Transitional Provisions and Schedules

Part

BIPRU Prudential sourcebook for Banks, Building Societies and Investment Firms

Chapter

Transitional Provisions and Schedules

Printed on: 21/05/2024

Rulebook at: 31/12/2011

Transitional Provisions and Schedules

BIPRU TP 1

Applicable chapter of IPRU and other general provisions

TP 1

Applicable chapter of IPRU and other general provisions

Application

1.1

BIPRU TP 1 applies to:

(1)

a BIPRU firm; and

(2)

any firm to which BIPRU 8 (Group risk - consolidation) applies.

Version of IPRU to be used

1.2

Any reference in BIPRU TP to IPRU is to the version in force on 31 December 2006.

Categorisation of BIPRU investment firms

1.3

For the purposes of BIPRU TP the definitions of securities and futures firm, investment management firm and personal investment firm are amended as follows:

(1)

if a firm fell into one of those categories on 31 December 2006 it remains in that category unless changed under (2);

(2)

if a firm has got a permission that includes a requirement that it comply with the provisions of BIPRU TP applicable to one of those categories, that firm falls into that category; and

(3)

a BIPRU investment firm that is not an investment management firm, UCITS investment firm or a personal investment firm is a securities and futures firm.

Applicable part of IPRU on a solo basis

1.4

(1)

This rule identifies which part of IPRU applies where BIPRU TP applies IPRU to a firm on a solo basis.

(2)

IPRU(BANK) applies to a bank.

(3)

IPRU(BSOC) applies to a building society.

(4)

IPRU(INV) applies to a BIPRU investment firm as follows:

(a)

Chapter 5 applies to an investment management firm;

(b)

Chapter 7 applies to a UCITS investment firm;

(c)

Chapter 10 applies to a securities and futures firm; and

(d)

Chapter 13 applies to a personal investment firm.

General provisions about consolidation

1.5

Each provision of BIPRU TP that applies on a solo basis also applies for the purposes of BIPRU 8 (Group risk - consolidation). This is subject to the provisions of BIPRU TP concerned.

1.6

Many sections of BIPRU TP deal specifically with when and how they apply on a consolidated basis. However BIPRU TP will still apply for consolidation purposes even where this is not the case. BIPRU TP 1.5R does not apply to BIPRU TP 2.1 (Solo consolidation) as solo consolidation is a concept that only applies to solo requirements.

Classification of groups for certain consolidation rules

1.7

(1)

This rule sets out how to classify a UK consolidation group or non-EEA sub-group ("group") to which consolidated requirements are applied under certain parts of BIPRU TP.

(2)

If the answer to the question at stage 1 of the decision tree in BIPRU 8 Annex 5R (Decision tree for identifying the consolidated capital resources requirement of a UK consolidation group or a non-EEA sub-group) with respect to the group is Yes and there is a building society in the group, the group is referred to in BIPRU TP as a building society group.

(3)

If a non-EEA sub-group is part of a UK consolidation group that is a building society group then the non-EEA sub-group is also a building society group. However a firm may use (2) for the purposes of calculating the consolidated capital resources of the non-EEA sub-group where capital resources are calculated under IPRU.

(4)

If the answer to the question at stage 1 of the decision tree in BIPRU 8 Annex 2R with respect to the group is Yes and the group is not a building society group, the group is referred to in BIPRU TP as a banking group.

(5)

In any other case the group is referred to in BIPRU TP as an investment services group.

01/01/2007

BIPRU TP 2

Capital floors for a firm using the IRB or AMA approaches

Application

2.1

Subject to BIPRU TP 2.2R, this section applies to a BIPRU firm that applies the IRB approach or the advanced measurement approach.

2.2

BIPRU TP 2.30R to BIPRU TP 2.34G apply to any firm to which BIPRU 8 (Group risk - consolidation) applies and which applies the IRB approach or the advanced measurement approach on a consolidated basis.

Purpose

2.3

This section in part implements Articles 152(1) - (7) of the Banking Consolidation Directive and Article 43 of the Capital Adequacy Directive.

2.4

The purpose of this section is to limit the amount of capital reduction arising from the implementation of the Banking Consolidation Directive and the Capital Adequacy Directive compared with the requirements arising from the previous versions of those Directives. As such it is effectively a comparison of the capital resource requirements arising from BIPRU with those arising from the appropriate IPRU sourcebook that would have applied as at 31 December 2006. However the effect of changes to the market risk requirements is removed by requiring BIPRU 7 (Market risk) to be used for both sides of the comparison.

How to apply the capital floors

2.5

This section does not require a firm to continue to have capital resources equal to a fixed percentage of the capital requirement that applied to it as at 31 December 2006. Instead a firm should apply the requirements in this section to its business as it changes over time. So for example if a firm is calculating its capital requirements as at 31 December 2008 it will have two calculations. The first is carried out under BIPRU and GENPRU. The second is carried out under IPRU and this section. Both sets of requirements are applied to the firm's figures as at 31 December 2008.

2.6

The Directive provisions on which this section is based are written as a floor on a firm's capital resources requirement. This section however is written as a second capital resources requirement that sits beside the general capital resources requirements of BIPRU and GENPRU. The reason for this is that a firm should meet the general capital resources requirements of BIPRU and GENPRU using capital resources calculated under GENPRU 2.2 (Capital resources). On the other hand a firm should meet the capital resources requirements of this section (which are based on IPRU) using the relevant IPRU definition. In practice the two sets of definitions of capital resources are similar apart from the provisions about expected loss. Therefore as shown by the example in BIPRU TP 2.12G and BIPRU TP 2.13G, in practice a firm is subject to a single capital resources requirement.

2.7

BIPRU TP 9 explains how the general principle in this section is applied to a personal investment firm.

Capital floors: solo

2.8

A firm calculating risk weighted exposure amounts in accordance with the IRB approach must during the following twelve-month periods after 31 December 2006 provide capital resources that equal or exceed the following amounts:

(1)

for the first twelve-month period, 95%;

(2)

for the second twelve-month period, 90%; and

(3)

for the third and each subsequent twelve-month period, 80%;

of the solo capital resources requirement that applies to the firm under whichever part of IPRU applies under BIPRU TP 1.4R.

2.9

A firm using the advanced measurement approach must, during each of the second, third and subsequent twelve-month periods after 31 December 2006, provide capital resources which are at all times more than or equal to the amounts indicated in BIPRU TP 2.8R(2) and BIPRU TP 2.8R(3).

Capital resources: solo

2.10

A firm must calculate its capital resources in accordance with whichever part of IPRU applies under BIPRU TP 1.4R.

2.11

Compliance with the requirements of this section must be on the basis of amounts of capital resources fully adjusted to reflect differences in the calculation of capital resources under IPRU and the calculation of capital resources under GENPRU and BIPRU deriving from the separate treatments of expected loss and unexpected loss under the IRB approach.

Waiver from IPRU capital resources requirement

2.11A

Article 152(5d) and (5e) of the Banking Consolidation Directive allows the FSA to waive the capital floor calculation based on the IPRU capital resources requirement in BIPRU TP 2.8R(3), or BIPRU TP 2.8R(3) as applied in BIPRU TP 2.9R, on a case-by-case basis only if a firm started to use the IRB approach or the advanced measurement approach on or after 1 January 2010. The FSA will consider an application for such a waiver in the light of the criteria in section 148 of the Act (Modification or waiver of rules).

2.11B

If a firm has a waiver referred to in BIPRU TP 2.11AG, it must provide capital resources that equal or exceed 80% of the capital resources requirement that the firm would be required to provide under the relevant sections of BIPRU applicable to it immediately before it started to use the IRB approach or the advanced measurement approach as those sections were in force on 31 December 2010.

Explanation of the calculation

2.12

The following provides an illustrative example of the application of this section to a bank in a period in which BIPRU TP 2.8R(1) applies (i.e. the 95% requirement). Say that under IPRU(BANK) the firm's capital resources requirement would be £8.00mn and this would be met in part by general/collective provisions of £0.5mn. This establishes the capital resources requirement under this section at 95% times (£8.0mn less £0.5mn), which equals £7.125mn.

2.13

Say that in the absence of this section, the Pillar 1 capital resources requirement of the firm in BIPRU TP 2.12G would be £6.4m, and the sum of value adjustments and provisions are £0.25mn less than expected losses. For the purposes of the expected loss calculation, if the result is negative (i.e. value adjustments and provisions are less than expected losses) that amount is deducted from capital resources (which is equivalent to an increase in the capital resources requirement). If the result is positive it is added to capital resources (which is equivalent to a decrease in the capital resources requirement). In this example the result is negative. As the sum of these two amounts (£6.65mn) is still less than the IPRU capital resources requirement of £7.125mn, the effect of this section is that the firm is subject to the (higher) IPRU requirement. If the sum of the BIPRU requirements had been greater than £7.125mn, then the firm would not have been subject to the capital resources requirement in this section.

Adjustments to the calculation of capital resources

2.14

A firm may treat any capital instrument that complies with the requirements of GENPRU 2.2 (Capital resources) as complying with the corresponding requirements of IPRU.

2.15

An example of BIPRU TP 2.14R is that a firm may treat subordinated debt with a term of five years or over that qualifies as lower tier two capital for the purposes of GENPRU as complying with the corresponding provisions for five year subordinated debt under IPRU.

Market risk

2.16

A firm must substitute the requirements in BIPRU for the calculation of the market risk capital requirement (excluding those provisions to the extent that they would involve using the IRB approach) for the corresponding provisions of IPRU.

2.17

BIPRU TP 4 to BIPRU TP 9 (Pre CRD capital requirements applying on a solo basis during 2007) explain which parts of IPRU correspond to the market risk capital requirement.

CAD 1 model and VaR model

2.18

If a firm has a CAD 1 permission or a VaR model permission it must also use it for the purposes of the capital floor calculations in this section.

2.19

In applying BIPRU TP 2.18R, a firm should not adjust the CAD 1 permission approach or VaR model approach (including the scope of the CAD 1 permission or VaR model permission) so that it is consistent with Directive 93/6 (the Capital Adequacy Directive) as it stood on 31 December 2006.

Individual capital guidance

2.20

The IPRU capital resources requirement does not include any individual capital ratio notified to a bank under Chapter CO of IPRU(BANK) or any similar notification by the FSA to any other firm.

2.21

Any further capital resource requirements that a firm is required to meet under GENPRU 1.2 (Adequacy of financial resources) (i.e. Pillar 2) should not be taken into account.

How to apply IPRU

2.22

If the part of IPRU that applies to a firm applies different calculations to different types of firm the firm must use the calculations that it would have to use under BIPRU TP 3 (Pre CRD capital requirements applying on a solo basis during 2007).

2.23

If the part of IPRU that applies to a firm gives the firm a choice between methods of calculating capital resources or capital resources requirements it must exercise that choice consistently with the corresponding choices it makes in calculating capital resources or capital resources requirement under GENPRU and BIPRU.

2.24

BIPRU TP 4 to BIPRU TP 9 (Pre CRD capital requirements applying on a solo basis during 2007) explain how concepts in IPRU and GENPRU map onto the ones in IPRU. This will enable a firm to decide which calculations it should use for the purposes of BIPRU TP 2.22R and BIPRU TP 2.23R.

2.25

An example of the effect of BIPRU TP 2.22R and BIPRU TP 2.23R is that a securities and futures firm that calculates its capital resources under GENPRU 2 Annex 4 R (Capital resources table for a BIPRU investment firm deducting material holdings) should calculate its capital resources under IPRU using table 10-62(2)A of chapter 10 of IPRU(INV).

2.26

For the purpose of calculating the part of the IPRU capital resources requirement that corresponds to the concentration risk capital component a firm may identify the trading book exposures on which that requirement is based using BIPRU 10(Large exposures requirements) except to the extent that BIPRU 10 involves the IRB approach.

2.27

The concentration risk capital component is the capital requirement for a firm that chooses to have trading book exposures that exceed the large exposure limits for the non-trading book. In most cases IPRU has a similar capital requirement. The purpose of BIPRU TP 2.26R is to allow a firm to calculate the amount of the excess trading book exposures for which it calculates the additional capital charge using BIPRU 10(Large exposures requirements) in order to avoid having to apply the IPRU large exposure requirements for this purpose only.

2.28

The calculations under this section do not take into account the base capital resources requirement or the part of the IPRU solo capital resources requirement that corresponds to the base capital resources requirement.

Solo consolidation

2.29

If a firm has a solo consolidation waiver it also applies for the purpose of this section in place of any corresponding provision of IPRU.

Capital floors: consolidation

2.30

If a firm calculates risk weighted exposure amounts on a consolidated basis in accordance with the IRB approach or uses the advanced measurement approach on a consolidated basis, BIPRU TP 2.8R to BIPRU TP 2.27G apply on a consolidated basis in accordance with BIPRU TP 2.30R to BIPRU TP 2.31R.

2.31

A firm must calculate the consolidation requirements under BIPRU TP 2.30R for the group in question (the group in question is specified in BIPRU TP 2.32R) in accordance with the following:

(1)

if the group is a banking group as defined in BIPRU TP 1.7R (Classification of groups for certain consolidation rules), the consolidation provisions of IPRU(BANK) apply;

(2)

if the group is a building society group as defined in BIPRU TP 1.7R, the consolidation provisions of IPRU(BSOC) apply; and

(3)

if the group is an investment firm group as defined in BIPRU TP 1.7R, chapter 14 of IPRU(INV) applies.

2.32

The scope of the consolidation under BIPRU TP 2.30R and any exemption from consolidation is determined in accordance with BIPRU 8 (Group risk - consolidation) rather than IPRU. In particular, the following adjustments apply:

(1)

if a firm is a member of a UK consolidation group and applies the IRB approach or the AMA with respect to that UK consolidation group, BIPRU TP 2.30R applies with respect to that UK consolidation group; and

(2)

if a firm is a member of a non-EEA sub-group and applies the IRB approach or the AMA with respect to that non-EEA sub-group, BIPRU TP 2.30R applies with respect to that non-EEA sub-group.

2.33

If for example the consolidation rules that apply for the purposes of this section are those in chapter 14 of IPRU(INV) (Consolidated supervision of investment firms) then IPRU(INV) 14.1 (Application) and 14.2 (Scope of consolidation) do not apply. BIPRU 8.2 (Scope and basic consolidation requirements for UK consolidation groups), BIPRU 8.3 (Scope and basic consolidation requirements for non-EEA sub-groups), BIPRU 8.4 (CAD Article 22 groups and investment firm consolidation waiver) and BIPRU 8.5 (Basis of consolidation) apply instead.

Capital floors: waiver from consolidation

2.34

If a firm has an investment firm consolidation waiver and it is applying the IRB approach or the AMA, the waiver will explain how the investment firm consolidation waiver applies for the purpose of this section.

01/01/2011

BIPRU TP 3

Pre CRD capital requirements applying on a solo basis during 2007

Application

3.1

This section applies to a BIPRU firm.

Purpose

3.2

This section (together with BIPRU TP 4 - BIPRU TP 10) implements Articles 152(8) - (14) of the Banking Consolidation Directive and Article 50(1) of the Capital Adequacy Directive.

Duration of transitional

3.3

This section applies until 1 January 2008.

Continued use of IPRU

3.4

Unless a firm notifies the FSA to the contrary, a firm must use on a solo basis the credit risk rules in whichever part of IPRU applies to it under BIPRU TP 1 rather than the ones in BIPRU.

3.5

BIPRU TP 3 sets out, for all types of firm, which parts of GENPRU and BIPRU do and do not apply when BIPRU TP 3 applies.

