if any); and
(d) add the risk capital requirements together.

(5) A firm may use different methods for different consolidated requirement components.

01/04/2013

BIPRU 8.7.14

An accounting consolidation basis means applying the rules in BIPRU 8.7.12 R on a line by line consolidation basis rather than an aggregation basis.

01/04/2013

BIPRU 8.7.15

The provisions of this section on credit risk and market risk restrict the choice given by BIPRU 8.7.13 R in certain circumstances.

01/04/2013

Notifying the appropriate regulator of the choice of consolidation technique

BIPRU 8.7.16

A firm must notify the appropriate regulator which method under BIPRU 8.7.13 R it applies for which consolidated requirement component and to which parts of the UK consolidation group or non-EEA sub-group it is applying an aggregation approach and to which parts it is applying an accounting consolidation approach.

01/04/2013

Special rules for the consolidated credit risk requirement

BIPRU 8.7.17

BIPRU 8.7.18 G to BIPRU 8.7.23 R relate to the calculation of the consolidated credit risk requirement.

01/04/2013

BIPRU 8.7.18

The credit risk capital requirement (on which the consolidated credit risk requirement is based) is split into three capital charges. One relates to credit risk in the non-trading book (the credit risk capital component). One relates to credit risk in the trading book (the counterparty risk capital component). The third is a capital charge for exposures in the trading book that exceed the limits in BIPRU 10.5 (Limits on exposures). This is called the concentration risk capital component.

01/04/2013

BIPRU 8.7.20

A firm may use a combination of the CCR standardised method, the CCR mark to market method and the CCR internal model method on a permanent basis with respect to the firm's UK consolidation group or non-EEA sub-group for the purposes of calculating the consolidated credit risk requirement. In particular, where the firm is permitted to apply the CCR internal model method on a consolidated basis with respect to its UK consolidation group or non-EEA sub-group, it may combine the use of CCR standardised method and CCR mark to market method on a permanent basis for financial derivative instruments and long settlement transaction not covered by its CCR internal model method permission.

01/04/2013

BIPRU 8.7.21

BIPRU 9.4.1 R (Minimum requirements for recognition of significant credit risk transfer) as applied on a consolidated basis requires the transfer to be to a person outside the UK consolidation group or non-EEA sub-group.

01/04/2013

BIPRU 8.7.22

A firm must not use both the financial collateral simple method and the financial collateral comprehensive method with respect to its UK consolidation group or non-EEA sub-group.

01/04/2013

BIPRU 8.7.23

(1) A firm may only treat an exposure as exempt under BIPRU 3.2.25 R (Zero risk-weighting for intra-group exposures) as applied on a consolidated basis if the member of the UK consolidation group or non-EEA sub-group that has the exposure:

(a) is a BIPRU firm and that exposure is exempt under BIPRU 3.2.25 R as it applies to that BIPRU firm on a solo basis; or
(b) meets the conditions in BIPRU 3.2.25 R (1)(d) (Condition relating to establishment in the UK) and that exposure would be exempt under (a) if that member was a BIPRU firm.

(2) The notification obligation in BIPRU 3.2.35 R applies.

01/04/2013

Special rules for the consolidated market risk requirement

BIPRU 8.7.24

For the purposes of calculating the consolidated market risk requirement of a UK consolidation group or non-EEA sub-group, a firm must apply BIPRU 1.2.3 R (Definition of the trading book) and BIPRU 1.2.17 R (Size thresholds for the purposes of the definition of the trading book) to the whole UK consolidation group or non-EEA sub-group as if the group were a single undertaking.

