BIPRU 8

Group risk consolidation

BIPRU 8.1

Application

BIPRU 8.1.1

See Notes

handbook-rule

This chapter applies to:

  1. (1) a BIPRU firm that is a member of a UK consolidation group;
  2. (2) a BIPRU firm that is a member of a non-EEA sub-group; and
  3. (3) [deleted]
  4. (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.

BIPRU 8.1.2

See Notes

handbook-rule
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.

Purpose

BIPRU 8.1.3

See Notes

handbook-guidance
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.

How this chapter is organised

BIPRU 8.1.4

See Notes

handbook-guidance
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.

BIPRU 8.1.5

See Notes

handbook-guidance
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.

BIPRU 8.1.6

See Notes

handbook-guidance
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).

BIPRU 8.1.7

See Notes

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

BIPRU 8.1.8

See Notes

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

BIPRU 8.1.9

See Notes

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

BIPRU 8.1.10

See Notes

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

BIPRU 8.1.11

See Notes

handbook-guidance
BIPRU 8.9 sets out consolidated concentration risk requirements.

Consolidation requirements for BIPRU firms elsewhere in the Handbook

BIPRU 8.1.12

See Notes

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

BIPRU 8.1.13

See Notes

handbook-guidance
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.

BIPRU 8.1.14

See Notes

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

BIPRU 8.1.15

See Notes

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

BIPRU 8.1.16

See Notes

handbook-guidance
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.

BIPRU 8.2

Scope and basic consolidation requirements for UK consolidation groups

Main consolidation rule for UK consolidation groups

BIPRU 8.2.1

See Notes

handbook-rule

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. (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. (2) where either Test 1C or Test 1D in BIPRU 8 Annex 1 apply, the parent financial holding company in a Member State.

BIPRU 8.2.2

See Notes

handbook-rule
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.

BIPRU 8.2.3

See Notes

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

Definition of UK consolidation group

BIPRU 8.2.4

See Notes

handbook-rule

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. (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. (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 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.

BIPRU 8.2.5

See Notes

handbook-rule
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.

BIPRU 8.2.6

See Notes

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

BIPRU 8.2.7

See Notes

handbook-guidance
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 FSA 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.

BIPRU 8.3

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

Main consolidation rule for non-EEA sub-groups

BIPRU 8.3.1

See Notes

handbook-rule
  1. (1) A BIPRU firm that is a subsidiary undertaking of a BIPRU firm or of a 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, have a third country banking or investment services undertaking as a subsidiary undertaking or hold a participation in such an undertaking.
  2. (2) (1) only applies if the FSA 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).

BIPRU 8.3.2

See Notes

handbook-rule
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.

BIPRU 8.3.3

See Notes

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

BIPRU 8.3.4

See Notes

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

How to identify a non-EEA sub-group

BIPRU 8.3.5

See Notes

handbook-guidance
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.

BIPRU 8.3.6

See Notes

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

BIPRU 8.3.7

See Notes

handbook-guidance

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. (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. (2) one of the following applies:
    1. (a) it is a subsidiary undertaking of a BIPRU firm in that UK consolidation group; or
    2. (b) a BIPRU firm in that UK consolidation group holds a participation in it; and
  3. (3) that BIPRU firm is not a parent institution in a Member State.

BIPRU 8.3.8

See Notes

handbook-guidance

BIPRU 8.3.9

See Notes

handbook-guidance
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.

BIPRU 8.3.10

See Notes

handbook-guidance
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.

BIPRU 8.3.11

See Notes

handbook-guidance
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).

BIPRU 8.3.12

See Notes

handbook-guidance

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

  1. (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. (2) one of the following applies:
    1. (a) it is a subsidiary undertaking of a financial holding company in that UK consolidation group; or
    2. (b) a financial holding company in that UK consolidation group holds a participation in it;
  3. (3) the head office of that financial holding company is in the United Kingdom; and
  4. (4) that financial holding company has a subsidiary undertaking that is a BIPRU firm.

BIPRU 8.3.13

See Notes

handbook-guidance

BIPRU 8.3.14

See Notes

handbook-guidance
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).