3.6

BIPRU TP 4 - BIPRU TP 9 set out, for each category of BIPRU firm, which sections of the part of IPRU that applies to it do and do not apply during 2007 as follows:

(1)

BIPRU TP 4 applies to a bank;

(2)

BIPRU TP 5 applies to a building society;

(3)

BIPRU TP 6 applies to an investment management firm;

(4)

BIPRU TP 7 applies to a UCITS investment firm;

(5)

BIPRU TP 8 applies to a securities and futures firm; and

(6)

BIPRU TP 9 applies to a personal investment firm.

3.7

BIPRU TP 10 explains how this section is applied on a consolidated basis.

Disapplication of GENPRU and BIPRU

3.8

Table: Parts of GENPRU and BIPRU that apply in 2007
This table belongs to BIPRU TP 3.5R

GENPRU and BIPRU provisions

A Y denotes that the provision does apply
An N denotes that it does not apply

GENPRU TP (Transitional provisions)

GENPRU 1.1 (Application and scope)

GENPRU 1.2 (Adequacy of financial resources)

The overall financial adequacy rule

GENPRU 1.2 so far as it applies to liquidity risk

The rest of GENPRU 1.2 for purposes other than liquidity risk

GENPRU 1.3 (Valuation)

GENPRU 1.4 (Actions for damages)

GENPRU 1.5 (Application of GENPRU 1 to Lloyd's)

Not applicable as does not apply to BIPRU firms

GENPRU 2.1 (Calculation of capital resources requirements)

GENPRU 2.2 (Capital resources)

GENPRU 2.3 (Application of GENPRU 2 to Lloyd's)

Not applicable as does not apply to BIPRU firms

GENPRU 3.1 (Cross sector groups)

GENPRU 3.2 (Third-country groups)

BIPRU TP (Transitional provisions)

BIPRU 1.1 (Application and scope)

BIPRU 1.2 (Definition of the trading book)

BIPRU 1.3 (Application for advanced approaches)

BIPRU 1.4 (Actions for damages)

BIPRU 2.1 (Solo consolidation)

BIPRU 2.2 (Adequacy of financial resources)

BIPRU 2.3 (Interest rate risk in the non-trading book);

BIPRU 3 (Standardised approach to credit risk)

BIPRU 4 (The IRB approach)

BIPRU 5 (Credit risk mitigation)

BIPRU 6 (Operational risk)

BIPRU 7(Market risk)

BIPRU 7.2.43 R to BIPRU 7.2.49 R (Interest rate specific risk calculation)

N (BIPRU TP 4 - BIPRU TP 9 set out what applies in place of these rules)

BIPRU 7.11.18 R to BIPRU 7.11.58 R (Special treatment of credit default swaps)

Rest of BIPRU 7

BIPRU 8 (Group risk - consolidation)

BIPRU 9 (Securitisation)

BIPRU 10 (Concentration risk)

BIPRU 10.5.2 R to BIPRU 10.5.5 R (Capital resources)

BIPRU 10.5.14 R (Notification of trading book excesses)

Y Only applies if BIPRU TP 4 to BIPRU TP 10 allow excess exposures in the trading book.

The rest of BIPRU 10

(Disclosure) BIPRU 11

BIPRU 12

Chapter does not yet exist

BIPRU 13 (Financial derivatives, SFTs and long settlement transactions)

BIPRU 14 (Capital requirements for settlement and counterparty risk)

This table is subject to the adjustments set out in BIPRU TP 3.15R to BIPRU TP 3.21R when a firm also uses the IRB approach.

Application of BIPRU concentration risk rules for underwriting

3.9

Even though BIPRU 10 (Concentration risk) does not apply, the provisions in BIPRU 7.8 (Securities underwriting) about the calculation of the net underwriting exposures still apply.

How to interpret cross-references

3.10

If a provision in BIPRU or GENPRU that applies under this section refers to a provision of BIPRU or GENPRU that does not apply that reference must be read as referring to the IPRU provision that applies instead under this section (if any). If a provision in IPRU that applies under this section refers to a provision of IPRU that does not apply that reference must be read as referring to the corresponding provision in BIPRU or GENPRU that applies under this section.

3.11

BIPRU TP 4 - BIPRU TP 9 set out, for each category of BIPRU firm, some of the main examples of the sort of cross-references referred to in BIPRU TP 3.10R.

3.12

GENPRU 2.2.187 R and GENPRU 2.2.188 R (Upper tier two capital: General/collective provisions) still applies to a firm that uses BIPRU TP 3.4R. The reference to the sum of risk weighted assets under the standardised approach for credit risk should be read as being to the sum of risk-weighted assets under the provisions of IPRU that apply under this section.

Combination of IPRU with the standardised approach to credit risk

3.13

A firm may not combine the standardised approach to credit risk with the use of IPRU under BIPRU TP 3.4R.

Effect of switching off GENPRU 1.2

3.14

If GENPRU 1.2 (Adequacy of financial resources) does not apply to a firm, stress and scenario testing obligations in other parts of the Handbook still apply. In particular these include stress and scenario tests required under the IRB approach (see in particular BIPRU 4.3.39 R to BIPRU 4.3.42 G (Stress tests used in assessment of capital adequacy) and BIPRU 2.2.41 R to BIPRU 2.2.45 G), under the VaR model approach and under BIPRU 10.6.22 R to BIPRU 10.6.27 G (Stress testing of credit risk concentrations).

Continued use of IPRU combined with the IRB approach

3.15

BIPRU TP 3.16R to BIPRU TP 3.21R only apply to a firm that is applying the IRB approach as well as using IPRU.

3.16

If a firm's IRB permission allows it to do this, a firm may combine the IRB approach with the use of IPRU under BIPRU TP 3.4R.

3.17

If an exposure comes within the scope of a firm's IRB permission the firm should use the IRB approach to calculate the credit risk capital component and the counterparty risk capital component with respect to that exposure in accordance with BIPRU rather than IPRU. In particular BIPRU 4 (The IRB approach), BIPRU 5 (Credit risk mitigation), BIPRU 9 (Securitisation), BIPRU 13 (Financial derivatives, SFTs and long settlement transactions) and BIPRU 14 (Capital requirements for settlement and counterparty risk) apply.

3.18

If a firm combines the IRB approach with the use of IPRU under BIPRU TP 3.14R, the disapplication of BIPRU 10 (Concentration risk) still applies. However in the case of exposures to which the firm applies the IRB approach:

(1)

BIPRU 10.6.14 R to BIPRU 10.6.26 R (Exemptions for firms using the financial collateral comprehensive method, Exemptions for firms using own estimates of LGDs and conversion factors under the IRB approach and Stress testing of credit risk concentrations) apply;

(2)

a firm may not recognise credit risk mitigation if it does not comply with BIPRU 5 and BIPRU 4.10 (Credit risk mitigation) to the extent they apply to BIPRU 10; and

(3)

BIPRU 5 and BIPRU 4.10 apply for the purpose of calculating the amount of credit risk mitigation to the extent that they apply to BIPRU 10.

3.19

BIPRU 11 (Disclosure) applies to exposures to which the firm applies the IRB approach. The rest of BIPRU 11 also applies except to the extent that it relates to parts of BIPRU and GENPRU that do not apply under this section.

3.20

BIPRU 7.11.18 R to BIPRU 7.11.58 R (Special treatment of credit default swaps) apply to exposures subject to the IRB approach.

Reduced operational risk capital requirement

3.21

Where BIPRU TP 3.4R applies, the operational risk capital requirement is reduced by the percentage representing the ratio of the value of the firm's exposures for which capital requirements are calculated in accordance with BIPRU TP 3.4R to the total value of its exposures.

01/11/2007

BIPRU TP 4

Pre CRD capital requirements applying on a solo basis during 2007: Banks

Application

4.1

BIPRU TP 4 applies to a BIPRU firm that is:

(1)

a bank; and

(2)

applying BIPRU TP 3.4R (Pre CRD capital requirements applying on a solo basis during 2007).

Purpose of this section

4.2

BIPRU TP 3 (Pre CRD capital requirements applying on a solo basis during 2007) says that during 2007 a firm may apply the credit risk requirements of IPRU instead of the ones in BIPRU. For a bank this involves applying the credit risk requirements in IPRU(BANK). This section explains how this is done. In particular BIPRU TP 4 explains:

(1)

which parts of IPRU(BANK) should be treated as credit risk requirements for this purpose;

(2)

what parts of IPRU(BANK) apply during 2007 and what changes are made to IPRU(BANK) for that purpose; and

(3)

what changes are made to GENPRU and BIPRU to reflect the fact that IPRU(BANK) applies in place of parts of GENPRU and BIPRU.

Duration of transitional

4.3

This section applies until 1 January 2008.

Drafting approach in this section

4.4

4.5

The capital calculation for credit risk under BIPRU is made up of three elements, which are set out in GENPRU 2.1.51 R (Calculation of the credit risk capital requirement). These are the credit risk capital component, the counterparty risk capital component and the concentration risk capital component. So the approach in BIPRU TP 4.4G involves finding equivalents for these three elements in IPRU(BANK).

4.6

BIPRU TP 3.8R (Parts of GENPRU and BIPRU that apply in 2007) provides that GENPRU 2.2 (Capital resources) applies during 2007. So a bank using BIPRU TP 3.4R (Pre CRD capital requirements applying on a solo basis during 2007) should calculate its capital resources under GENPRU 2.2, instead of calculating its capital under IPRU(BANK).

Parts of IPRU(BANK) that apply in 2007: Chapter GN

4.7

The parts of Chapter GN of IPRU(BANK) that do and do not apply during the period that BIPRU TP 3.4R applies are as set out in BIPRU TP 4.8R.

4.8

Table: Parts of Chapter GN of IPRU(BANK) that apply in 2007
This table belongs to BIPRU TP 4.7R

Provisions of Chapter GN of IPRU(BANK)

A Y denotes that the provision does apply
An N denotes that it does not apply

Remarks

GN 3.3.19R to GN 3.3.20G (requirement to have adequate systems and controls for monitoring, controlling and calculating LE)

GN 3.3.21R to GN 3.3.22G (requirement to notify FSA if breach or propose to breach the 25% limit)

Solo consolidation is dealt with by BIPRU 2.1 (Solo consolidation)

GN 3.4.1R to GN 3.4.2G (requirement to have written policy statement for LE)

GN 3.4.5R to GN 3.4.6G (requirement to have written provisioning policy statement)

The reference to rule 3.3.17 is replaced by a reference to the requirements in GENPRU 1.3.4 R (General requirements: Accounting principles to be applied)

GN 3.4.9E to GN 3.4.12R (Policy statement procedures

Applies in relation to large exposures and provisioning policy statements

GN 3.5.1R (Definitions)

Applies for the purpose of the provisions that continue in force under this table

GN 3.6.1 R (Transitional rule for policy statements)

Applies in relation to large exposures and provisioning policy statements

The parts of Chapter GN that remain in force even if the bank is not applying BIPRU TP 3.4R (Pre CRD capital requirements applying on a solo basis during 2007)

See in particular rules 3.4.3 and 3.4.9 (Liquidity policy statement)

Rest of Chapter GN

A bank must calculate its capital for the purposes of the rules in this table about large exposures in accordance with BIPRU 10.5.2 R to BIPRU 10.5.5 R (Capital resources for concentration risk purposes).

Parts of IPRU(BANK) that apply in 2007

4.9

The parts of IPRU(BANK) that do and do not apply during the period that BIPRU TP 3.4R applies are as set out in BIPRU TP 4.11G. This section does not explain what parts of IPRU(BANK) do and do not apply to an overseas bank as this section only applies to a bank that is a BIPRU firm.

4.10

The table in BIPRU TP 4.11G assumes that the firm is not applying the IRB approach. BIPRU TP 4.40G to BIPRU TP 4.43G deal with a firm that does apply the IRB approach.

4.11

Table: Parts of IPRU(BANK) that apply in 2007
This table belongs to BIPRU TP 4.9G

Provisions of IPRU(BANK)

A Y denotes that the provision does apply
An N denotes that it does not apply

Remarks

GN (General)

See the table in BIPRU TP 4.8R

CO (Capital Adequacy Overview)

Sections 1-3

Section 4

CB (Trading Book/Banking Book Division)

CA (Definition of Capital)

BC (Credit Risk in the Banking Book)

BO (Proxies for Market Risk in Banking Book)

FX (Foreign Exchange Risk)

CM (Commodities Risk)

DU (Common Treatments for Counterparty Risk)

TI (Interest Rate Position Risk)

TE (Equity Position Risk)

TC (Counterparty Risk in the Trading Book)

TL (Incremental Capital for Large Exposures)

TU (Underwriting in Capital Adequacy Framework)

TS (CAD 1 Models)

TV (The Use of Internal Models)

LE (Large Exposures)

CD (Credit Derivatives)

(1) Applies for the purpose of credit risk (the calculation of the credit risk capital requirement)
(2) Applies for the purpose of large exposures to the extent set out in the chapter.
(3) Does not apply for the purpose position risk (calculation of the market risk capital requirement).

SE (Securitisation and Asset Transfers)

See BIPRU TP 4.17G to BIPRU TP 4.19G

LM (Mismatch Liquidity)

Subject to the other provisions of this section, applies in the same way as it does for a bank that does not use BIPRU TP 3.4R (Pre CRD capital requirements applying on a solo basis during 2007).

LS (Sterling Stock Liquidity)

Subject to the other provisions of this section, applies in the same way as it does for a bank that does not use BIPRU TP 3.4R (Pre CRD capital requirements applying on a solo basis during 2007).

AR (Accounting and Other Records and Internal Control Systems)

ST (Foreign Exchange -Risk-Based Supervision)

FR (Fraud)

CL (Comfort letters)

VA (Valuation)

Section 4

(1) Applies for the purpose of credit risk (the calculation of the credit risk capital requirement)
(2) Applies for the purpose of large exposures to the extent set out in the chapter.

Rest

NE (Collateral and Netting)

(1) Applies for the purpose of credit risk (the calculation of the credit risk capital requirement)
(2) Applies for the purpose of large exposures to the extent set out in the chapter.

CS (Consolidated Supervision)

Paragraph 2b) of Section 3

(1) Applies to the extent it provides for zero risk weighting for intra-group exposures on a solo basis.
(2) Applies for the purpose of the exemption for certain intra-group exposures for large exposure purposes on a solo basis (see paragraph 7 of section 9.2.2 of chapter LE of IPRU(BANK)).
(3) Otherwise does not apply.

Appendices C and D (equivalent third country prudential regimes

Only has effect to extent that these apply on a solo basis for the purposes of the parts of IPRU(BANK) that apply under this table. In particular applies for the purposes of IPRU(BANK) BC Section 3 paragraph 6 (f) a) regarding equivalent CAD regimes.

Rest

OS (Outsourcing)

PN (Provisioning Policy Statement)

General material about the parts of IPRU(BANK) that apply in 2007

4.12

Many of the chapters of IPRU(BANK) that apply under the table in BIPRU TP 4.11G (particularly the application sections) deal with the application of the material on a consolidated basis. However this does not apply for the purpose of this section as consolidation is dealt with under BIPRU TP 10 (Pre CRD capital requirements applying on a consolidated basis during 2007). Likewise those provisions also deal with solo consolidation but this material does not apply either as the provisions about solo consolidation in IPRU(BANK) do not apply for the purpose of this section. Nevertheless it is possible to combine the use of this section with solo consolidation under BIPRU 2.1 (Solo consolidation).

Status of material on credit risk charges

4.13

The credit risk provisions of IPRU(BANK) are mostly guidance on rule 3.3.13 of Chapter GN of IPRU(BANK). That rule does not apply in 2007. When the credit risk provisions of IPRU(BANK) are applied under this section they are guidance on the overall financial adequacy rule. In turn the overall financial adequacy rule is the rule on which the calculation of the capital requirements for credit risk under GENPRU and BIPRU is based for a bank under this section.