01/04/2013

BIPRU 8.7.25

A firm may not apply the second method in BIPRU 8.7.13R (3) (accounting consolidation for the whole group) or apply accounting consolidation to parts of its UK consolidation group or non-EEA sub-group under method three as described in BIPRU 8.7.13R (4)(a) for the purposes of the calculation of the consolidated market risk requirement unless the group or sub-group and the undertakings in that group or sub-group satisfy the conditions in this rule. Instead the firm must use the aggregation approach described in BIPRU 8.7.13R (2) (method one) or BIPRU 8.7.13R (4)(c). Those conditions are as follows:

(1) each of the undertakings in that group or sub-group is an institution that is:

(a) a BIPRU firm;
(b) an EEA firm;
(c) a recognised third country credit institution; or
(d) a recognised third country investment firm;

(2) each of the undertakings referred to in (1) that is a BIPRU firm has capital resources that are equal to or in excess of its capital resources requirement and complies with BIPRU 10(Large exposures requirements);
(3) each of the undertakings referred to in (1) that is an EEA firm complies with the CRD implementation measures in its EEA State that correspond to the requirements in (2);
(4) each of the undertakings referred to in (1) that is a recognised third country credit institution or recognised third country investment firm complies with laws in the state or territory in which it has its head office that are equivalent to the requirements of the Banking Consolidation Directive or Capital Adequacy Directive relating to capital adequacy and concentration risk;
(5) there is no material legal, regulatory or contractual impediment to the transfer of funds between those undertakings in that group or sub-group;
(6) there is no material legal, regulatory or contractual impediment to mutual financial support between those undertakings in that group or sub-group;
(7) the market risk position of the undertakings are monitored and managed on a co-ordinated basis; and
(8) there is satisfactory allocation of capital within the group or sub-group.

01/04/2013

Special rules for the consolidated operational risk requirement

BIPRU 8.7.26

For the purposes of calculating the consolidated operational risk requirement, a firm must apply BIPRU 6.2.9 R to BIPRU 6.2.12 R (Combination of different methodologies) to the whole UK consolidation group or non-EEA sub-group as if the group were a single undertaking.

01/04/2013

BIPRU 8.7.27

(1) This rule sets out how BIPRU 6.3.2 R (3) (Negative figure arising in calculation of the relevant indicator under the basic indicator approach) applies on a consolidated basis.
(2) If the calculation for any individual undertaking under method one in BIPRU 8.7.13R (2) (application of aggregation approach to the whole group) or method three as described in BIPRU 8.7.13R (4)(c) (mixture of aggregation and accounting consolidation) or for any sub-group created under method three as described in BIPRU 8.7.13R (4)(a) results in a figure of zero or a negative figure, that figure must be excluded.
(3) If a firm is using method two in BIPRU 8.7.13 R (accounting consolidation approach for the whole group), BIPRU 6.3.2 R (3) applies to the UK consolidation group or non-EEA sub-group as if it were a single undertaking.
(4) (3) also applies to a sub-group created under method 3 as described in BIPRU 8.7.13R (4)(a).

01/04/2013

Special rules for calculating specific consolidated requirement components

BIPRU 8.7.28

BIPRU 8.7.21 R to BIPRU 8.7.26 R are generally examples of the application of the general principles in BIPRU 8.2.1 R (Main consolidation rule for UK consolidation groups) and BIPRU 8.3.1 R (Main consolidation rule for non-EEA sub-groups). BIPRU 8.7.20 R and BIPRU 8.7.25 R are exceptions to those principles.

01/04/2013

Elimination of intra-group transactions

BIPRU 8.7.29

In accordance with BIPRU 8.2.1 R and BIPRU 8.3.1 R (The basic consolidation rules for a UK consolidation group or non-EEA sub-group), a firm may exclude that part of the risk capital requirement that arises as a result of:

(1) (in respect of the consolidated credit risk requirement) intra-group balances; or
(2) (in respect of the consolidated operational risk requirement and consolidated fixed overheads requirement) intra-group transactions;

with other undertakings in the UK consolidation group or non-EEA sub-group.