BIPRU 8.3.15

See Notes

handbook-guidance
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.

BIPRU 8.3.16

See Notes

handbook-guidance
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.

BIPRU 8.3.17

See Notes

handbook-guidance
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.

BIPRU 8.3.18

See Notes

handbook-guidance

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. (1) one potential non-EEA sub-group is contained within a wider potential non-EEA sub-group; and
  2. (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.

BIPRU 8.3.19

See Notes

handbook-guidance
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).

BIPRU 8.3.20

See Notes

handbook-guidance
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.

BIPRU 8.3.21

See Notes

handbook-guidance
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.

BIPRU 8.3.22

See Notes

handbook-guidance
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.

BIPRU 8.3.23

See Notes

handbook-guidance
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.

BIPRU 8.3.24

See Notes

handbook-guidance
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 FSA 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.

BIPRU 8.4

CAD Article 22 groups and investment firm consolidation waiver

Application

BIPRU 8.4.1

See Notes

handbook-rule

The effect of an investment firm consolidation waiver and the conditions for getting one

BIPRU 8.4.2

See Notes

handbook-guidance
A BIPRU investment firm may apply for a waiver of the requirement in this chapter to apply capital requirements on a consolidated basis. Such a waiver is called an investment firm consolidation waiver.

BIPRU 8.4.3

See Notes

handbook-guidance
An investment firm consolidation waiver will waive the application of BIPRU 8.2.1 R and BIPRU 8.2.2 R (if it applies with respect to a UK consolidation group) or BIPRU 8.3.1 R and BIPRU 8.3.2 R (if it applies with respect to a non-EEA sub-group). The effect will be to switch off this chapter with respect to the group in question apart from this section.

BIPRU 8.4.4

See Notes

handbook-guidance

The FSA will not grant an investment firm consolidation waiver unless:

  1. (1) the UK consolidation group or non-EEA sub-group meets the conditions for being a CAD Article 22 group;
  2. (2) the FSA is satisfied that each BIPRU firm in the UK consolidation group or non-EEA sub-group will be able to meet its capital requirements using the calculation of capital resources in GENPRU 2 Annex 6 (Capital resources table for a BIPRU investment firm with a waiver from consolidated supervision); and
  3. (3) the firm demonstrates that the requirements in BIPRU 8.4.11 R to BIPRU 8.4.18 R will be met.

BIPRU 8.4.5

See Notes

handbook-guidance
The standards in BIPRU 8.4.4 G are minimum standards. Satisfaction of these conditions does not automatically mean the FSA will give an investment firm consolidation waiver. The FSA will in addition also apply the tests in section 148 of the Act (Modification or waiver of rules).

BIPRU 8.4.6

See Notes

handbook-guidance
SUP 8 (Waiver and modification of rules) and BIPRU 1.3 (Application for advanced approaches) are also relevant to applications for an investment firm consolidation waiver.

Meeting the terms of an investment firm consolidation waiver

BIPRU 8.4.7

See Notes

handbook-rule
If a firm has an investment firm consolidation waiver with respect to its UK consolidation group or non-EEA sub-group but that UK consolidation group or non-EEA sub-group ceases to meet the definition of a CAD Article 22 group the firm must comply with the rest of this chapter rather than this section notwithstanding the investment firm consolidation waiver.

BIPRU 8.4.8

See Notes

handbook-guidance
Compliance with the capital requirements set out in BIPRU 8.4.11 R is a condition under the Capital Adequacy Directive for the exemption from capital requirements. Thus if they are breached the FSA is likely to revoke the investment firm consolidation waiver.