How to calculate credit risk charges

4.14

A bank should calculate the BIPRU credit risk charge for non-trading book items, called the credit risk capital component, by adding together the following:

(1)

the capital charge calculated under Chapter BC (taking into account the revised risk weights in Chapter BO);

(2)

the capital charge for OTC derivatives in the banking book under section 3 of Chapter DU;

(3)

the capital charge for free deliveries for banking book items in section 4 of Chapter DU; and

4.15

A bank should calculate the BIPRU credit risk charge for trading book items, called the counterparty risk capital component, by adding together the following:

(1)

the capital charge calculated under Chapter TU;

(2)

the capital charge for OTC derivatives in the trading book under section 3 of Chapter DU;

(3)

the capital charge for unsettled transactions and free deliveries for trading book items in section 4 of Chapter DU; and

(4)

the capital charge for unsettled transactions in the banking book calculated under Chapter TU (the calculation of the counterparty risk capital component includes a capital charge for unsettled transactions in the non-trading book as an exception to the principle that the counterparty risk capital component relates to the trading book).

4.16

BIPRU TP 4.28G deals with how to calculate the concentration risk capital component.

Adjustments to securitisation requirements

4.17

Under Chapter SE a bank should deduct certain credit enhancements from capital. A bank should deduct these credit enhancements at stage M of the calculation in the capital resources table (Deductions from the totals of tier one and two).

4.18

Paragraph 6 of section 10.4 of Chapter SE of IPRU(BANK) says that if a bank does not meet the policy on liquidity facilities provided by sponsors or repackagers it should fully consolidate the scheme. This does not apply under this section. Instead a bank should treat the scheme assets as being on its balance sheet.

4.19

The definition of investment grade for the purposes of Chapter SE (see in particular sections 3.2.2, 9.3 and 11.1) remains based on Chapter TI of IPRU(BANK).

Adjustments to counterparty credit risk: General

4.20

Broadly speaking the Directive transitional provisions that allow pre-2007 credit risk rules to be used in 2007 cover all credit risk rules. However the transitional provisions for trading book credit risk (Annex II of the Capital Adequacy Directive, which is implemented in BIPRU 14 (Capital requirements for settlement and counterparty risk)) is not quite as straightforward as that. In some cases pre-2007 requirements can be used. In others they cannot. One of the purposes of BIPRU TP 4.21G to BIPRU TP 4.25G is to reflect those cases in which the Directive requires the new requirements to apply from 1 January 2007.

Adjustments to counterparty credit risk: Free deliveries

4.21

A bank should include foreign currency and commodity transactions in the calculations under IPRU(BANK) Chapter DU section 4.2 (Free deliveries).

4.22

A bank should apply the capital treatment in the table in BIPRU 14.4.3 R and BIPRU 14.4.4 R (Capital treatment for free deliveries). But when the capital treatment in that table is that the firm must treat the transaction as an exposure, the bank should apply the treatment in IPRU(BANK) Chapter BC for non-trading book exposures or TC for trading book exposures rather than BIPRU 14 (Capital requirements for settlement and counterparty risk).

Adjustments to counterparty credit risk: Derivative transactions

4.23

A bank should treat a credit derivative in the trading book as a derivative to which section 3 of IPRU(BANK) Chapter TC (OTC derivatives) applies. However the capital treatment for credit derivatives as set out in BIPRU 14.2.5 R - BIPRU 14.2.8 R (Capital treatment for credit derivatives) does not apply; a bank should continue to use the treatment in IPRU(BANK) as adjusted by this section.

Adjustments to counterparty credit risk: Unsettled transactions

4.24

The alternative treatment set out in IPRU(BANK) DU 4.1.3 does not apply.

4.25

A bank should include foreign exchange and commodity transactions in the calculations under IPRU(BANK) Chapter DU section 4.1 (Unsettled transactions).

OTC derivatives

4.26

The treatment in section 3 of Chapter DU applies to the derivatives mentioned there whether or not they are off-balance sheet.

How to use the IPRU(BANK) large exposure rules

4.27

IPRU(BANK) Chapter LE (Large exposures) applies in place of BIPRU 10 (Concentration risk).

4.28

A bank should calculate the concentration risk capital component as being equal to the capital charge under IPRU(BANK) Chapter TL.

4.29

BIPRU 10.5.2 R to BIPRU 10.5.5 R (Capital resources for concentration risk purposes) apply in place of the corresponding provisions of IPRU(BANK). The provisions in IPRU(BANK) about the calculation of the large exposures capital base (LECB) do not apply.

4.30

Generally a bank should use the specific risk weights that apply under BIPRU 7 (Market risk) for the purposes of the incremental capital calculation under section 2.2 of Chapter TL and the net trading book position under paragraph 2(b) of section 7 of Chapter LE. However BIPRU TP 4.33G also applies for these purposes.

4.31

References in paragraph 4(d) of section 9.2.1 and paragraph 7 of section 9.2.2 of Chapter LE to the requirements in Chapter CS about zero-risk weighting intra-group exposures still apply.

4.32

When Chapter LE of IPRU(BANK) is applied under this section it is guidance on the overall financial adequacy rule as well as on the relevant provisions of Chapter GN of IPRU(BANK).

Interest rate PRR

4.33

A bank should use IPRU(BANK) as it applies under BIPRU TP 3 (Pre CRD capital requirements applying on a solo basis during 2007) and BIPRU TP 4 to calculate the specific risk portion of the interest rate PRR under BIPRU 7.2 (Interest rate PRR) to the extent that the relevant rules in BIPRU 7.2 require the use of the standardised approach to credit risk.

4.34

The reason for BIPRU TP 4.33G is that the calculation of the specific risk portion of the interest rate PRR under BIPRU 7 (Market risk) involves the use of the standardised approach to credit risk. The specific risk rules therefore need to be adjusted for a firm that is not using the standardised approach to credit risk in 2007 so as to apply the pre-2007 method of calculating specific risk.

Valuation

4.35

BIPRU TP 3.8R (Parts of GENPRU and BIPRU that apply in 2007) says that GENPRU 1.3 (Valuation) applies during 2007, so the values of assets and off balance sheet items used in the calculation of credit risk charges should be in accordance with GENPRU 1.3.

Definitions

4.36

Any reference to a qualifying debt security in a part of BIPRU that applies during 2007 should be interpreted in accordance with IPRU(BANK). However BIPRU 7.2.50 R (Must not apply qualifying debt security treatment to risky assets) also applies.

4.37

The reason for BIPRU TP 4.36G is that the BIPRU definitions rely in part on the standardised approach to credit risk. The definitions therefore need to be adjusted for a bank that is not using the standardised approach to credit risk in 2007.

Mapping GENPRU and BIPRU concepts onto IPRU

4.38

Some of the parts of IPRU(BANK) that apply in 2007 refer to parts of IPRU that do not apply. BIPRU TP 3.10R explains that where this happens a firm should interpret that cross-reference in accordance with the provision in BIPRU or GENPRU that corresponds to the IPRU provision that does not apply in 2007. A firm should refer to IPRU in the case of cross-references in GENPRU and BIPRU to provisions in GENPRU and BIPRU that do not apply in 2007. BIPRU TP 4.39G sets out how certain concepts in IPRU(BANK) correspond to ones in GENPRU and BIPRU. The purpose of the table is to help firms to interpret such cross-references.

4.39

Table: Mapping GENPRU and BIPRU concepts onto ones in IPRU(BANK)
This table belongs to BIPRU TP 4.38G

GENPRU and BIPRU

Chapter CB

Chapter CA

Chapter TI

Chapter TE

Chapter TU

Chapter CM

Chapter FX

Chapter TV

Chapter CS

Chapter VA

Market risk capital component (excluding charges arising from FX and commodity banking book business) and the counterparty risk capital component, excluding unsettled transactions arising from the banking book.

Trading book capital requirements

Non-trading book

Banking book

Trading book

Capital resources calculated under BIPRU 10.5.2 R to BIPRU 10.5.5 R

Large exposures capital base (LECB)

Concentration risk capital component or the capital resources used to meet it

Incremental capital under Chapter TL

Financial derivative instruments and trading book credit derivatives

OTC derivatives

the overall financial adequacy rule

Rule GN 3.3.13R (Adequate capital)

individual capital guidance

individual capital ratio

Bank that calculates its capital requirements under BIPRU 1.2.17R (Firm with small trading book using non-trading book treatments for certain trading book items)

Bank to which the Capital Adequacy Directive does not apply

trading book concentration risk excess

Exposures over the 25% in the trading book under Chapter TL

Firms using the IRB approach during 2007: General

4.40

BIPRU TP 4.41G to BIPRU TP 4.43G only apply to a firm that is applying the IRB approach under BIPRU TP 3 (Pre CRD capital requirements applying on a solo basis during 2007) as well as using IPRU.

4.41

The effect of BIPRU TP 3.17G (Pre CRD capital requirements applying on a solo basis during 2007 for firms also using the IRB approach) is that neither credit risk or counterparty risk requirements of IPRU(BANK) apply to an exposure to which the firm applies the IRB approach. The IRB approach requirements in BIPRU apply instead. The main requirements are listed in BIPRU TP 3.17G.

4.42

A firm should apply BIPRU 7.2.45 R - BIPRU 7.2.47 R (Using internal ratings to calculate specific risk and treatment of securitisations) to calculate the specific risk portion of the interest rate PRR to the extent that the obligor or exposure in question comes within the scope of its IRB permission.

4.43

The definition of qualifying debt security in the Glossary applies if the security or obligor in question comes within the scope of a firm's IRB permission.

31/12/2011

BIPRU TP 5

Pre CRD capital requirements applying on a solo basis during 2007: Building societies

Application

5.1

This section applies to a building society that is applying BIPRU TP 3.4R (Use of IPRU on a solo basis during 2007).

Purpose of this chapter

5.2

BIPRU TP 3 (Pre CRD capital requirements applying on a solo basis during 2007) says that during 2007 a firm may apply the credit risk requirements of IPRU instead of the ones in BIPRU. For a building society this involves applying the credit risk requirements in IPRU(BSOC). This section explains how this is done. In particular this section explains what parts of IPRU(BSOC) apply during 2007 and what changes are made to IPRU(BSOC) for that purpose.

Duration of transitional

5.3

This section applies until 1 January 2008.

Drafting approach in this chapter

5.4

5.5

The capital calculation for credit risk under BIPRU is made up of three elements, which are set out in GENPRU 2.1.51R (Calculation of the credit risk capital requirement). These are the credit risk capital component, the counterparty risk capital component and the concentration risk capital component. So the approach in BIPRU TP 5.4G involves determining which of these three elements apply, and then finding their equivalents (if any) in IPRU(BSOC).

5.6

5.7

The general approach in IPRU(BSOC) is different. A building society calculates the total of its own funds (after making the relevant deductions) and the total of its risk weighted assets and off balance sheet items (in the latter case, after applying credit conversion factors). The own funds total is divided by the risk weighted assets total and the quotient expressed as a percentage: this is the pre-CRD solvency ratio.

5.8

To enable a building society to use BIPRU TP 3.4R (Pre CRD capital requirements applying on a solo basis during 2007), the calculation method set out in IPRU(BSOC), which is designed to produce the solvency ratio, needs adjustment so that it produces the credit risk capital component instead.

5.9

BIPRU TP 3.8R (Parts of GENPRU and BIPRU that apply in 2007) provides that GENPRU 2.2 (Capital resources) applies during 2007. So a building society using BIPRU TP 3.4R (Pre CRD capital requirements applying on a solo basis during 2007) will calculate its capital resources under GENPRU 2.2, instead of calculating its own funds under IPRU(BSOC).

Rules in IPRU(BSOC) that apply in 2007

5.10

The rules in Chapter 7 of Volume 1 of IPRU(BSOC) (Large Exposures) apply during the period that BIPRU TP 3.4R applies. None of the other rules in IPRU(BSOC) apply except the rules in chapters 4 and 5 which apply to building societies generally whether or not they apply the treatment in this section.

Parts of Volume 1 of IPRU(BSOC) that apply in 2007

5.11

The parts of Volume 1 of IPRU(BSOC) that do and do not apply during the period that BIPRU TP 3.4R applies are set out in BIPRU TP 5.13G.

5.12

The table in BIPRU TP 5.13G assumes that the firm is not applying the IRB approach. BIPRU TP 5.36R to BIPRU TP 5.38R deal with a firm that does apply the IRB approach.

5.13

Table: Parts of Volume 1 of IPRU(BSOC) that apply in 2007
This table belongs to BIPRU TP 5.11G

IPRU(BSOC) rule

A Y denotes that the provision does apply
An N denotes that it does not apply

Remarks

Chapter X (Introduction)

Rule X.2.1 (Application)

BIPRU TP 5.1R applies in its place for the purposes of BIPRU TP 5. However see BIPRU TP 5.15G.

Definition of the BCD in X.7.1G

Other definitions in X.7

Apply to the extent used in the parts of IPRU(BSOC) that have effect under this section.

The rest of chapter X

Chapter 1 (Solvency)

Section 1.1 (Introduction)

Section 1.2 (Solvency rules)

Section 1.3 (Purpose of Capital)

Section 1.4 (EU Directives)

Section 1.5 (Threshold Ratios)

See BIPRU TP 5.25G to BIPRU TP 5.26G

Section 1.6 (Own Funds)

Section 1.7 (Minority Interests)

Section 1.8 (Deductions)

Section 1.9 (Limits on Tier 2 capital)

Section 1.10 (Solvency Ratio)

(1) Applies on a solo basis except to the extent BIPRU 2.1 (Solo consolidation) applies.
(2) Application on a consolidated basis is covered by BIPRU TP 10 (Pre CRD capital requirements applying on a consolidated basis during 2007).
(3) Requirement that the solvency ratio should be calculated on a consolidated basis where a building society has subsidiary undertakings does not otherwise apply.
(4) See BIPRU TP 5.20G to BIPRU TP 5.24G.

Section 1.11 (Solo consolidation)

Section 1.12 (Mortgage Subsidiaries)

Section 1.13 (Exclusions from consolidation)

Section 1.14 (Mortgage Indemnity Captives)

Section 1.15 (Securitisation)

See BIPRU TP 5.33G to BIPRU TP 5.35G

Section 1.16 (Deductions of holdings)

Section 1.17 (capital cost and pricing)

Section 1.18 (CAD)

Only applies to the extent that the relevant provisions of IPRU(BANK) apply to a building society under BIPRU TP 3.
See BIPRU TP 5.16R to BIPRU TP 5.19G.

Section 1.19 (Credit derivatives)

Annex 1A (Calculation of Own Funds)

Annex 1B (Risk Asset Weights)

See BIPRU TP 5.32G

Annex 1C (Off Balance Sheet Items)

The treatment of items under section 1C.5 (The treatment of off-balance sheet items using the "mark to market" approach) applies to the types of item listed in section 1C.7 whether they are on or off balance sheet.

Annex 1D (Deductions from own funds)

Annex 1E (Verification of Interim Profits)

Annex 1F (Definition of Relevant Authority)

Annex 1G (Definition of Zones A and B)

Annex 1H - Society Only Definitions

Annex 1J - Threshold Appraisal Sheet

Other chapters

Chapter 2 (Issued Capital)

Chapter 3 (Boards and Management)

Chapter 4 (Financial Risk Management)

Annex 4B (Credit derivatives)

The provisions in BIPRU TP 4 (Pre CRD capital requirements applying on a solo basis during 2007: Banks) about Chapter CD of IPRU(BANK) (Credit derivatives) apply.

The rest of Chapter 4

Subject to the other provisions of this section, applies in the same way as it does for a building society that does not use BIPRU TP 3.4R (Pre CRD capital requirements applying on a solo basis during 2007). See BIPRU TP 5.15G.