01/04/2013

Other provisions about calculating risk capital requirements

BIPRU 8.7.30

(1) This rule applies when the rules applicable under BIPRU 8.7.12 R apply differently for different types of firms.
(2) Where a firm's UK consolidation group or non-EEA sub-group is a group identified at Stage 1 in BIPRU 8 Annex 5 (Decision tree for identifying the consolidated capital resources requirement of a UK consolidation group or a non-EEA sub-group), the rules that apply are those that apply to a bank that is a BIPRU firm.
(3) Where a firm's UK consolidation group or non-EEA sub-group is a group identified at Stage 2 in BIPRU 8 Annex 5, the rules that apply are those that apply to a full scope BIPRU investment firm.
(4) Where a firm's UK consolidation group or non-EEA sub-group is a group identified at Stage 3 in BIPRU 8 Annex 5, the rules that apply are those that apply to a BIPRU limited activity firm.
(5) Where a firm's UK consolidation group or non-EEA sub-group is a group identified at Stage 4 in BIPRU 8 Annex 5, the rules that apply are those that apply to a BIPRU limited licence firm.

01/04/2013

BIPRU 8.7.31

If a firm is calculating a risk capital requirement for an undertaking that is not a BIPRU firm it should calculate it as if the undertaking were a BIPRU firm.

01/04/2013

BIPRU 8.7.32

Similarly BIPRU 8.7.30 R may have the effect that the risk capital requirement for a BIPRU firm is calculated differently from the way it is on a solo basis. Thus for example if the risk capital requirement is being calculated for a BIPRU limited licence firm that is a subsidiary undertaking of a bank the risk capital requirement should be calculated using the rules for a bank.

01/04/2013

BIPRU 8.7.33

A firm should not use an advanced prudential calculation approach for calculating a risk capital requirement unless this is permitted as explained in BIPRU 8.8 (Advanced prudential calculation approaches).

01/04/2013

Use of the solo requirements of another EEA competent authority

BIPRU 8.7.34

A firm may calculate the risk capital requirement for an institution in the firm's UK consolidation group or non-EEA sub-group that is an EEA firm in accordance with the CRD implementation measures in the EEA firm's EEA State that correspond to the appropriate regulator's rules that would otherwise apply under this section if the institution is subject to those CRD implementation measures.

01/04/2013

Use of the consolidated requirements of another EEA competent authority

BIPRU 8.7.37

(1) This rule applies if:

(a) a firm is applying an accounting consolidation approach to part of its UK consolidation group or non-EEA sub-group under method three as described in BIPRU 8.7.13R (4)(a); and
(b) the part of the group in (a) constitutes the whole of a group subject to the consolidated capital requirements of a competent authority under the CRD implementation measures relating to consolidation under the Banking Consolidation Directive or the Capital Adequacy Directive.

(2) If the conditions in this rule are satisfied, a firm may apply the consolidated capital requirement in (1)(b) as the risk capital requirement for the group identified in (1)(a) so far as that consolidated capital requirement corresponds to the appropriate regulator's rules that would otherwise apply under this section.

01/04/2013

Prohibition on using the standardised rules of a regulator outside the EEA

BIPRU 8.7.38A

(1) This rule applies to a firm if:

(a) an institution in its UK consolidation group or non-EEA sub-group is subject to any of the rules or requirements of, or administered by, a third-country competent authority applicable to its financial sector that correspond to the sectoral rules applicable to that financial sector ("corresponding sectoral rules"); or
(b) a part of its UK consolidation group or non-EEA sub-group constitutes the whole of a group subject to the consolidated capital requirements of a third-country competent authority under the corresponding sectoral rules applicable to the banking sector or the investment services sector for a state or territory outside the EEA.

(2) A firm may not use the requirements under any of the corresponding sectoral rules of a state or territory outside the EEA in order to calculate the consolidated capital resources requirement of its UK consolidation group or non-EEA sub-group for the purpose of this chapter.