Definition of a CAD Article 22 group

BIPRU 8.4.9

See Notes

handbook-rule
  1. (1) A CAD Article 22 group means a UK consolidation group or non-EEA sub-group that meets the conditions in this rule.
  2. (2) There must be no bank, building society or credit institution in the UK consolidation group or non-EEA sub-group.
  3. (3) Each CAD investment firm in the UK consolidation group or non-EEA sub-group which is an EEA firm must use the definition of own funds given in the CRD implementation measure of its EEA State for Article 16 of the Capital Adequacy Directive.
  4. (4) Each CAD investment firm in the UK consolidation group or non-EEA sub-group must be a:
    1. (a) limited activity firm; or
    2. (b) limited licence firm.
  5. (5) Each CAD investment firm in the UK consolidation group or non-EEA sub-group which is an EEA firm must:
    1. (a) meet the requirements imposed by the CRD implementation measures of its EEA State for Articles 18 and Article 20 of the Capital Adequacy Directive on an individual basis; and
    2. (b) deduct from its own funds any contingent liability in favour of other members of the UK consolidation group or non-EEA sub-group.
  6. (6) Each BIPRU investment firm in the UK consolidation group or non-EEA sub-group must comply with the main BIPRU firm Pillar 1 rules on an individual basis.

BIPRU 8.4.10

See Notes

handbook-guidance
GENPRU 2.2 (Capital resources) says that a BIPRU investment firm with an investment firm consolidation waiver should calculate its capital resources on a solo basis using GENPRU 2 Annex 6 (Capital resources table for a BIPRU investment firm with a waiver from consolidated supervision). GENPRU 2 Annex 6 requires a BIPRU investment firm to deduct contingent liabilities in favour of other members of the UK consolidation group or non-EEA sub-group. Therefore BIPRU 8.4.9R (5)(b) only imposes the requirement to deduct them on EEA firms.

Capital adequacy obligations relating to a CAD Article 22 group: General rule

BIPRU 8.4.11

See Notes

handbook-rule

If a firm has an investment firm consolidation waiver, it must ensure that any financial holding company in the UK consolidation group or the non-EEA sub-group that is the UK parent financial holding company in a Member State of a CAD investment firm in the UK consolidation group or non-EEA sub-group has capital resources, calculated under BIPRU 8.4.12 R, in excess of the sum of the following (or any higher amount specified in the investment firm consolidation waiver):

  1. (1) the sum of the solo notional capital resources requirements for each CAD investment firm, financial institution, asset management company and ancillary services undertaking in the UK consolidation group or the non-EEA sub-group, as calculated in accordance with BIPRU 8.4.13 R; and
  2. (2) the total amount of any contingent liability in favour of CAD investment firms, financial institutions, asset management companies and ancillary services undertakings in the UK consolidation group or non-EEA sub-group.

Capital adequacy obligations relating to a CAD Article 22 group: Capital resources

BIPRU 8.4.12

See Notes

handbook-rule

A firm must calculate the capital resources of the parent financial holding company in a Member State for the purpose of BIPRU 8.4.11 R as follows:

  1. (1) the capital resources are the sum of capital resources calculated at stages D (Total tier one capital before deductions) and I (Total tier two capital) of the version of the capital resources table in GENPRU 2 Annex 4 (Capital resources table for a BIPRU investment firm deducting material holdings) as adjusted in accordance with this rule;
  2. (2) capital resources at stage D must not include innovative tier one capital resources, but they may be included at stage I if (5) allows this;
  3. (3) the amount of the items which may be included at stage I must not exceed the amount calculated at stage D of the capital resources table;
  4. (4) the amount of the items which may be included in lower tier two capital in stage I must not exceed 50% of the amount calculated at stage D of the capital resources table; and
  5. (5) GENPRU 2.2.25 R (Limits on the use of different forms of capital: Use of higher tier capital in lower tiers) and GENPRU 2.2.27 R (Use of innovative tier one capital in lower stages of capital) apply.

Capital adequacy obligations relating to a CAD Article 22 group: Capital resources requirement

BIPRU 8.4.13

See Notes

handbook-rule

The solo notional capital resources requirement as referred to in BIPRU 8.4.11R (1) is calculated in the same way as:

BIPRU 8.4.14

See Notes

handbook-rule
A firm must exclude material holdings in the notional calculation of the credit risk capital requirement for the purposes of BIPRU 8.4.13 R. A firm must identify whether it has any material holdings and the amount of them in accordance with GENPRU 2.2 (Capital resources) and GENPRU 2 Annex 4 (Capital resources table for a BIPRU investment firm deducting material holdings).