Chapter 5 (Liquidity) (including Annexes 5A to 5C )

Chapter 6 (Lending)

Chapter 7 (Large Exposures)

(1) Applies on a solo basis except to the extent BIPRU 2.1 (Solo consolidation) applies.
(2) Application on a consolidated basis is covered by BIPRU TP 10 (Pre CRD capital requirements applying on a consolidated basis during 2007).
(3) Requirement that large exposures of a building society with subsidiary undertakings should, in general, be monitored on a fully consolidated basis does not otherwise apply.
(4) IPRU(BSOC) 7.7 (Systems) applies.
(5) See BIPRU TP 5.27R to BIPRU TP 5.30G.

Chapter 8 (Mortgage Indemnity Insurance)

Chapter 9 (Systems)

Chapter 10 (Securitisation)

The provisions in BIPRU TP 4 (Pre CRD capital requirements applying on a solo basis during 2007: Banks) about Chapter SE of IPRU(BANK) (Securitisation) apply.
See BIPRU TP 5.33G to BIPRU TP 5.35G

Chapter 11 (Outsourcing)

Volume 2 of IPRU(BSOC)

5.14

Volume 2 of IPRU(BSOC) does not apply to a building society that applies BIPRU TP 3.4R (Use of IPRU on a solo basis during 2007). It has been replaced by the Building Societies Regulatory Guide, which applies to all building societies, not just ones that apply BIPRU TP 3.4R.

Chapters 4 and 5 of Volume 1 of IPRU(BSOC)

5.15

(1)

Chapters 4 and 5 of Volume 1 of IPRU(BSOC) apply to all building societies, not just ones that apply BIPRU TP 3.4R (Use of IPRU on a solo basis during 2007). The version that applies to a building society that applies BIPRU TP 3.4R is the one in force at the relevant time, not the version in force on 31 December 2006. However there are some exceptions to this, as explained in (2) and (3).

(2)

As BIPRU 2.3 (Interest rate risk in the non-trading book) does not apply to a firm applying BIPRU TP 3.4R, references in Chapter 4 to BIPRU 2.3 should be disregarded (see in particular paragraphs 4.1.3G, 4.7.1G and 4.7.7G of chapter 4 of Volume 1 of IPRU(BSOC)).

(3)

As shown in the table in BIPRU TP 5.12G, Annex 4B (Credit derivatives) applies to a building society that applies BIPRU TP 3.4R.

(4)

rule X.2.1 of Chapter X of Volume 1 of IPRU(BSOC) (Application) applies to all building societies, not just ones that apply BIPRU TP 3.4R. However BIPRU TP 5.1R is the relevant application rule for the purpose of BIPRU TP 5.

The trading book

5.16

BIPRU TP 4 (Pre CRD capital requirements applying on a solo basis during 2007: Banks) applies for the purpose of calculating the counterparty credit risk component and the market risk capital requirement.

5.17

The reason for BIPRU TP 5.16R is explained in BIPRU TP 5.18G to BIPRU TP 5.19G.

5.18

(1)

Only exceptionally will a building society have a trading book. If a building society does not have a trading book, the calculations that a building society should carry out under BIPRU TP 3 (Use of IPRU on a solo basis during 2007) and this section are simplified as described in this paragraph.

(2)

A building society does not have to calculate a counterparty risk capital component (the capital charge for counterparty risk in the trading book) or a concentration risk capital component (the capital charge for exceeding concentration risk limits in the trading book).

(3)

BIPRU 7 (Market risk) does not apply for the most part. This is because most of it only applies to the trading book.

(4)

BIPRU 7.5 (Foreign currency PRR) will apply if a building society has foreign currency exposure even if the building society does not have a trading book.

(5)

BIPRU 7.6 (Option PRR) will apply if a building society has foreign currency option positions.

(6)

BIPRU 7.4 (Commodity PRR) and BIPRU 7.6 (Option PRR) apply to a firm's commodity positions in its non-trading book as well as its trading book. However a building society will not generally have commodity positions.

5.19

Paragraph 1.18.1G of Volume 1 of IPRU(BSOC) (CAD) says that a building society on the "Trading" approach to financial risk management (described in chapter 4 of Volume 1 of IPRU(BSOC) (Financial Risk Management)), under which it can trade securities and maintain unhedged foreign exchange positions within defined limits, should calculate the capital requirements for its trading book and foreign exchange positions separately in accordance with IPRU(BANK). Therefore if a building society does have a trading book and applies BIPRU TP 3.4R (Use of IPRU on a solo basis during 2007):

(1)

it should calculate its credit risk charge for items in the trading book using IPRU(BANK) as adjusted under BIPRU TP 4 (Pre CRD capital requirements applying on a solo basis during 2007: Banks);

(2)

it should calculate its capital requirements for foreign currency positions under BIPRU 7 (Market risk), particularly BIPRU 7.5 (Foreign currency PRR) as adjusted under BIPRU TP 4;

(3)

it should calculate its capital requirements for other market risks under BIPRU 7 as adjusted under BIPRU TP 4; and

(4)

even if a building society does have a trading book it still does not have to calculate a concentration risk capital component as IPRU(BSOC) does not allow a building society to exceed the limits in Chapter 7 of IPRU(BSOC) (Large exposures).

How to calculate a credit risk capital component under IPRU

5.20

A building society should calculate its credit risk capital component (under paragraph 1.10 of Volume 1 of chapter 1 of IPRU(BSOC) (Solvency)) by taking the total of its risk weighted assets and off balance sheet items (using the risk weights in Annex 1B and the credit conversion factors in Annex 1C) and multiplying this by 8%.

5.21

BIPRU TP 5.18G to BIPRU TP 5.19G explain why the counterparty risk capital component and the concentration risk capital component (which together with the credit risk capital component make up the credit risk capital requirement) are unlikely to apply to a building society.

5.22

BIPRU TP 3.8R (Parts of GENPRU and BIPRU that apply in 2007) says that GENPRU 1.3 (Valuation) applies during 2007, so the values of assets and off balance sheet items used in the calculation under BIPRU TP 5.20G should be in accordance with GENPRU 1.3.

5.23

In the light of BIPRU TP 5.9G , BIPRU TP 5.20G and BIPRU TP 5.22G, the first two sentences and the fourth sentence of paragraph 1.10 of Volume 1 of IPRU(BSOC) should be disregarded. The remainder of paragraph 1.10 gives useful detail on the credit risk calculations.

5.24

The solvency ratio provisions of IPRU(BSOC) are mostly guidance on rules 1.2.1 and 1.2.2 of Chapter 1 of Volume 1 of IPRU(BSOC). These rules do not apply in 2007. When the solvency ratio provisions of Volume 1 of IPRU(BSOC) are applied under this section they are guidance on the overall financial adequacy rule. In turn the overall financial adequacy rule is the rule on which the calculation of the capital requirements for credit risk under GENPRU and BIPRU is based for a building society under this section.

How to maintain the threshold ratio

5.25

A building society should maintain the amount of capital resources (calculated under GENPRU 2.2 (Capital resources)) that corresponds to the result of multiplying the total of its risk weighted assets and off balance sheet items (as calculated for the purposes of BIPRU TP 5.20G) by its threshold ratio. Further transitional provisions about the threshold ratio can be found in GENPRU TP 9 (Individual capital guidance for BIPRU firms).

5.26

Complying with BIPRU TP 5.25G is treated as satisfying the expectation set out in section 1.5 of chapter 1 of Volume 1 of IPRU(BSOC) (Solvency) that a building society will maintain the threshold ratio. Maintaining the threshold ratio is in turn treated as satisfying the overall Pillar 2 rule so far as that rule requires a firm to maintain adequate capital resources.

Large exposures

5.27

Chapter 7 of Volume 1 of IPRU(BSOC) (Large exposures) applies in place of BIPRU 10 (Concentration risk).

5.28

BIPRU 10.5.2 R to BIPRU 10.5.3 R and BIPRU 10.5.5 R (Capital resources for concentration risk) apply for the purpose in BIPRU TP 5.27R. Although the table in BIPRU TP 3.8R (Parts of GENPRU and BIPRU that apply in 2007) says that BIPRU 10.5.14 R (Notification of trading book excesses) also applies, this is irrelevant to a building society as it relates to the regime for excess exposures in the trading book, which does not apply to a building society.

5.29

The effect of BIPRU TP 5.28R is that a building society should treat all references to own funds in chapter 7 of Volume 1 of IPRU(BSOC) (Large exposures) as references to capital resources under BIPRU 10.5.2 R to BIPRU 10.5.3 R and BIPRU 10.5.5 R (Capital resources for concentration risk). The last sentence of paragraph 7.3.1 of Volume 1 of IPRU(BSOC) should be disregarded.

5.30

Chapter 7 of IPRU(BSOC) is mostly guidance on rules 1.2.1 and 1.2.2 of Chapter 1 of Volume 1 of IPRU(BSOC). These rules do not apply in 2007. When the large exposures provisions of Volume 1 of IPRU(BSOC) are applied under this section they are guidance on the overall financial adequacy rule.

Operational risk

5.31

BIPRU TP 3.21R provides that the operational risk capital requirement is reduced where a firm uses BIPRU TP 3.4R (Capital floors for a firm using the IRB or AMA approaches). A building society (unless, exceptionally, it has a trading book) will apply BIPRU 3.4 to all its exposures. So the effect of BIPRU TP 3.21R in those cases will be to reduce the operational risk capital requirement to zero while BIPRU TP 3.4 applies.

Miscellaneous modifications of IPRU(BSOC)

5.32

When using Annex 1B of Chapter 1 of Volume 1 of IPRU(BSOC) (Risk Asset Weights) for the purposes of BIPRU TP 5.20G, the definition of "relevant authority" will be found in Annex 5A of Chapter 5 of Volume 1 of IPRU(BSOC) (Prudential Liquidity) instead.

5.33

BIPRU TP 5.12R says that chapter 10 of Volume 1 of IPRU(BSOC) (Securitisation) applies. Under that chapter a firm should deduct certain credit enhancements from capital. A building society should deduct these credit enhancements at stage M of the calculation in the capital resources table (Deductions from the totals of tier one and two).

5.34

Paragraph 6 of section 10.4 of Chapter SE of IPRU(BANK), which is applied to a building society by chapter 10 of Volume 1 of IPRU(BSOC) (Securitisation), says that if a firm does not meet the policy on liquidity facilities provided by sponsors or repackers it should fully consolidate the scheme. This does not apply under this section. Instead a building society should treat the scheme assets as being on its balance sheet.

5.35

The definition of investment grade for the purposes of Chapter SE (see in particular sections 3.2.2, 9.3 and 11.1) remains based on Chapter TI of IPRU(BANK).

Firms using the IRB approach during 2007: General

5.36

BIPRU TP 5.37G to BIPRU TP 5.38R only apply to a firm that is applying the IRB approach under BIPRU TP 3 (Pre CRD capital requirements applying on a solo basis during 2007) as well as using IPRU.

5.37

The effect of BIPRU TP 3.17G (Pre CRD capital requirements applying on a solo basis during 2007 for firms also using the IRB approach) is that Section 1.10 of Volume 1 of IPRU(BSOC) (Solvency Ratio) does not apply to an exposure to which the firm applies the IRB approach. The IRB approach requirements in BIPRU apply instead. The main requirements are listed in BIPRU TP 3.17G.

5.38

A building society that has a trading book must apply the parts of BIPRU TP 4 (Pre CRD capital requirements applying on a solo basis during 2007: Banks) that deal with capital charges for items in the trading book for a bank that applies the IRB approach under BIPRU TP 3 (Pre CRD capital requirements applying on a solo basis during 2007) as well as using IPRU.

01/01/2007

BIPRU TP 6

Pre CRD capital requirements applying on a solo basis during 2007: Investment management firms

Application

6.1

This section applies to a BIPRU firm that:

(1)

is an investment management firm; and

(2)

is applying BIPRU TP 3.4R (Use of IPRU on a solo basis during 2007).

Purpose of this section

6.2

BIPRU TP 3 (Pre CRD capital requirements applying on a solo basis during 2007) says that during 2007 a firm may apply the credit risk requirements of IPRU instead of the ones in BIPRU. For an investment management firm this involves applying the credit risk requirements in chapter 5 of IPRU(INV). This section explains how this is done. In particular this section explains:

(1)

which parts of chapter 5 should be treated as credit risk requirements for this purpose;

(2)

what parts of chapter 5 apply during 2007 and what changes are made to chapter 5 for that purpose; and

(3)

what changes are made to GENPRU and BIPRU to reflect the fact that chapter 5 applies in place of parts of GENPRU and BIPRU.

Duration of transitional

6.3

This section applies until 1 January 2008.

Drafting approach in this section

6.4

The purpose of BIPRU TP 3 (Pre CRD capital requirements applying on a solo basis during 2007) is that the basic provisions of BIPRU and GENPRU should be in force from 1 January 2007. However a firm should be able to calculate the capital requirements for credit risk under IPRU and use the large exposures requirements in IPRU. This means that an investment management firm should slot the credit risk requirements of chapter 5 of IPRU(INV) into the general requirements of GENPRU and BIPRU.

6.5

The capital calculation for credit risk under BIPRU is made up of three elements, which are set out in GENPRU 2.1.51 R (Calculation of the credit risk capital requirement). These are the credit risk capital component, the counterparty risk capital component and the concentration risk capital component. So the approach in BIPRU TP 6.4G involves finding equivalents for these three elements in chapter 5 where this is possible.

6.6

Under GENPRU and BIPRU a firm calculating its capital resources may usually choose between deducting illiquid assets and material holdings. Only if it has a waiver from consolidated supervision need it deduct both. However under chapter 5, both illiquid assets and material holdings in credit and financial institutions are deducted.

6.7

The chapter 5 rules can still be made to work if a firm is allowed to choose between deducting illiquid assets and material holdings as any exposure that is not deducted is covered by the chapter 5 other assets requirement.

6.8

(1)

To make the GENPRU and BIPRU requirements compatible with chapter 5 for the purpose of BIPRU TP 3 (Pre CRD capital requirements applying on a solo basis during 2007), this section takes the approach in this paragraph.

(2)

The illiquid assets and material holdings provisions of GENPRU 2.2 (Capital resources) apply.

(3)

The chapter 5 counterparty risk requirement and the other assets requirement are used to calculate the BIPRU credit risk charge for non-trading book items (called the credit risk capital component) and the BIPRU credit risk charge for trading book items (called the counterparty risk capital component).

(4)

BIPRU 10 (Concentration risk) allows a firm to exceed the large exposure limits in the trading book. A firm that takes up that option is subject to an additional capital requirement, called the concentration risk capital component. Chapter 5 does not give a firm that option. Therefore the concentration risk capital component does not apply to a firm under this section.

Parts of chapter 5 of IPRU(INV) that apply in 2007

6.9

The parts of chapter 5 of IPRU(INV) that do and do not apply during the period that BIPRU TP 3.4R applies are set out in BIPRU TP 6.11R.

6.10

The table in BIPRU TP 6.11R assumes that the firm is not applying the IRB approach. BIPRU TP 6.31R to BIPRU TP 6.34R deal with a firm that does apply the IRB approach.