01/04/2013

Use of an advanced prudential calculation approach under the rules of an overseas regulator

BIPRU 8.7.39

A firm should not use the requirements of an overseas regulator if that would involve the use of an advanced prudential calculation approach unless this is permitted under BIPRU 8.8 (Advanced prudential calculation approaches).

01/04/2013

BIPRU 8.8

Advanced prudential calculation approaches

01/01/2007

General

BIPRU 8.8.1

A firm must not apply any advanced prudential calculation approach for the purposes of this chapter unless it has an advanced prudential calculation approach permission and that advanced prudential calculation approach permission requires the firm to use that advanced prudential calculation approach for those purposes.

01/04/2013

BIPRU 8.8.2

BIPRU 1.3 (Applications for advanced approaches) deals with how to apply for an advanced prudential calculation approach permission.

01/04/2013

Prohibition on using the rules of an overseas regulator

BIPRU 8.8.3

Even if a firm has an advanced prudential calculation approach permission that allows it to use an advanced prudential calculation approach for the purposes of this chapter, the firm may not use the requirements of another state or territory to the extent they provide for that advanced prudential calculation approach. Therefore a firm may not use BIPRU 8.7.34 R and BIPRU 8.7.37 R (Use of the capital requirements of another EEA competent authority) if that would involve using an advanced prudential calculation approach.

01/04/2013

Special provisions relating to the internal ratings based approach

BIPRU 8.8.4

The conditions in BIPRU 4.2.26 R (Combined use of methodologies under the IRB approach) apply to a firm's UK consolidation group or non-EEA sub-group as if that group were a single undertaking.

01/04/2013

Special provisions relating to the advanced measurement approach

BIPRU 8.8.5

BIPRU 6.5.27 R (6) (Insurance should be provided by a third party entity for the purposes of the advanced measurement approach) is amended to provide that the insurance must be provided by an undertaking that is not in the same group as the firm or other members of the UK consolidation group or non-EEA sub-group. In the case of insurance through captives and affiliates, the exposure must be laid off to an independent undertaking that is not in the same group as the firm or other members of the UK consolidation group or non-EEA sub-group, for example through reinsurance that meets the eligibility criteria.

01/04/2013

BIPRU 8.8.6

In the case of insurance through captives and affiliates, the exposure should be laid off outside the firm's group to an independent third party.

01/04/2013

BIPRU 8.8.7

BIPRU 8.7.26 R deals with the combination of the advanced measurement approach with other approaches to operational risk on a group level.

01/04/2013

Special provisions relating to the CCR internal model method

BIPRU 8.8.8

BIPRU 8.7.17 R deals with the combination of the CCR internal model method with other approaches to calculating exposure values on a group level.

01/04/2013

Corporate governance arrangement for the IRB approach and the AMA

BIPRU 8.8.9

The governance arrangements that apply to the governing body, the senior management and any designated committee of a firm in relation to the IRB approach or the AMA also apply to the body or persons with equivalent powers with respect to the UK consolidation group or non-EEA sub-group. Where the parent undertaking and its subsidiary undertakings use rating systems on a unified basis, the approval and reporting process described in BIPRU 4.3.12 G (Approval and reporting arrangements for the IRB approach where rating systems are used on a unified group basis) and BIPRU 6.5.32 G (Approval and reporting arrangements for the AMA where rating systems are used on a unified group basis) apply for the purpose of this paragraph too.

01/04/2013

BIPRU 8.9A

Consolidated large exposure requirements

31/12/2010

Integrated groups: core UK group and non-core large exposures group

BIPRU 8.9A.1

(1) BIPRU 10 (Large exposures) applies to a firm's UK consolidation group or (subject to (2)) non-EEA sub-group as if it were a single undertaking.
(2) A firm may exempt the exposures of its non-EEA sub-group to its core concentration risk group counterparty or non-core concentration risk group counterparty from the limits in BIPRU 10.5 (Limits on exposures) that apply to the non-EEA sub-group on a sub-consolidated basis.