BIPRU 8.4.15

See Notes

handbook-guidance
The notional capital resources requirement calculated under BIPRU 8.4.13 R need not include a credit charge for material holdings. However it should include one for illiquid assets.

BIPRU 8.4.16

See Notes

handbook-rule
Intra-group exposures must not be netted for the purpose of BIPRU 8.4.11 R.

Capital adequacy obligations relating to a CAD Article 22 group: Advanced prudential calculation approaches

BIPRU 8.4.17

See Notes

handbook-rule
A firm may not use an advanced prudential calculation approach for the purpose of BIPRU 8.4.11 R.

Additional rules that apply to a firm with an investment firm consolidation waiver

BIPRU 8.4.18

See Notes

handbook-rule

If a firm has an investment firm consolidation waiver, it must:

  1. (1) ensure that each CAD investment firm in the UK consolidation group or non-EEA sub-group which is a firm or an EEA firm has in place systems to monitor and control the sources of capital and funding of all the members in the UK consolidation group or non-EEA sub-group;
  2. (2) notify the FSA of any serious risk that could undermine the financial stability of the UK consolidation group or non-EEA sub-group, as soon as the firm becomes aware of that risk, including those associated with the composition and sources of the capital and funding of members of the UK consolidation group or non-EEA sub-group;
  3. (3) report the amount of the consolidated capital resources and consolidated capital resources requirement of the UK consolidation group or non-EEA sub-group on a periodic basis as set out in the investment firm consolidation waiver;
  4. (4) report any large exposures risks of members of the UK consolidation group or non-EEA sub-group including any undertakings not located in an EEA State on a periodic basis set out in the investment firm consolidation waiver;
  5. (5) notify the FSA immediately it becomes aware that the UK consolidation group or non-EEA sub-group has ceased to meet the conditions for being a CAD Article 22 group; and
  6. (6) notify the FSA immediately it becomes aware of any breach of BIPRU 8.4.11 R.

BIPRU 8.4.19

See Notes

handbook-guidance
Although an investment firm consolidation waiver switches off most of this chapter, a firm should still carry out the capital adequacy calculations in BIPRU 8.3 to BIPRU 8.8 as if those parts of this chapter still applied to the UK consolidation group or non-EEA sub-group and report these to the FSA . It should also still monitor large exposure risk on a consolidated basis.

BIPRU 8.5

Basis of consolidation

Undertakings to be included in consolidation

BIPRU 8.5.1

See Notes

handbook-rule

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:

BIPRU 8.5.2

See Notes

handbook-guidance
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.

BIPRU 8.5.3

See Notes

handbook-guidance

Basis of inclusion of undertakings in consolidation

BIPRU 8.5.4

See Notes

handbook-rule
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.

BIPRU 8.5.5

See Notes

handbook-rule

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

BIPRU 8.5.6

See Notes

handbook-rule

In BIPRU 8.5.5 R, the relevant proportion is either:

  1. (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. (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 IV permission of the firm.

Basis of inclusion of UCITS investment firms in consolidation

BIPRU 8.5.7

See Notes

handbook-rule
GENPRU 2.1.46 R (Adjustment of the variable capital requirement calculation for UCITS investment firms) does not apply for the purpose of this chapter.

BIPRU 8.5.8

See Notes

handbook-guidance
In general a UCITS 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 scheme management activity. 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 with respect to the whole of the activities of a UCITS investment firm.

Exclusion of undertakings from consolidation: Balance sheet size

BIPRU 8.5.9

See Notes

handbook-rule

A firm may, having first notified the FSA 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. (1) 10 million Euros;
  2. (2) 1% of the balance sheet total of the parent undertaking or the undertaking that holds the participation.

BIPRU 8.5.10

See Notes

handbook-rule
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.

Exclusion of undertakings from consolidation: Other reasons

BIPRU 8.5.11

See Notes

handbook-guidance

Article 73(1) of the Banking Consolidation Directive allows the FSA 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. (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. (2) where, in the opinion of the FSA, the undertaking concerned is of negligible interest only with respect to the objectives of monitoring institutions; or
  3. (3) where, in the opinion of the FSA, 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.