6.11

Table: Parts of chapter 5 of IPRU(INV) that apply in 2007
This table belongs to BIPRU TP 6.9R

Chapter 5 rule

A Y denotes that the provision does apply
An N denotes that it does not apply

Remarks

5.1.1(1)(a) and (b) (Application)

BIPRU TP 6.1R applies instead

Table 5.1.1(1)(a) (What parts of chapter 5 apply to what firm)

BIPRU TP 6.1R applies instead

5.1.1(1)(c) (Interpretation)

See BIPRU TP 6.26R to BIPRU TP 6.28G

5.2.1 (General requirement)

5.2.2 (Financial resources)

GENPRU 2.2 (Capital resources) applies instead

5.2.3(1) (Determination of requirement)

5.2.3(2) (Exceptions from the liquid capital requirement)

5.2.3(3) (Own funds requirement)

5.2.3(4) (Liquid capital requirement)

5.2.3(5) (Total capital requirement)

Expenditure based requirement

Position risk requirement

Counterparty risk requirement

Foreign exchange requirement

Other assets requirement

5.2.4 (Annual audited expenditure)

5.2.5 (Qualifying subordinated loans)

5.2.6 (Qualifying property and qualifying undertakings)

5.2.7 (Large exposures)

See BIPRU TP 6.21R to BIPRU TP 6.22R

Table 5.2.2(1) (Calculation of own funds and liquid capital)

Table 5.2.3(3)(b) (Own funds requirement)

Table 5.2.3(5)(a) (Expenditure based requirement)

Table 5.2.3(5)(b) (Position risk requirement)

See BIPRU TP 6.254

Table 5.2.3(5)(c) (Counterparty risk requirement)

See BIPRU TP 6.13R to BIPRU TP 6.19G

Table 5.2.3(5)(c)(i) (Counterparty risk factor -cash settlements)

Table 5.2.3(5)(c)(ii) (Counterparty risk requirement)

Table 5.2.3(5)(c)(iii) (OTC derivatives calculation of credit equivalent amount)

See BIPRU TP 6.15G and BIPRU TP 6.18R to BIPRU TP 6.19G

Table 5.2.3(5)(d) (Foreign exchange requirement)

Table 5.2.3(5)(e) (Other assets requirement)

See BIPRU TP 6.20R

5.3.1 (Records)

Applied in part under BIPRU TP 23 (Record keeping transitionals)

5.5.1 (Financial notification)

5.7 (Consolidated supervision)

Glossary

See BIPRU TP 6.26R to BIPRU TP 6.28G

Categorisation

6.12

Each firm is an ISD firm for the purposes of chapter 5 of IPRU(INV) as applied by BIPRU TP 3 (Pre CRD capital requirements applying on a solo basis during 2007) and this section.

How to use the chapter 5 Counterparty Risk Requirement and the Other Assets Requirement

6.13

A firm must calculate the sum of the credit risk capital component and the counterparty risk capital component as being equal to the sum of the counterparty risk requirement under chapter 5 of IPRU(INV) and of the other assets requirement under chapter 5 of IPRU(INV).

6.14

If it is necessary to distinguish between the credit risk capital component and the counterparty risk capital component a firm must allocate:

(1)

any amount calculated for an exposure in the non-trading book to the credit risk capital component; and

(2)

any amount calculated for an exposure in the trading book to the counterparty risk capital component;

6.15

A firm may still apply the netting provisions for OTC derivatives in chapter 5 even though the OTC derivative calculation is split between the credit risk capital component and the counterparty risk capital component under BIPRU TP 6.14R. The net amount should be allocated to the credit risk capital component if the gross value of the non-trading book derivatives is bigger and to the counterparty risk capital component if the gross value of the trading book derivatives is bigger.

Adjustments to the Counterparty Risk Requirement calculations: General

6.16

Broadly speaking the Directive transitional provisions that allow pre-2007 credit risk rules to be used in 2007 cover all credit risk rules. However the transitional provisions for trading book credit risk (Annex II of the Capital Adequacy Directive, which is implemented in BIPRU 14 (Capital requirements for settlement and counterparty risk)) is not quite as straightforward as that. In some cases pre-2007 requirements can be used. In others they cannot. The purpose of BIPRU TP 6.17R to BIPRU TP 6.19G is to reflect those cases in which the Directive requires the new requirements to apply from 1 January 2007.

Adjustments to the Counterparty Risk Requirement calculations: Free deliveries

6.17

(1)

The calculation of the part of the counterparty risk requirement set out in section 3 of Table 5.2.3(5)(c) of chapter 5 of IPRU(INV) (Free deliveries) is amended in accordance with this rule for the purposes of trading book calculations.

(2)

A firm must include foreign currency and commodity transactions.

(3)

The capital treatment in the table in BIPRU 14.4.3 R (Capital treatment for free deliveries) applies. But when the capital treatment in that table is that the firm must treat the transaction as an exposure, the firm must apply the treatment in chapter 5 of IPRU(INV) rather than BIPRU 14 (Capital requirements for settlement and counterparty risk).

Adjustments to the Counterparty Risk Adjustments calculations: Credit derivative transactions

6.18

A firm must treat a credit derivative in the trading book as a derivative to which section 6 of Table 5.2.3(5)(c) of chapter 5 of IPRU(INV) (OTC derivatives) and table 5.2.3(5)(c)(iii) (OTC derivatives calculation of credit equivalent amount) apply.

6.19

The capital treatment for credit derivatives set out in BIPRU 14.2.5 R - BIPRU 14.2.8 R (Capital treatment for credit derivatives) does not apply.

Adjustments to the Other Assets Requirement calculations

6.20

A firm must include the items listed in section 4 of Chapter BC of IPRU(BANK) that are in the firm's non-trading book as off-balance sheet items in table 5.2.3(5)(e) (Other assets requirement) whether they are on or off balance sheet. A firm must include a credit derivative as a full risk item.

How to use the chapter 5 large exposure rules

6.21

Section 5.2.7 of chapter 5 of IPRU(INV) (Large exposures) applies in place of BIPRU 10 (Concentration risk).

6.22

BIPRU 10.5.2 R to BIPRU 10.5.5 R (Capital resources for concentration risk purposes) apply in place of the definition of own funds that applies under section 5.2.7 of chapter 5 of IPRU(INV).

Specific risk calculations

6.23

A firm must calculate the specific risk portion of the interest rate PRR in accordance with BIPRU TP 8.28R (Pre CRD interest rate PRR for securities and futures firms).

6.24

Any reference to a qualifying debt security in a part of BIPRU that applies during 2007 must be interpreted in accordance with the meaning it has when used in section A of Table 5.2.3(5)(b) of chapter 5 of IPRU(INV) (Position risk requirement for qualifying debt securities). However BIPRU 7.2.50 R (Must not apply qualifying debt security treatment to risky assets) also applies.

6.25

The reason for BIPRU TP 6.23R and BIPRU TP 6.24R is that the calculation of the specific risk portion of the interest rate PRR under BIPRU 7 (Market risk) involves the use of the standardised approach to credit risk. The specific risk rules therefore need to be adjusted for a firm that is not using the standardised approach to credit risk in 2007 so as to apply the pre-2007 method of calculating specific risk. However chapter 5 does not use the concept of specific risk. The nearest equivalent is in chapter 10 of IPRU(INV) (Securities and futures firms).

Definitions

6.26

The definition of trading book is replaced with the definition in the Glossary.

6.27

A firm may treat a reference in the Glossary to Chapter 5 of IPRU(INV) to a financial supervision regime at least equivalent to the Second Consolidated Supervision Directive and the Capital Adequacy Directive (No. 93/6/EEC) as including one to a regime equivalent to the Banking Consolidation Directive and Directive 2006/49 (the new version of the Capital Adequacy Directive).

6.28

GENPRU 1.3 (Valuation) applies. The definition of exposure in the Glossary to chapter 5 should be read accordingly.

Mapping GENPRU and BIPRU concepts onto IPRU

6.29

Some of the parts of chapter 5 of IPRU(INV) that apply in 2007 refer to parts of chapter 5 that do not apply. BIPRU TP 3.10R explains that where this happens a firm should interpret that cross-reference in accordance with the provision in BIPRU or GENPRU that corresponds to the chapter 5 provision that does not apply in 2007. A firm should refer to IPRU in the case of cross-references in GENPRU and BIPRU to provisions in GENPRU and BIPRU that do not apply in 2007. BIPRU TP 6.30G sets out how certain concepts in chapter 5 of IPRU(INV) correspond to ones in GENPRU and BIPRU. The purpose of the table is to help firms to interpret such cross-references.

6.30

Table: Mapping GENPRU and BIPRU concepts onto ones in chapter 5 of IPRU(INV)
This table belongs to BIPRU TP 6.29G

GENPRU and BIPRU

Chapter 5 of IPRU(INV)

Illiquid asset

Material holding

Material holdings in credit and financial institutions (item 8 in Table 5.2.2(1) (Calculation of own funds and liquid capital))

Unsettled transaction under BIPRU 14.3

Delivery of cash against documents and settlements outstanding for 30 days or more (part of counterparty risk requirement)

Free deliveries under BIPRU 14.4

Free deliveries (part of counterparty risk requirement)

See BIPRU TP 6.8G

Counterparty risk requirement

See BIPRU TP 6.8G

Other assets requirement

Market risk capital requirement

The position risk requirement and the foreign exchange requirement

Trading book concentration risk excess

This concept does not apply in Chapter 5

Risk weight

Risk weights in Table 5.2.3(5)(c)(ii) (Counterparty risk requirement). In general where Table 5.2.3(5)(e) (Other assets requirement) applies a risk factor of 8% that is equivalent to applying a risk weight of 100%. Applying the 1.6% adjustment under that table is equivalent to applying a 20% risk weight under BIPRU together with the standard 8% BIPRU credit risk charge. The "NIL" adjustment under that table is equivalent to applying a 0% risk weight.

Firms using the IRB approach during 2007: General

6.31

BIPRU TP 6.31R to BIPRU TP 6.34R only apply to a firm that is applying the IRB approach under BIPRU TP 3 (Pre CRD capital requirements applying on a solo basis during 2007) as well as using IPRU.

6.32

The effect of BIPRU TP 3.17G (Pre CRD capital requirements applying on a solo basis during 2007 for firms also using the IRB approach) is that the counterparty risk requirement and the other assets requirement do not apply to an exposure to which the firm applies the IRB approach. The IRB approach requirements in BIPRU apply instead. The main requirements are listed in BIPRU TP 3.17G.

6.33

A firm must apply BIPRU 7.2.45R - BIPRU 7.2.47R (Using internal ratings to calculate specific risk and treatment of securitisations) to calculate the specific risk portion of the interest rate PRR to the extent that the obligor or exposure in question comes within the scope of its IRB permission.

6.34

The definition of qualifying debt security in the Glossary applies if the security or obligor in question comes within the scope of a firm's IRB permission.

31/12/2011

BIPRU TP 7

Pre CRD capital requirements applying on a solo basis during 2007: UCITS investment firms

Application

7.1

This section applies to a BIPRU firm that:

(1)

is a UCITS investment firm; and

(2)

is applying BIPRU TP 3 (Use of IPRU on a solo basis during 2007).

Purpose of this section

7.2

BIPRU TP 3 (Pre CRD capital requirements applying on a solo basis during 2007) says that during 2007 a firm may apply the credit risk requirements of IPRU instead of the ones in BIPRU. For a UCITS investment firm this involves applying the credit risk requirements in chapter 7 of IPRU(INV). This section explains how this is done.

Duration of transitional

7.3

This section applies until 1 January 2008.

Drafting approach

7.4

Chapter 7 of IPRU(INV) does not contain any credit risk rules. Instead it cross refers to the ones in chapter 5 (Interim prudential requirements for former IMRO firms). Therefore this section applies BIPRU TP 6 (Pre CRD capital requirements applying on a solo basis during 2007: Investment management firms).

Parts of chapter 7 of IPRU(INV) that apply in 2007

7.5

The parts of chapter 7 of IPRU(INV) that do and do not apply during the period that BIPRU TP 3.4R applies are set out in BIPRU TP 7.7R.

7.6

The table in BIPRU TP 7.7R assumes that the firm is not applying the IRB approach. BIPRU TP 6.31R to BIPRU TP 6.34R (which are applied to a UCITS investment firm by BIPRU TP 7.8R) deal with a firm that does apply the IRB approach.

7.7

Table: Parts of chapter 7 of IPRU(INV) that apply in 2007
This table belongs to BIPRU TP 7.5R

Chapter 7 rule

A Y denotes that the provision does apply
An N denotes that it does not apply

Remarks

7.1.1 (Application)

BIPRU TP 7.1R applies instead

7.1.2 and 7.1.3 (Guidance on types of UCITS management companies etc)

7.2.1 (General rule about financial resources and financial resources requirements)

7.2.2 (Financial resources requirement)

7.2.3 (Liquid capital resource requirement)

13/52 annual audited fixed expenditure requirement

Provision of paragraph (2) that says that requirements apply in respect of designated investment business other than when undertaking scheme management activity

Position risk requirement

Counterparty risk requirement

Foreign exchange requirement

Other assets requirement

7.2.4 to 7.2.5 (Calculation of annual expenditure)

7.3 (Method of calculation of financial resources)

GENPRU 2.2 (Capital resources) applies instead

7.4.1 (Application of rules in chapter 5 of IPRU(INV) about qualifying subordinated loans etc)

The record keeping rules referred to in rule 7.4.1(1)(c) are applied under BIPRU TP 23 (Record keeping transitionals)

7.4.2 (Application of rules in chapter 5 of IPRU(INV) about large exposures)

7.5 (Financial notification)

7.6 (Records)

Applied under BIPRU TP 23 (Record keeping transitionals)

Application of BIPRU TP 6

7.8

BIPRU TP 6 (Pre CRD capital requirements applying on a solo basis during 2007: Investment management firms) applies for the purposes of this section.

01/01/2007

BIPRU TP 8

Pre CRD capital requirements applying on a solo basis during 2007: Securities and futures firms

Application

8.1

This section applies to a BIPRU firm that is:

(1)

a securities and futures firm; and

(2)

is applying BIPRU TP 3.4R (Pre CRD capital requirements applying on a solo basis during 2007).

Purpose of this section

8.2

BIPRU TP 3 (Pre CRD capital requirements applying on a solo basis during 2007) says that during 2007 a firm may apply the credit risk requirements of IPRU instead of the ones in BIPRU. For a securities and futures firm this involves applying the credit risk requirements in chapter 10 of IPRU(INV). BIPRU TP 8 explains how this is done. In particular this section explains:

(1)

which parts of chapter 10 should be treated as credit risk requirements for this purpose;

(2)

what parts of chapter 10 apply during 2007 and what changes are made to chapter 10 for that purpose; and

(3)

what changes are made to GENPRU and BIPRU to reflect the fact that chapter 10 applies in place of parts of GENPRU and BIPRU.

Duration of transitional

8.3

BIPRU TP 8 applies until 1 January 2008.

Drafting approach in this section

8.4

The purpose of BIPRU TP 3 (Pre CRD capital requirements applying on a solo basis during 2007) is that the basic provisions of BIPRU and GENPRU should be in force from 1 January 2007. However a firm should be able to calculate the capital requirements for credit risk under IPRU and use the large exposures requirements in IPRU. This means that a securities and futures firm should slot the credit risk requirements of chapter 10 of IPRU(INV) into the general requirements of GENPRU and BIPRU. A firm that applies BIPRU TP 3.4R should not use chapter 3 as the source of its pre-2007 credit risk requirements even if it was subject to chapter 3 before becoming a BIPRU investment firm.

8.5

The capital calculation for credit risk under BIPRU is made up of three elements, which are set out in GENPRU 2.1.51 R (Calculation of the credit risk capital requirement). These are the credit risk capital component, the counterparty risk capital component and the concentration risk capital component. So the approach in BIPRU TP 8.4G involves finding equivalents for these three elements in chapter 10 where possible.

8.6

Under GENPRU and BIPRU a firm calculating its capital resources may usually choose between deducting illiquid assets and material holdings. Only if it has a waiver from consolidated supervision need it deduct both. This broadly corresponds to the approach in calculating financial resources under Tables 10-62(2)A to 10-62(2)C.