01/04/2013

BIPRU 8.9A.2

The effect of BIPRU 8.9A.1R (2) is that there is no limit on a sub-consolidated basis for exposures of a firm's non-EEA sub-group to its core concentration risk group counterparty or non-core concentration risk group counterparty. This is because those exposures are included in the large exposure limits that apply to the firm's UK consolidation group.

01/04/2013

BIPRU 8.9A.3

In relation to a firm, intra-group exposures that are exempt under a non-core large exposures group waiver may be excluded when calculating the limits in BIPRU 10.5 (Limits on exposures) that apply to the UK consolidation group or non-EEA sub-group, provided that the total amount of such exposures and the other exposures which are exempt under a non-core large exposures group waiver do not exceed the limit in BIPRU 10.9A.7 R (Non-trading book backstop large exposure limit for non-core large exposures group).

01/04/2013

BIPRU 8 Annex 1

Decision tree identifying a UK consolidation group

01/01/2007

01/04/2013

BIPRU 8 Annex 2

Examples of how to identify a UK consolidation group

01/01/2007

01/04/2013

BIPRU 8 Annex 3

Examples of how to identify a non-EEA sub-group

01/01/2007

01/04/2013

BIPRU 8 Annex 4

Text of Articles 125 and 126 of the Banking Consolidation Directive

01/01/2007

Article 125

Where a parent undertaking is a parent credit institution in a Member State or an EU parent credit institution, supervision on a consolidated basis shall be exercised by the competent authorities that authorised it under Article 6.

Where the parent of a credit institution is a parent financial holding company in a Member State, a parent mixed financial holding company in a Member State an EU parent financial holding company or an EU parent mixed financial holding company, supervision on a consolidated basis shall be exercised by the competent authorities that authorised that credit institution under Article 6.

Article 126

Where credit institutions authorised in two or more Member States have as their parent the same parent financial holding company in a Member State, the same mixed parent financial holding company in a Member State, the same EU parent financial holding company or the same EU parent mixed financial holding company, supervision on a consolidated basis shall be exercised by the competent authorities of the credit institution authorised in the Member State in which the financial holding company or mixed financial holding company is established.

Where the parents of credit institutions authorised in two or more Member States comprise more than one financial holding company or mixed financial holding company which have their head offices in different Member States and there is a credit institution in each of these States, supervision on a consolidated basis shall be exercised by the competent authority of the credit institution with the largest balance sheet total.

Where more than one credit institution authorised in the Union has as its parent the same financial holding company or the same mixed financial holding company and none of these credit institutions has been authorised in the Member State in which the financial holding company or the mixed financial holding company is established, supervision on a consolidated basis shall be exercised by the competent authority that authorised the credit institution with the largest balance sheet total, which shall be considered, for the purposes of this Directive, as the credit institution controlled by an EU parent financial holding company or an EU parent mixed financial holding company.

In particular cases, the competent authorities may by common agreement waive the criteria referred to in paragraphs 1 and 2 if their application would be inappropriate, taking into account the credit institutions and the relative importance of their activities in different countries, and appoint a different competent authority to exercise supervision on a consolidated basis. In these cases, before taking their decision, the competent authorities shall give the EU parent credit institution, EU parent financial holding company, the EU parent mixed financial holding company, or credit institution with the largest balance sheet total, as appropriate, an opportunity to state its opinion on that decision.

[Omitted]

Note

The Capital Adequacy Directive says that generally references in Articles 125 and 126 of the Banking Consolidation Directive to credit institution should be read as including ones to CAD investment firms. Also, the Banking Consolidation Directive and the Capital Adequacy Directive apply to the EEA. Therefore for the purposes of BIPRU 8 Articles 125 and 126 of the Banking Consolidation Directive should be read with the following adjustments:

(1)

a reference to a credit institution should be read as being one to a credit institution or CAD investment firm;

(2)

a reference to a parent credit institution in a Member State should be read as being one to a parent institution in a Member State;

(3)

a reference to a EU parent credit institution should be read as being one to an EEA parent institution;

(4)

a reference to a EU parent financial holding company should be read as being one to an EEA parent financial holding company;

(4a)

a reference to a EU parent mixed financial holding company should be read as being one to an EEA parent mixed financial holding company;

(5)

a reference to a Member State should be read as being one to an EEA State;

(6)

a reference to a credit institution authorised in the Community should be read as being to a credit institution or CAD investment firm authorised in an EEA State.