BIPRU 8.5.12

See Notes

handbook-guidance
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 FSA for a waiver. The FSA will consider such applications in the light of the criteria in section 148 of the Act.

BIPRU 8.5.13

See Notes

handbook-guidance
If several undertakings meet the criteria in BIPRU 8.5.11G (2), the FSA 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.

Information about excluded undertakings

BIPRU 8.5.14

See Notes

handbook-guidance
The FSA 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.

BIPRU 8.6

Consolidated capital resources

General

BIPRU 8.6.1

See Notes

handbook-rule
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.

Limits on the use of different forms of capital

BIPRU 8.6.2

See Notes

handbook-rule
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.

BIPRU 8.6.3

See Notes

handbook-guidance
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.

BIPRU 8.6.4

See Notes

handbook-guidance
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.

BIPRU 8.6.5

See Notes

handbook-guidance
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.

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

BIPRU 8.6.6

See Notes

handbook-rule
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.

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

BIPRU 8.6.7

See Notes

handbook-rule
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.

Calculation of consolidated capital resources for an investment firm group

BIPRU 8.6.8

See Notes

handbook-rule
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).

BIPRU 8.6.9

See Notes

handbook-rule
A firm must give one Month's prior notice to the FSA 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).

Treatment of minority interests

BIPRU 8.6.10

See Notes

handbook-rule
  1. (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. (2) A firm must identify the item of capital of the undertaking in question that gives rise to that minority interest.
  3. (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. (4) This rule does not apply to a minority interest created by consolidated indirectly issued capital.

Indirectly issued capital and group capital resources

BIPRU 8.6.11

See Notes

handbook-rule
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.

BIPRU 8.6.12

See Notes

handbook-rule

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

  1. (1) some or all of the following conditions are satisfied:
    1. (a) that capital is issued to an SPV; or
    2. (b) that capital is issued by an SPV; or
    3. (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. (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.

BIPRU 8.6.13

See Notes

handbook-rule

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. (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. (2) the conditions in BIPRU 8.6.16 R to BIPRU 8.6.18 R are satisfied.

BIPRU 8.6.14

See Notes

handbook-rule
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.

BIPRU 8.6.15

See Notes

handbook-rule

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. (1) (in the case of a UK consolidation group) that UK consolidation group; or
  2. (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.

BIPRU 8.6.16

See Notes

handbook-rule

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. (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. (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.

BIPRU 8.6.17

See Notes

handbook-rule

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. (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. (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. (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.

BIPRU 8.6.18

See Notes

handbook-rule

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. (1) those capital resources must at least comply with the requirements for lower tier two capital; and
  2. (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.

BIPRU 8.6.19

See Notes

handbook-rule
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.

BIPRU 8.6.20

See Notes

handbook-rule
A firm must comply with the requirements set out in GENPRU 2.2.135R (Notifying the FSA 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.

Venture Capital Investments

BIPRU 8.6.21

See Notes

handbook-rule
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:

BIPRU 8.7

Consolidated capital resources requirements

General approach

BIPRU 8.7.1

See Notes

handbook-guidance
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.

BIPRU 8.7.2

See Notes

handbook-guidance
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.

BIPRU 8.7.3

See Notes

handbook-guidance

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

BIPRU 8.7.4

See Notes

handbook-guidance
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).

BIPRU 8.7.5

See Notes

handbook-guidance
In general a firm should calculate each consolidated requirement component using the FSA'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.

BIPRU 8.7.6

See Notes

handbook-guidance
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.

BIPRU 8.7.7

See Notes

handbook-guidance
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.

BIPRU 8.7.8

See Notes

handbook-guidance
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.

BIPRU 8.7.9

See Notes

handbook-guidance
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.

Method of calculation to be used

BIPRU 8.7.10

See Notes

handbook-rule
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).

Calculation of the consolidated requirement components

BIPRU 8.7.11

See Notes

handbook-rule
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 FSA'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.