8.7

The financial resources requirements calculations under chapter 10 depend in part on which of the financial resources calculations in Tables 10-62(2)A to 10-62(2)C a firm uses. Where this is the case the firm should use the requirements calculation associated with the version of the tables in 10-62(2) that corresponds to the capital resources calculation the firm uses under GENPRU 2.2 (Capital resources). BIPRU TP 8.33G explains how the capital resources calculations in GENPRU 2.2 map onto Tables 10-62(2)A to 10-62(2)C.

8.8

(1)

To make the GENPRU and BIPRU requirements compatible with chapter 10 for the purpose of BIPRU TP 3 (Pre CRD capital requirements applying on a solo basis during 2007), this section takes the approach in this paragraph.

(2)

The illiquid assets and material holdings provisions of GENPRU 2.2 (Capital resources) apply.

(3)

The 8% illiquid asset adjustment under IPRU(INV) 10-65 applies to a firm calculating its financial resources under Table 10-62(2)A. It is equivalent to a capital charge for credit risk under BIPRU. Therefore a firm using the capital resources calculation in GENPRU that corresponds to Table 10-62(2)A (GENPRU 2 Annex 4 R (Capital resources table for a BIPRU investment firm deducting material holdings)) should continue to apply that adjustment. It should be included as part of the non-trading book credit risk charge in BIPRU, which is called the credit risk capital component.

(4)

A 100% illiquid asset adjustment under IPRU(INV) 10-65 is equivalent to a deduction of illiquid assets under GENPRU 2.2 (Capital resources). Therefore a firm should not use this adjustment. This is because, as explained in (2), the illiquid assets provisions in GENPRU 2.2 apply. Any item that would have been caught by IPRU(INV) 10-65 but is not caught by the illiquid assets deduction under GENPRU 2.2 should be dealt with under IPRU(INV) 10-66.

(5)

The IPRU(INV) 10-66 liquidity adjustment covers any asset that has not been subject to a liquidity adjustment for illiquid assets under IPRU(INV) 10-65. Therefore (subject to (3)) a firm should calculate the credit risk capital component (the non-trading book credit charge in BIPRU) by applying IPRU(INV) 10-66 to any asset not deducted as an illiquid assets under GENPRU 2.2 (Capital resources).

(6)

The chapter 10 counterparty risk requirement is used to calculate the BIPRU credit risk charge for trading book items, called the counterparty risk capital component.

(7)

The chapter 10 LER calculation is used to calculate the concentration risk capital component.

Parts of chapter 10 of IPRU(INV) that apply in 2007

8.9

The parts of chapter 10 of IPRU(INV) that do and do not apply during the period that BIPRU TP 3.4R applies are as set out in BIPRU TP 8.11R.

8.10

The table in BIPRU TP 8.11R assumes that the firm is not applying the IRB approach. BIPRU TP 8.35R to BIPRU TP 8.38R deal with a firm that does apply the IRB approach.

8.11

Table: Parts of chapter 10 of IPRU(INV) that apply in 2007
This table belongs to BIPRU TP 8.9R

Chapter 10 rule

A Y denotes that the provision does apply
An N denotes that it does not apply

Remarks

10-A (Application of Chapter 10 Glossary)

See BIPRU TP 8.32R

10-B (Application)

BIPRU TP 8.1R applies instead

10.10 to 10.12 (Record keeping and Reconciliations)

Applied in part under BIPRU TP 23 (Record keeping transitionals)

10-32 (Defaulting repo counterparty and LE Notification Requirements)

10-41 (Repo and Valuation)

10-60 to 10-63 (Initial Capital and Financial Resources)

10-64 to 10-68 (Liquidity Adjustments, Charged Assets and Contingent Liabilities)

10-64(2) (Intangible assets)

GENPRU 2.2 (Capital resources) applies instead

10-65(12) (Material holdings)

GENPRU 2.2 applies instead

The rest

See BIPRU TP 8.13R to BIPRU TP 8.19G. The requirement in 10-64(1)(c) for an illiquid asset adjustment for commodities to be calculated under appendix 6 (the PRR charge for commodities) does not apply

10-69 (Deficiencies in subsidiaries)

10-70 (Calculation of financial resources requirement)

10-71 (Primary requirement)

10-72 (Base requirement)

10-73 (Expenditure requirement)

10-74 (Secondary requirement)

BIPRU TP 3.10R and the table in BIPRU TP 8.34G explain how the terms used in rule 10-74 are to be interpreted

10-80 to 10-120 (PRR)

But see BIPRU TP 8.29R to BIPRU TP 8.31G

10-170 to 10-176 (CRR)

10-170(3) and (9) (Valuation) and 10-173(8) (Daily valuation)

The rest

See BIPRU TP 8.20R to BIPRU TP 8.25R

10-190 to 10-196 (Large exposures)

10-190(1) (Application)

BIPRU TP 10 (Pre CRD capital requirements applying on a consolidated basis during 2007) deals with consolidation

The rest

See BIPRU TP 8.26R to BIPRU TP 8.28R

10-200 to 10-204 (Consolidated supervision)

10-300 (ACMPs)

Applies to the extent relevant to the parts of chapter 10 that apply under BIPRU TP 8

Appendix 1 (Glossary of Terms for IPRU(INV) 10)

See BIPRU TP 8.32R

Appendices 4 to 11 (PRR)

Appendix 4 43R to 47R (Specific risk portion of the interest rate PRR)

The rest of Appendices 4 to 11

Appendix 20 (Guidance notes on reconciliation of firm's balances with a counterparty which is a member of an exchange (rule 10-11(4))

Appendix 21 (Note on the valuation of positions)

Appendix 43 (Guidance note on the financial resources and accounting treatment of soft commission agreements (rule 10-73 and 10-175))

Applies so far as relevant to CRR

Appendix 47 (Counterparty weights to be applied in calculating liquidity adjustment and CRR (rules 10-64 to 10-68, and 10-172 to 10-176))

Appendix 48 (Securities and Futures firms: Guidance notes on the secondary requirement)

Appendix 55 (Guidance notes on the application of adequate collateral or acceptable collateral to reduce counterparty exposures)

Appendix 56 (Guide to Adequate Credit Management Policy (ACMP) (rules 10-172 to 10-175, 10-300 and "ACMP"))

See remarks for 10-300

Appendix 57 (List of exchanges and clearing houses recognised for the purposes of IPRU(INV))

Appendix 58 (Verification of interim profits by external auditors)

Appendix 59 (List of regulators for the purposes of the definition of recognised third country investment firms)

Appendix 62 (Netting)

Appendix 63 (Guidance on Credit derivatives)

(1) Applies so far as relevant to CRR.
(2) Applies so far as relevant to liquidity adjustments.
(3) Does not apply so far as relevant to the PRR.
(4) If the firm is the protection seller in relation to a credit derivative in the non-trading book it must apply the treatment in IPRU(BANK).

Categorisation

8.12

Each firm is a Category A firm for the purposes of chapter 10 of IPRU(INV) as applied by BIPRU TP 3 (Pre CRD capital requirements applying on a solo basis during 2007) and this section.

How to use the chapter 10 liquidity adjustment rules

8.13

A firm must calculate the credit risk capital component by adding together the deductions under the liquidity adjustment rules that apply under BIPRU TP 8.11R.

8.14

The 100% liquidity adjustment in IPRU(INV) 10-65 (Liquidity adjustment on illiquid assets) does not apply.

8.15

The reason for BIPRU TP 8.14R is explained in BIPRU TP 8.8G.

8.16

IPRU(INV) 10-65 (Illiquid assets) only applies to a firm calculating capital resources under GENPRU 2 Annex 4 R (Capital resources table for a BIPRU investment firm deducting material holdings).

8.17

The reason for BIPRU TP 8.16R is explained in BIPRU TP 8.8G.

8.18

A firm must calculate the credit risk charge for commodities in the non-trading book as a liquidity adjustment under IPRU(INV) 10-64(1)(c) in accordance with the CRR rules in Chapter 10. A firm must include that amount in the calculation of the credit risk capital component.

8.19

A firm may still apply the CRR netting provisions for commodities in chapter 10 even though the calculation is split between the credit risk capital component and the counterparty risk capital component under BIPRU TP 8.18R and BIPRU TP 8.20R. The net amount should be allocated to the credit risk capital component if the gross value of the non-trading book commodities is bigger and to the counterparty risk capital component if the gross value of the trading book commodities is bigger.

How to use the chapter 10 CRR rules

8.20

Subject to BIPRU TP 8.18R, a firm must calculate the counterparty risk capital component as being equal to the capital charge under the CRR rules that apply under BIPRU TP 8.11R.

Adjustments to the CRR calculations: General

8.21

Broadly speaking the Directive transitional provisions that allow pre-2007 credit risk rules to be used in 2007 cover all credit risk rules. However the transitional provisions for trading book credit risk (Annex II of the Capital Adequacy Directive, which is implemented in BIPRU 14 (Capital requirements for settlement and counterparty risk)) is not quite as straightforward as that. In some cases pre-2007 requirements can be used. In others they cannot. The purpose of BIPRU TP 8.22R to BIPRU TP 8.25R is to reflect those cases in which the Directive requires the new requirements to apply from 1 January 2007.

Adjustments to the CRR calculations: Free deliveries

8.22

(1)

The calculations under rule 10-172 of IPRU(INV) (Free deliveries) are amended in accordance with this rule.

(2)

A firm must include foreign currency transactions.

(3)

The capital treatment in the table in BIPRU 14.4.3 R (Capital treatment for free deliveries) applies. But when the capital treatment in that table is that the firm must treat the transaction as an exposure, the firm must apply the treatment in rule 10-172 rather than BIPRU 14 (Capital requirements for settlement and counterparty risk).

Adjustments to the CRR calculations: Derivative transactions

8.23

A firm must treat a credit derivative in the trading book as a derivative to which rule 10-174 of IPRU(INV) (Derivative transactions) applies.

8.24

The capital treatment for credit derivatives set out in BIPRU 14.2.5 R - BIPRU 14.2.8 R (Capital treatment for credit derivatives) does not apply.

Adjustments to the CRR calculations: Cash against documents

8.25

A firm must include foreign currency transactions in the calculations under 10-171 of chapter 10 of IPRU(INV) (Cash against documents transactions).

How to use the chapter 10 large exposure rules

8.26

10-190 to 10-196 of chapter 10 of IPRU(INV) (Large exposures requirement) apply in place of BIPRU 10 (Concentration risk).

8.27

A firm must calculate the concentration risk capital component as being equal to the capital charge under the LER rules that apply under BIPRU TP 8.11R.

8.28

BIPRU 10.5.2 R to BIPRU 10.5.5 R (Capital resources for concentration risk purposes) apply in place of the corresponding provisions of chapter 10.

Specific risk calculations

8.29

A firm must use chapter 10 of IPRU(INV) as it applies under BIPRU TP 3 (Pre CRD capital requirements applying on a solo basis during 2007) and this section to calculate the specific risk portion of the interest rate PRR under BIPRU 7.2 (Interest rate PRR) to the extent that the relevant rules in BIPRU 7.2 require the use of the standardised approach to credit risk.

8.30

Any reference to a qualifying debt security in a part of BIPRU that applies during 2007 must be interpreted in accordance with the definition in the Glossary to chapter 10 of IPRU(INV). However BIPRU 7.2.50 R (Must not apply qualifying debt security treatment to risky assets) also applies.

8.31

The effect of BIPRU TP 8.29R and BIPRU TP 8.30R is that a firm should apply rules 43R to 47R of Appendix 4 of Chapter 10 of IPRU(INV) (Specific risk portion of interest rate PRR) instead of BIPRU 7.2.43 R to BIPRU 7.2.49 R (Specific risk portion of interest rate PRR). The reason for this is that the calculation of the specific risk portion of the interest rate PRR under BIPRU 7 (Market risk) involves the use of the standardised approach to credit risk. The specific risk rules therefore need to be adjusted for a firm that is not using the standardised approach to credit risk in 2007 so as to apply the pre-2007 method of calculating specific risk.

Definitions

8.32

The definitions of trading book, non-trading book, commodity, financial institution, illiquid asset and material holding in the Glossary to chapter 10 of IPRU(INV) are replaced by the corresponding definitions in the Glossary.

Mapping GENPRU and BIPRU concepts onto IPRU

8.33

Some of the parts of chapter 10 of IPRU(INV) that apply in 2007 refer to parts of IPRU that do not apply. BIPRU TP 3.10R explains that where this happens a firm should interpret that cross-reference in accordance with the provision in BIPRU or GENPRU that corresponds to the IPRU provision that does not apply in 2007. A firm should refer to IPRU in the case of cross-references in GENPRU and BIPRU to provisions in GENPRU and BIPRU that do not apply in 2007. BIPRU TP 8.34G sets out how certain concepts in chapter 10 of IPRU(INV) correspond to ones in GENPRU and BIPRU. The purpose of the table is to help firms to interpret such cross-references.

8.34

Table: Mapping GENPRU and BIPRU concepts onto ones in chapter 10 of IPRU(INV)
This table belongs to BIPRU TP 8.33G

GENPRU and BIPRU

Chapter 10 of IPRU(INV)

Calculations of counterparty risk capital component and calculations under BIPRU 14 (Capital requirements for settlement and counterparty risk)

Calculation of CRR

Illiquid asset

Deduction from capital resources as an illiquid assets

100% liquidity adjustment

Calculation of the credit risk capital component

8% liquidity adjustment

Concentration risk capital component

LER

Unsettled transaction under BIPRU 14.3

Cash against documents (IPRU(INV) 10-171)

Free deliveries under BIPRU 14.4

Free deliveries (IPRU(INV) 10-172)

Calculation of PRR or of the market risk capital requirement

Calculation of PRR and the foreign exchange requirement

Capital resources calculations under GENPRU 2 Annex 4 R

Financial resources calculation under table 10-62(2)A

Capital resources calculations under GENPRU 2 Annex 6 R

Financial resources calculation under table 10-62(2)B

Capital resources calculations under GENPRU 2 Annex 5 R respectively

Financial resources calculation under table 10-62(2)C

Investment firm consolidation waiver

Exemption from consolidated supervision

Commodity extended maturity ladder approach

Modified maturity ladder approach (relevant to the CRR calculation - see 10-174)

The table in BIPRU 7.8.28 R (Net underwriting position reduction factors)

Table 27R of Appendix 7 (Net underwriting position reduction factors)

Consolidated supervision in accordance with rules 10-200 to 10-203 (see for example the reference in rule 10-192(1)(g))

Consolidated supervision under BIPRU 8 (Group risk - consolidation)

Initial capital

Tier one capital resources plus tier two capital resources after deductions (stage N of the capital resources table)

Own funds

Capital resources

Financial resources (as referred to for example in rule 10-74)

Externally verified interim net profits and losses and partners' capital as referred to in GENPRU 2.2.102 R

Interim profit and loss account (as referred to in rule 10-74)

Trading book concentration risk excess

Excess D under rule 10-194(3)

Risk weight

Counterparty weight.

Firms using the IRB approach during 2007: General

8.35

BIPRU TP 8.36G to BIPRU TP 8.38R only apply to a firm that is applying the IRB approach under BIPRU TP 3 (Pre CRD capital requirements applying on a solo basis during 2007) as well as using IPRU.

8.36

The effect of BIPRU TP 3.17G (Pre CRD capital requirements applying on a solo basis during 2007 for firms also using the IRB approach) is that neither the illiquid asset adjustment nor the CRR requirements of chapter 10 apply to an exposure to which the firm applies the IRB approach. The IRB approach requirements in BIPRU apply instead. The main requirements are listed in BIPRU TP 3.17G.

8.37

A firm must apply BIPRU 7.2.45 R - 7.2.47R (Using internal ratings to calculate specific risk and treatment of securitisations) to calculate the specific risk portion of the interest rate PRR to the extent that the obligor or exposure in question comes within the scope of its IRB permission.