Parent financial holding company in a Member State, financial holding company, parent mixed financial holding company in a Member State and mixed financial holding company have the same meaning as they do in the Glossary.

10/06/2013

BIPRU 8 Annex 5

Decision tree for identifying the consolidated capital resources requirement of a UK consolidation group or a non-EEA sub-group.

01/01/2007

01/04/2013

BIPRU 8 Annex 6

Non-EEA regulators' requirements deemed CRD-equivalent for individual risks

01/01/2007

Part 1 (Non-EEA banking regulators' requirements deemed CRD-equivalent for individual risks)

Regime regulators

Market risk

Credit
risk

Operational Risk

USA
Office of the Comptroller of the Currency
Board of Governors of the Federal Reserve System
^* a US banking subsidiary will be deemed equivalent for credit risk if:

• it is categorised as well capitalised: and•it scales up its US Basel 1 credit risk requirement by 25%

√
√

X^*
X^*

X
X

Australia
Australian Prudential Regulation Authority [APRA]

√

Canada
Office of the Superintendent of Financial Institutions [OSFI]

√

Switzerland
Swiss Federal Banking Commission [EBK]

√

√ See note 2

√

Japan
Financial Services Agency, Japan [JFSA]

√

South Africa
South African Reserve Bank [SARB]

√

Hong Kong
Hong Kong Monetary Authority [HKMA]

√

Singapore
Monetary Authority of Singapore [MAS]

√

India
Reserve Bank of India [RBI]

√

Korea
Financial Supervisory Service [FSS]

√

Jersey

√

Guernsey

√

Isle of Man

√

Note 1: A √ denotes that the requirements have been assessed as equivalent to EEA standards.
A X denotes that the requirements have been assessed as not being equivalent to EEA standards.

Note 2: √ International standardised approach only. The treatment of the Lombard loans is not equivalent and they must be treated under the appropriate regulator's rules.

Part 2 (Non-EEA investment firm regulators' requirements deemed CRD-equivalent for individual risks)

Regime regulators

Market risk

Credit risk

Operational Risk

Australia
Sydney Futures Exchange
Australian Stock Exchange

√
√

X
X

Canada
Ontario Securities Commission
Quebec Securities Commission
British Columbia Securities Commission
Alberta Securities Commission
Investment dealers Association of Canada

√
√
√
√
√

X
X
X
X
X

Hong Kong
Hong Kong Monetary Authority [HKMA]
Hong Kong Securities and Futures Commission

√
√

X
X

Japan
Financial Services Agency, Japan [JFSA]

√

Singapore
Monetary Authority of Singapore [MAS]
Stock Exchange of Singapore

√
√

X
X

South Africa
South African Futures Exchange
Johannesburg Stock Exchange
Bond Exchange of South Africa

√
√
√

X
X
X

Switzerland
Swiss Federal Banking Commission [EBK]

√

√ Note 2

√

USA
Securities & Exchange Commission (SEC): Net Capital rule only
Commodities and Futures Trading Commission

√ Note 3
√

√
X

X
X

Note 1: A √ denotes that the requirements have been assessed as equivalent to EEA standards.
A X denotes that the requirements have been assessed as not being equivalent to EEA standards.

Note 2: √ International standardised approach only. The treatment of Lombard loans is not equivalent and they must be treated under the appropriate regulator's rules.

Note 3: √ Where entities are subject to a local regulatory capital requirement.

01/04/2013