Choice of consolidation method

BIPRU 8.7.13

See Notes

handbook-rule
  1. (1) A firm must calculate a consolidated requirement component by using one of the methods in this rule.
  2. (2) Under the first method a firm must:
    1. (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
    2. (b) add the risk capital requirements together.
  3. (3) Under the second method a firm must:
    1. (a) treat the whole UK consolidation group or non-EEA sub-group as a single undertaking; and
    2. (b) apply the risk capital requirement set out in BIPRU 8.7.12 R to the group on an accounting consolidation basis.
  4. (4) The third method is a mixture of methods one and two. Under the third method a firm must:
    1. (a) treat one or more parts of the UK consolidation group or non-EEA sub-group as separate single undertakings;
    2. (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;
    3. (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
    4. (d) add the risk capital requirements together.
  5. (5) A firm may use different methods for different consolidated requirement components.

BIPRU 8.7.14

See Notes

handbook-guidance
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.

BIPRU 8.7.15

See Notes

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

Notifying the FSA of the choice of consolidation technique

BIPRU 8.7.16

See Notes

handbook-rule
A firm must notify the FSA 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.

Special rules for the consolidated credit risk requirement

BIPRU 8.7.17

See Notes

handbook-rule

BIPRU 8.7.18

See Notes

handbook-guidance
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.

BIPRU 8.7.20

See Notes

handbook-rule
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.

BIPRU 8.7.21

See Notes

handbook-rule
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.

BIPRU 8.7.22

See Notes

handbook-rule

BIPRU 8.7.23

See Notes

handbook-rule
  1. (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:
    1. (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
    2. (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. (2) The notification obligation in BIPRU 3.2.35 R applies.

Special rules for the consolidated market risk requirement

BIPRU 8.7.24

See Notes

handbook-rule
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.

BIPRU 8.7.25

See Notes

handbook-rule

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. (1) each of the undertakings in that group or sub-group is an institution that is:
    1. (a) a BIPRU firm;
    2. (b) an EEA firm;
    3. (c) a recognised third country credit institution; or
    4. (d) a recognised third country investment firm;
  2. (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. (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. (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. (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. (6) there is no material legal, regulatory or contractual impediment to mutual financial support between those undertakings in that group or sub-group;
  7. (7) the market risk position of the undertakings are monitored and managed on a co-ordinated basis; and
  8. (8) there is satisfactory allocation of capital within the group or sub-group.

Special rules for the consolidated operational risk requirement

BIPRU 8.7.26

See Notes

handbook-rule
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.

BIPRU 8.7.27

See Notes

handbook-rule
  1. (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. (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. (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. (4) (3) also applies to a sub-group created under method 3 as described in BIPRU 8.7.13R (4)(a).

Special rules for calculating specific consolidated requirement components

BIPRU 8.7.28

See Notes

handbook-guidance
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.

Elimination of intra-group transactions

BIPRU 8.7.29

See Notes

handbook-rule

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. (1) (in respect of the consolidated credit risk requirement) intra-group balances; or
  2. (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.

Other provisions about calculating risk capital requirements

BIPRU 8.7.30

See Notes

handbook-rule
  1. (1) This rule applies when the rules applicable under BIPRU 8.7.12 R apply differently for different types of firms.
  2. (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. (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. (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. (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.

BIPRU 8.7.31

See Notes

handbook-guidance
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.

BIPRU 8.7.32

See Notes

handbook-guidance
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.

BIPRU 8.7.33

See Notes

handbook-guidance
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).

Use of the solo requirements of another EEA competent authority

BIPRU 8.7.34

See Notes

handbook-rule
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 FSA's rules that would otherwise apply under this section if the institution is subject to those CRD implementation measures.