8.38

The definition of qualifying debt security in the Glossary applies if the security or obligor in question comes within the scope of a firm's IRB permission.

31/12/2011

BIPRU TP 9

Pre CRD capital requirements applying on a solo basis during 2007 and capital floors: Personal investment firms

Application

9.1

This section (except BIPRU TP 9.45R) applies to a BIPRU firm that:

(1)

is a personal investment firm; and

(2)

is applying BIPRU TP 3.4R (Use of IPRU on a solo basis during 2007).

9.2

BIPRU TP 9.45R applies to a BIPRU firm that:

(1)

is a personal investment firm; and

(2)

applies BIPRU TP 2 (Capital floors for a firm using the IRB or AMA approaches).

Purpose of this section

9.3

BIPRU TP 3 (Pre CRD capital requirements applying on a solo basis during 2007) says that during 2007 a firm may apply the credit risk requirements of IPRU instead of the ones in BIPRU. For a personal investment firm this involves applying the credit risk requirements in chapter 13 of IPRU(INV). This section explains how this is done. In particular this section explains:

(1)

which parts of chapter 13 should be treated as credit risk requirements for this purpose;

(2)

what parts of chapter 13 apply during 2007 and what changes are made to chapter 13 for that purpose; and

(3)

what changes are made to GENPRU and BIPRU to reflect the fact that chapter 13 applies in place of parts of GENPRU and BIPRU.

9.4

This section also explains how the obligation in BIPRU TP 2 (Capital floors for a firm using the IRB or AMA approaches) is applied to a personal investment firm.

Duration of transitional

9.5

This section applies until 1 January 2008.

Drafting approach in this section

9.6

9.7

The capital calculation for credit risk under BIPRU is made up of three elements, which are set out in GENPRU 2.1.51 R (Calculation of the credit risk capital requirement). These are the credit risk capital component, the counterparty risk capital component and the concentration risk capital component. So the approach in BIPRU TP 9.6G involves finding equivalents for these three elements in chapter 13 where possible.

9.8

The general approach to calculating the capital requirements for credit risk in GENPRU and BIPRU is to calculate the overall credit risk capital requirement (which is the sum of the three components listed in BIPRU TP 9.7G) - a monetary amount - and to compare it with capital resources, also a monetary amount. A firm calculating its capital resources may usually choose between deducting illiquid assets and material holdings. Only if it has a waiver from consolidated supervision need it deduct both.

9.9

The drafting approach of chapter 13 to calculating the capital requirement for credit risk is different from the one in GENPRU and BIPRU. A firm calculates financial resources by adjusting the assets in the balance sheet, taking into account liabilities. Financial resources are then used to test compliance with an own funds test, an expenditure based requirement test and a net asset test. The equivalent of a credit risk charge in Chapter 13 is the deduction of an asset as an Illiquid Adjustment or the deduction of a portion of an asset calculated using the Counterparty Risk Adjustment. Both illiquid assets and material holdings in credit institutions, investment firms and insurers are deducted under Chapter 13.

9.10

To make the GENPRU and BIPRU requirements compatible with chapter 13 for the purpose of BIPRU TP 3 (Pre CRD capital requirements applying on a solo basis during 2007), this section takes the approach in BIPRU TP 9.11G to BIPRU TP 9.18G.

9.11

The illiquid assets and material holdings provisions of GENPRU 2.2 (Capital resources) apply.

9.12

The chapter 13 Illiquid Adjustment and the chapter 13 Counterparty Risk Adjustment are used to calculate the BIPRU credit risk charge for non-trading book items (called the credit risk capital component) and the BIPRU credit risk charge for trading book items (called the counterparty risk capital component).

9.13

When this section requires a firm to apply an Illiquid Adjustment to an asset a firm should apply a credit risk charge to that asset equal to the amount of the Illiquid Adjustment under Chapter 13 and include that charge in the calculation of the total credit risk charge. The amount of that credit risk charge will generally be equal to the amount of that asset. This is equivalent to a deduction from capital. A firm should not apply an Illiquid Adjustment to the extent that the asset has already been included as an illiquid asset or material holding and deducted from capital resources under GENPRU 2.2.

9.14

The Chapter 13 Position Risk Adjustment no longer applies. If a firm has a trading book, an item in the trading book that would have received a Position Risk Adjustment is subject to a capital charge under BIPRU 7 (Market risk). An item in a firm's non-trading book that would have received a Position Risk Adjustment is subject under this section to an Illiquid Adjustment. A firm should approach its usual supervisory contact at the FSA if it believes that this treatment is disproportionate.

9.15

When this section requires a firm to apply a Counterparty Risk Adjustment to an asset a firm should apply a credit risk charge to that asset equal to the amount of the Counterparty Risk Adjustment under Chapter 13 and include that charge in the calculation of the total credit risk charge. The amount of that credit risk charge will generally be equal to the amount of that asset multiplied by the percentage in Table 13.5.4B or 13.5.4C. A firm should not apply a Counterparty Risk Adjustment to the extent that the asset has already been included as an illiquid asset or material holding and deducted from capital resources under GENPRU 2.2.

9.16

All non-trading book items are excluded under IPRU(INV) 13.8. This exclusion is incorporated in the calculations under this section as a credit risk charge of 100%. IPRU(INV) 13.8 does not apply if the firm does not have a trading book.

9.17

The calculation of the capital requirements for credit risk in GENPRU and BIPRU is based on applying a capital charge to the firm's assets. The credit risk charge in GENPRU and BIPRU in broad terms reflects the risk to a firm that it will suffer loss because its counterparties do not pay what they owe to the firm. Thus generally it is not necessary to continue the requirement in Table 13.5.4 to deduct liabilities. However it is still necessary to include other liabilities deducted as part of the calculation of financial resources under Chapter 13 if they are of the type listed in section 4 of Chapter BC of IPRU(BANK). This is because the Directive provisions that allow pre-2007 credit risk requirements to be used during 2007 require a capital charge for this type of item. In practice it is unlikely that these items will be relevant to a personal investment firm except for guarantees.

9.18

The chapter 13 Large exposure Adjustment is used to calculate the concentration risk capital component. This is only relevant to a firm with a trading book.

Parts of chapter 13 of IPRU(INV) that apply in 2007

9.19

The parts of chapter 13 of IPRU(INV) that do and do not apply during the period that BIPRU TP 3.4R applies are set out in BIPRU TP 9.21R.

9.20

The table in BIPRU TP 9.21R assumes that the firm is not applying the IRB approach. BIPRU TP 9.41R to BIPRU TP 9.44R deal with a firm that does apply the IRB approach.

9.21

Table: Parts of chapter 13 of IPRU(INV) that apply in 2007
This table belongs to BIPRU TP 9.19R

Chapter 13 rule

A Y denotes that the provision does apply
An N denotes that it does not apply

Remarks

13.1 (Application)

BIPRU TP 9.1R and BIPRU TP 9.2R apply instead

13.1.2 (General requirements)

13.1.3 to 13.1.6 (Professional Indemnity insurance)

13.1.7 to 13.1.9 (Notification)

13.1.10 to 13.1.17 (Record keeping)

Applied in part under BIPRU TP 23 (Record keeping transitionals)

13.2 (Financial Resources Tests)

13.3 (Financial Resources Test 1 - Own funds)

13.4 (Financial resources Test 1A - Adjusted net current assets)

13.5.1R to 13.5.3AG (Expenditure-based Requirement)

13.5.4 (Calculation of financial resources to meet Tests 1, 1A or 2)

Only applies for the purpose of deciding whether Table 13.5.4(1) or Table 13.5.4(2) applies

13.5.4A (Obligation to identify trading book items and special adjustments)

Does not apply to special adjustments that do not apply under this section

Part I of Tables 13.5.4(1) and (2) (Net assets requirement for firms in Category A): (Assets calculation)

Illiquid Adjustment

See BIPRU TP 9.23R to BIPRU TP 9.26G

Counterparty Risk Adjustment

See BIPRU TP 9.23R to BIPRU TP 9.31G

Position Risk Adjustment

If an exposure in the non-trading book would have been subject to a Position Risk Adjustment a firm must apply an Illiquid Adjustment to it.

Large exposure Adjustment

See BIPRU TP 9.34R

Part II of Tables 13.5.4(1) and (2) (Net assets requirement for firms in Category A): (Liabilities calculation)

Counterparty Risk Adjustments

See BIPRU TP 9.23R to BIPRU TP 9.31G

Liabilities if they are listed in section 4 of Chapter BC of IPRU(BANK) and are in the firm's non-trading book

(1) This applies whether they are on or off balance sheet.
(2) A firm must include liabilities under a credit derivative.
(3) See BIPRU TP 9.23R

Position Risk Adjustment

If an exposure in the non-trading book would have been subject to a Position Risk Adjustment a firm must apply an Illiquid Adjustment to it.

The rest

Table 13.5.4A (Position risk)

Table 13.5.4B (Unsettled securities transactions)

See BIPRU TP 9.28R

Table 13.5.4C (Counterparty risk)

See BIPRU TP 9.23R to BIPRU TP 9.31G

Table 13.5.4D (Over the counter derivatives)

See BIPRU TP 9.26G and BIPRU TP 9.30R to BIPRU TP 9.31G

Table 13.5.4E (Foreign exchange risk)

13.5.5 to 13.5.5C (Subordinated debt)

13.6 (Large exposures)

See BIPRU TP 9.32R to BIPRU TP 9.34R

13.7 (Consolidated Supervision of Group Companies)

13.8 (Trading book)

Table 13.8(1) (Definition of trading book)

The rest

See BIPRU TP 9.23R and BIPRU TP 9.38R

13.9 to 13.9.12 (Financial resources tests for Category B firms)

Glossary for chapter 13

See BIPRU TP 9.38R

Categorisation

9.22

Each firm is a Category A firm for the purposes of chapter 13 of IPRU(INV) as applied by BIPRU TP 3 (Pre CRD capital requirements applying on a solo basis during 2007) and this section.

How to use the chapter 13 Illiquid Adjustment and the Counterparty Risk Adjustment

9.23

A firm must calculate the sum of the credit risk capital component and the counterparty risk capital component as being equal to the sum of the following:

(1)

the amount of the Illiquid Adjustments under chapter 13 of IPRU(INV) so far as they are in force under BIPRU TP 9.21R;

(2)

the amount of any non-trading book assets that would be excluded under rule 13.8.2 of chapter 13 of IPRU(INV) (exclusion of non-trading book items from financial resources calculations);

(3)

the amount in relation to unsettled securities transactions (Cash against documents) specified in BIPRU TP 9.28R;

(4)

the amount in relation to unsettled securities transactions (Free deliveries) specified in BIPRU TP 9.29R;

(5)

the amount of the Counterparty Risk Adjustments under whichever is applicable of point 22 of Part II of Table 13.5.4(1) and point 22 of Part II of Table 13.5.4(2) of chapter 13 of IPRU(INV) (Liabilities adjustments relating to OTC derivatives for calculating financial resources);

(6)

the amount of the other Counterparty Risk Adjustments under whichever is applicable of Part I of Table 13.5.4(1) and Part I of Table 13.5.4(2) of chapter 13 of IPRU(INV) (Assets adjustments for calculating financial resources); and

(7)

the amount of any other liabilities under whichever is applicable of Part II of Table 13.5.4(1) and Part II of Table 13.5.4(2) of chapter 13 of IPRU(INV) but only to the extent provided by BIPRU TP 9.21R.

9.24

A firm must not apply a credit risk charge to an exposure under BIPRU TP 9.23R to the extent that it has already been deducted as an illiquid asset or a material holding under GENPRU 2.2 (Capital resources).

9.25

If it is necessary to distinguish between the credit risk capital component and the counterparty risk capital component a firm must allocate:

(1)

any amount calculated for an exposure in the non-trading book to the credit risk capital component; and

(2)

any amount calculated for an exposure in the trading book to the counterparty risk capital component.

9.26

A firm may still apply the netting provisions for OTC derivatives in chapter 13 even though the OTC derivative calculation is split between the credit risk capital component and the counterparty risk capital component under BIPRU TP 9.25R. The net amount should be allocated to the credit risk capital component if the gross value of the non-trading book derivatives is bigger and to the counterparty risk capital component if the gross value of the trading book derivatives is bigger.

Adjustments to the Counterparty Risk Adjustments calculations: General

9.27

Broadly speaking the Directive transitional provisions that allow pre-2007 credit risk rules to be used in 2007 cover all credit risk rules. However the transitional provisions for trading book credit risk (Annex II of the Capital Adequacy Directive, which is implemented in BIPRU 14 (Capital requirements for settlement and counterparty risk)) is not quite as straightforward as that. In some cases pre-2007 requirements can be used. In others they cannot. The purpose of BIPRU TP 9.28R to BIPRU TP 9.31G is to reflect those cases in which the Directive requires the new requirements to apply from 1 January 2007.

Adjustments to the Counterparty Risk Adjustments calculations: Unsettled Securities Transactions

9.28

(1)

The calculation of the credit risk charge for unsettled securities transactions is based on the Counterparty Risk Adjustment for such transactions adjusted in accordance with this rule.

(2)

Subject to the rest of this rule, the amount of the credit risk charge is equal to the Counterparty Risk Adjustment under paragraphs (a) and (b) in the unsettled securities transactions sections of Table 13.5.4(1) or (2).

(3)

The credit risk charge applies where the firm is exposed to loss if the counterparty does not perform.

(4)

A firm must calculate the Counterparty Risk Adjustment for an unsettled securities transaction in the trading book under BIPRU 14.3 (Unsettled transactions) rather than under chapter 13 of IPRU(INV).

Adjustments to the Counterparty Risk Adjustments calculations: Free deliveries

9.29

(1)

The calculation of the credit risk charge for a free delivery is based on the Counterparty Risk Adjustment for such transactions adjusted in accordance with this rule.

(2)

Subject to the rest of this rule, the amount of the credit risk charge is equal to the Counterparty Risk Adjustment under paragraphs (a) and (b) in the free delivery sections of Table 13.5.4(1) or (2).

(3)

A firm must include foreign currency and commodity for the purpose of trading book calculations.

(4)

The capital treatment in the table in BIPRU 14.4.3 R (Capital treatment for free deliveries) applies for the purpose of trading book calculations. But when the capital treatment in that table is that the firm must treat the transaction as an exposure, the firm must calculate a credit risk charge equal to the amount in (2).

Adjustments to the Counterparty Risk Adjustments calculations: Derivative transactions

9.30

A firm must treat a credit derivative in the trading book as a derivative to which paragraph 22 of Part II of Table 13.5.4(1), paragraph 22 of Part II of Table 13.5.4(2) and table 13.5.4D of chapter 13 of IPRU(INV) (Over the counter derivatives) apply.

9.31

The capital treatment for a credit derivative set out in BIPRU 14.2.5 R - BIPRU 14.2.8 R (Capital treatment for credit derivatives) does not apply.

How to use the chapter 13 large exposure rules

9.32

Section 13.6 of chapter 13 of IPRU(INV) (Large exposures) applies in place of BIPRU 10 (Concentration risk).

9.33

The following adjustments are made to section 13.6 of chapter 13 of IPRU(INV) (Large exposures):

(1)

BIPRU 10.5.2 R to BIPRU 10.5.5 R (Capital resources for concentration risk purposes) apply in place of the definition of own funds that applies under section 13.6 of chapter 13 of IPRU(INV);

(2)

rule 13.6.2B (Excess over EBR should not be excluded) does not apply; and

(3)

BIPRU 10.5.14 R (Notification) applies instead of the notification requirement in 13.6.