Use of the solo requirements of a regulator outside the EEA

BIPRU 8.7.35

See Notes

handbook-rule
  1. (1) This rule applies where:
    1. (a) an institution in a firm's UK consolidation group or non-EEA sub-group is subject to any of the sectoral rules applicable to its financial sector for a state or territory outside the EEA that correspond to the FSA's rules that would otherwise apply under this section;
    2. (b) those sectoral rules are shown in BIPRU 8 Annex 6 (Non-EEA regulators' requirements deemed CRD-equivalent for individual risks) as having been assessed as being equivalent to the FSA rules in relation to the consolidated requirement component in question; and
    3. (c) that institution is incorporated in and has its head office in that state or territory.
  2. (2) If the conditions in this rule are satisfied, a firm may apply the sectoral rules referred to in (1) in order to calculate the risk capital requirement for the institution referred to in (1) provided that:
    1. (a) the firm has no reason to believe that the use of the sectoral rules referred to in (1) would produce a lower figure for the consolidated requirement component than would be produced by calculating the risk capital requirement under the FSA's rules in accordance with this section; or
    2. (b) the firm increases the amount produced under the sectoral rules referred to in (1) and the firm has no reason to believe that the use of such figures would produce a lower figure for the consolidated requirement component than would be produced by calculating the risk capital requirement under the FSA's rules in accordance with this section.

BIPRU 8.7.36

See Notes

handbook-guidance
If a firm wants to include in its consolidated capital resources requirement a solo capital resource requirement for an individual risk calculated under the rules of a non-EEA regulator not assessed as equivalent in BIPRU 8 Annex 6 (Non -EEA regulators' requirements deemed CRD-equivalent for individual risks) it will need to apply for a waiver. A firm applying for such a waiver should demonstrate that the local requirements result in a capital charge that is at least as much as required under the corresponding FSA rules.

Use of the consolidated requirements of another EEA competent authority

BIPRU 8.7.37

See Notes

handbook-rule
  1. (1) This rule applies if:
    1. (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
    2. (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. (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 FSA's rules that would otherwise apply under this section.

Use of the consolidated requirements of a regulator outside the EEA

BIPRU 8.7.38

See Notes

handbook-rule
  1. (1) This rule applies if:
    1. (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);
    2. (b) the part of the group in (a) constitutes the whole of a group subject to the consolidated capital requirements of a third country competent authority under the sectoral rules for the banking sector or the investment services sector; and
    3. (c) those sectoral rules are shown in BIPRU 8 Annex 6 (Non-EEA regulators' requirements deemed CRD-equivalent for individual risks) as having been assessed as being equivalent to the FSA's rules in relation to the consolidated requirement component in question.
  2. (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 FSA's rules that would otherwise apply under this section. However a firm may only do this if it also complies with BIPRU 8.7.35R (2).

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

BIPRU 8.7.39

See Notes

handbook-guidance
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).

BIPRU 8.8

Advanced prudential calculation approaches

General

BIPRU 8.8.1

See Notes

handbook-rule
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.

BIPRU 8.8.2

See Notes

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

Prohibition on using the rules of an overseas regulator

BIPRU 8.8.3

See Notes

handbook-rule
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 to BIPRU 8.7.38 R (Use of the capital requirements of an overseas regulator) if that would involve using an advanced prudential calculation approach.

Special provisions relating to the internal ratings based approach

BIPRU 8.8.4

See Notes

handbook-rule
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.

Special provisions relating to the advanced measurement approach

BIPRU 8.8.5

See Notes

handbook-rule
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.

BIPRU 8.8.6

See Notes

handbook-guidance
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.

BIPRU 8.8.7

See Notes

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

Special provisions relating to the CCR internal model method

BIPRU 8.8.8

See Notes

handbook-guidance
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.

Corporate governance arrangement for the IRB approach and the AMA

BIPRU 8.8.9

See Notes

handbook-guidance
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.

BIPRU 8.9A

Consolidated large exposure requirements

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

BIPRU 8.9A.1

See Notes

handbook-rule
  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. (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.

BIPRU 8.9A.2

See Notes

handbook-guidance
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.

BIPRU 8.9A.3

See Notes

handbook-rule
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).

BIPRU 8 Annex 1

Decision tree identifying a UK consolidation group

See Notes

handbook-rule

BIPRU 8 Annex 2

Examples of how to identify a UK consolidation group

See Notes

handbook-guidance

BIPRU 8 Annex 3

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

See Notes

handbook-guidance

BIPRU 8 Annex 4

Text of Articles 125 and 126 of the Banking Consolidation Directive

See Notes

handbook-guidance

BIPRU 8 Annex 5

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

See Notes

handbook-rule

BIPRU 8 Annex 6

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

See Notes

handbook-rule