9.34

A firm must calculate its concentration risk capital component as being equal to the sum of the Large exposure Adjustments under whichever is applicable of Part I of Table 13.5.4(1) and Part I of Table 13.5.4(2) of chapter 13 of IPRU(INV) (Assets adjustments for calculating financial resources).

Specific risk calculations

9.35

A firm must calculate the specific risk portion of the interest rate PRR in accordance with BIPRU TP 8.29R (Pre CRD interest rate PRR for securities and futures firms).

9.36

Any reference to a qualifying debt security in a part of BIPRU that applies during 2007 must be interpreted in accordance with the definition in the Glossary to chapter 13 of IPRU(INV). However BIPRU 7.2.50 R (Must not apply qualifying debt security treatment to risky assets) also applies.

9.37

The reason for BIPRU TP 9.35R and BIPRU TP 9.36R is that the calculation of the specific risk portion of the interest rate PRR under BIPRU 7 (Market risk) involves the use of the standardised approach to credit risk. The specific risk rules therefore need to be adjusted for a firm that is not using the standardised approach to credit risk in 2007 so as to apply the pre-2007 method of calculating specific risk. However chapter 13 does not distinguish between specific risk and general market risk. The nearest equivalent is in chapter 10 of IPRU(INV) (Securities and futures firms).

Definitions

9.38

The definition of trading book is replaced with the definition in the Glossary. Section 13.8 of chapter 13 of IPRU(INV) (Trading book) and the definition in the Glossary to chapter 13 are amended accordingly.

Mapping GENPRU and BIPRU concepts onto IPRU

9.39

Some of the parts of chapter 13 of IPRU(INV) that apply in 2007 refer to parts of chapter 13 that do not apply. BIPRU TP 3.10R explains that where this happens a firm should interpret that cross-reference in accordance with the provision in BIPRU or GENPRU that corresponds to the chapter 13 provision that does not apply in 2007. A firm should refer to IPRU in the case of cross-references in GENPRU and BIPRU to provisions in GENPRU and BIPRU that do not apply in 2007. BIPRU TP 9.40G sets out how certain concepts in chapter 13 of IPRU(INV) correspond to ones in GENPRU and BIPRU. The purpose of the table is to help firms to interpret such cross-references.

9.40

Table: Mapping GENPRU and BIPRU concepts onto ones in chapter 13 of IPRU(INV)
This table belongs to BIPRU TP 9.39G

GENPRU and BIPRU

Chapter 13 of IPRU(INV)

See BIPRU TP 9.10G to BIPRU TP 9.17G

Illiquid Adjustment

See BIPRU TP 9.10G to BIPRU TP 9.17G

Counterparty Risk Adjustment

See BIPRU TP 9. 18G

Large exposure Adjustment

Material holding

The nearest equivalent is point 13 of Part I of Table 13.5.4(1) and (2) (All other assets)

Unsettled transaction under BIPRU 14.3

Cash against documents

Free deliveries under BIPRU 14.4

Free deliveries

Market risk capital requirement

The Position Risk Adjustment and the Foreign Exchange Risk Adjustment

Trading book concentration risk excess

Excess X in Table 13.6.2(2)

A firm should use the specific risk portion of the relevant PRR charge under BIPRU 7 (Market risk) (subject to the other provisions of this section about specific risk) where Chapter 13 as applied by this section requires the firm to apply position risk discounts.

Position risk discounts (particularly relevant for the purposes of Table 13.6.2(2))

Risk weight

Where Chapter 13 requires an asset to be deducted from capital that is equivalent to applying a risk weight of 1250%. Applying the 1.6% adjustment under Table 13.5.4C is equivalent to applying a 20% risk weight under BIPRU together with the standard 8% BIPRU credit risk charge. The "NIL" adjustment under that table is equivalent to applying a 0% risk weight.

Firms using the IRB approach during 2007: General

9.41

BIPRU TP 9.42G to BIPRU TP 9.44R only apply to a firm that is applying the IRB approach under BIPRU TP 3 (Pre CRD capital requirements applying on a solo basis during 2007) as well as using IPRU.

9.42

The effect of BIPRU TP 3.17G (Pre CRD capital requirements applying on a solo basis during 2007 for firms also using the IRB approach) is that the Counterparty Risk Adjustments do not apply to an exposure to which the firm applies the IRB approach. The IRB approach requirements in BIPRU apply instead. The main requirements are listed in BIPRU TP 3.17G. The same applies to the Illiquid Adjustments although illiquid assets or material holdings will still have to be deducted under GENPRU 2.2 (Capital resources).

9.43

A firm must apply BIPRU 7.2.45 R - BIPRU 7.2.47 R (Using internal ratings to calculate specific risk and treatment of securitisations) to calculate the specific risk portion of the interest rate PRR to the extent that the obligor or exposure in question comes within the scope of its IRB permission.

9.44

The definition of qualifying debt security in the Glossary applies if the security or obligor in question comes within the scope of a firm's IRB permission.

Calculation of capital floors under BIPRU TP 2

9.45

(1)

This paragraph sets out how the obligation in BIPRU TP 2 (Capital floors for a firm using the IRB or AMA approaches) is applied to a personal investment firm.

(2)

A firm must apply Financial Resources Test 2 (Expenditure-based Requirement) for the periods specified in BIPRU TP 2 by multiplying the Expenditure-based Requirement by the percentage figure in BIPRU TP 2.8R or BIPRU TP 2.9R.

(3)

BIPRU TP 2 does not apply to Financial Resources Test 1 (Own funds) or Financial Resources Test 1A (Adjusted net current assets).

31/12/2011

BIPRU TP 10

Pre CRD capital requirements applying on a consolidated basis during 2007

Application

10.1

This section applies to a firm to which BIPRU 8 (Consolidation) applies.

Purpose

10.2

This section sets out how BIPRU TP 3 - BIPRU TP 9 (Use of IPRU during 2007) are applied on a consolidated basis.

Duration of transitional

10.3

BIPRU TP 10 applies until 1 January 2008.

Main rule

10.4

A firm may apply BIPRU TP 3 to BIPRU TP 9 (Use of IPRU during 2007 on a solo basis) on a consolidated basis. Applying them on a consolidated basis means that BIPRU 8 (Group risk - Consolidation) is modified by applying the relevant parts of BIPRU TP 3 to BIPRU TP 9 (as defined in BIPRU TP 10.5R) in place of the corresponding BIPRU credit risk and other rules.

10.5

(1)

This rule sets out what the relevant parts of BIPRU TP 3 to BIPRU TP 9 (Use of IPRU during 2007 on a solo basis) are for the purposes of BIPRU TP 10.4R. The answer depends on the kind of UK consolidation group or non-EEA sub-group ("group") to which consolidated requirements are being applied.

(2)

If the group is a building society group as defined in BIPRU TP 1.7R, the relevant parts of BIPRU TP 3 to BIPRU TP 9 are those applicable to a building society.

(3)

If the group is a banking group as defined in BIPRU TP 1.7R, the relevant parts of BIPRU TP 3 to BIPRU TP 9 are those applicable to a bank.

(4)

If the group is an investment services group as defined in BIPRU TP 1.7R, the relevant parts of BIPRU TP 3 to BIPRU TP 9 are those applicable to the main BIPRU investment firm in that group. For these purposes the main BIPRU investment firm is identified in the same way as the "main firm" is identified under rule 14.4.2R(1) of chapter 14 IPRU(INV).

10.6

The application of BIPRU TP 3 (Pre CRD capital requirements applying on a solo basis during 2007) on a consolidated basis is not done by applying the relevant consolidation provisions in IPRU. BIPRU 8 (Group risk - Consolidation) still applies, as modified by this section. BIPRU TP 10.7G to BIPRU TP 10.12G summarise how BIPRU TP 3 works on a consolidated basis under this section assuming that the firm does not use the IRB approach.

10.7

The consolidated credit risk charge (called the consolidated credit risk requirement) is normally calculated under BIPRU 8 by applying the solo BIPRU credit risk charges on a consolidated basis. Under this section the IPRU credit risk charges are applied instead, as modified by BIPRU TP 3 to BIPRU TP 9 (Use of IPRU during 2007 on a solo basis).

10.8

Under this section the applicable IPRU large exposure requirements, as modified by BIPRU TP 3 to BIPRU TP 9, apply instead of the ones in BIPRU 10 (Concentration risk requirements). BIPRU TP 10.15R disapplies most of BIPRU 8.9 (Consolidated concentration risk requirements).

10.9

A firm should calculate the consolidated credit risk requirement so far as it relates to the concentration risk capital component using the relevant IPRU rules. In particular a firm should not use the capital requirements of a regulator other than the FSA for this purpose.

10.10

A firm should still base its capital resources calculation for consolidation purposes on BIPRU 8.6 (Consolidated capital resources) rather than using the IPRU capital resources calculations. In turn, BIPRU 8.6 is based on GENPRU 2.2 (Capital resources). This applies for consolidated concentration risk purposes as well.

10.11

BIPRU 8.4 (CAD Article 22 groups and investment firm consolidation waiver) still applies.

10.12

The calculation of consolidated capital requirements under BIPRU 8.7 (Consolidated capital resources requirements) depends in part on whether the group contains banks, BIPRU limited activity firms or BIPRU limited licence firms. This continues to apply for the purpose of this section in addition to BIPRU TP 10.5R. So for instance, if a group contains only BIPRU limited licence firms the consolidated capital requirements for the group are based on the capital requirements for BIPRU limited licence firms. However in addition if, for example, the main firm (as defined in BIPRU TP 10.5R) is a personal investment firm the requirements for BIPRU limited licence firm are modified in accordance with BIPRU TP 9 (Pre CRD capital requirements applying on a solo basis during 2007 and capital floors: Personal investment firms). The calculation of notional capital resources requirements under BIPRU 8.4.13 R (Capital adequacy obligations relating to a CAD Article 22 group: Capital resources requirement) works in a similar way.

Consolidated capital resources requirement: Use of home state requirements for EEA firms

10.13

A firm may, for the purposes of BIPRU TP 10.4R, use the solo financial resources requirement to which an EEA firm is subject in accordance with BIPRU 8.7.34 R (Use of the solo requirements of another EEA competent authority) or the consolidated financial resources requirements of an EEA competent authority under BIPRU 8.7.37 R (Use of the consolidated requirements of another EEA competent authority). However those requirements must be ones that apply under the CRD implementation measures for Articles 152(8) - (14) of the Banking Consolidation Directive and Article 50(1) of the Capital Adequacy Directive for the relevant EEA State (Pre CRD capital requirements applying during 2007).

Consolidated capital resources requirement: Use of home state requirements for third country undertakings

10.14

(1)

A firm may, for the purposes of BIPRU TP 10.4R, use the solo financial resources requirement of a third country competent authority in accordance with BIPRU 8.7.35 R (Use of the solo requirements of a regulator outside the EEA) or the consolidated financial resources requirements of a third country competent authority under BIPRU 8.7.38 R (Use of the consolidated requirements of a regulator outside the EEA) in accordance with the adjustments in this rule.

(2)

The list in BIPRU 8 Annex 6 R (List of equivalent third country regulators) does not apply and instead:

(a)

if the UK consolidation group or non-EEA sub-group is a banking group or building society group as defined in BIPRU TP 1.7R (Classification of groups for certain consolidation rules), the lists in Appendices C and D of chapter CS of IPRU(BANK) apply; and

(b)

if the UK consolidation group or non-EEA sub-group is an investment firm group as defined in BIPRU TP 1.7R, the list in Appendix 59 of chapter 10 of IPRU(INV) applies.

(3)

The firm must apply the version of those requirements in force on 31 December 2006 or any later version that remains consistent with EEA prudential sectoral legislation for the banking sector or investment services sector in the form it was in on 31 December 2006.

(4)

The requirement in BIPRU 8.7.35 R (2) and the last sentence of BIPRU 8.7.38 R (2) (Requirement for calculation not to produce a lower figure than the FSA's rules) still applies.

Consolidated large exposures

10.15

A firm must apply the concentration risk requirements under BIPRU TP 3 to BIPRU TP 9 (Use of IPRU during 2007 on a solo basis) applicable to its UK consolidation group or non-EEA sub-group under BIPRU TP 10.4R as if it were a single undertaking. BIPRU 8.9.2 R (Definition of consolidated capital resources for concentration risk purposes) applies for the purpose of this rule. BIPRU 8.9 (Consolidated concentration risk requirements) does not otherwise apply.

01/01/2007

BIPRU TP 11

IRB transitionals

Application

11.1

BIPRU TP 11 applies to a BIPRU firm that uses the IRB approach.

Purpose

11.2

BIPRU TP 11 implements Articles 154(2), (3) and (5) of the Banking Consolidation Directive and (in part) Article 17 of the Capital Adequacy Directive.

Use requirement

11.3

In accordance with Article 154(2) of the Banking Consolidation Directive, for a firm applying for the use of the IRB approach before 2010, the three years' use requirement prescribed in BIPRU 4.2.11 R (Requirements concerning the experience requirement) is reduced to a period of one year until 31 December 2009.

11.4

In accordance with Article 154(3) of the Banking Consolidation Directive, for a firm applying for the use of own estimates of LGDs and/or conversion factors, the three year use requirement prescribed in BIPRU 4.2.13 R (Requirements concerning the experience requirement) is reduced to two years until 31 December 2008.

11.5

The transitional period in BIPRU TP 11.3R rather than that in BIPRU TP 11.4R applies to retail exposures.

Residential properties

11.6

In accordance with Article 154(5) of the Banking Consolidation Directive, until 31 December 2012, the exposure-weighted average LGD for all retail exposures secured by residential properties and not benefiting from guarantees from central governments must not be lower than 10%.

Expected loss

11.7

BIPRU TP 11.3R to BIPRU TP 11.6R also apply for the purpose of BIPRU 14.2.18 R and BIPRU 14.2.19 R (Treatment of expected loss amounts under the IRB approach) and GENPRU 2.2.193 R (Upper tier two capital: Surplus provisions).

01/01/2011

BIPRU TP 12

Operational risk transitionals: small trading book

Application

12.1

Subject to BIPRU TP 12.2R, BIPRU TP 12 applies to a BIPRU investment firm that satisfies the following conditions:

(1)

it is a full scope BIPRU investment firm;

(2)

it does not fall within the definition of limited licence firm or limited activity firm in BIPRU 1.1.11 R to BIPRU 1.1.12 R (Definitions of limited licence firm or limited activity firm);

(3)

its total trading book positions never exceed 50 million Euro;

(4)

the average number of its relevant employees during the financial year does not exceed 100; and

(5)

the firm has a waiver that modifies BIPRU 6 (Operational risk) so as to require the firm to calculate its ORCR in accordance with BIPRU TP 12.

12.2

BIPRU TP 12.12R to BIPRU TP 12.14G apply to any firm to which BIPRU 8 (Group risk - consolidation) applies.

Purpose

12.3

BIPRU TP 12 implements Article 46 of the Capital Adequacy Directive.

Duration of transitional

12.4

BIPRU TP 12 applies until 31 December 2011.

Calculation of number of employees

12.5

In calculating the average number of its relevant employees a firm must:

(1)

include all its directors, officers having executive responsibilities and senior managers;

(2)

include all staff whose responsibilities include front office responsibilities in relation to activities that give rise to positions in the trading book;

(3)

include all staff whose responsibilities include back office, compliance or risk management responsibilities in relation to activities that give rise to positions in the trading book;

(4)

include contractors of or persons seconded to the firm or carrying out functions for the firm who would be relevant employees if they were employed by the firm; and

(5)

take into account the methodology for calculating an average number of employees referred to in section 382(6) of the Companies Act 2006.

12.6

A firm must have a written policy for identifying persons who are relevant employees for the purpose of BIPRU TP 12.5R.

Purpose of BIPRU TP 12.1R(2)

12.7

The purpose of BIPRU TP 12.1R(2) is to exclude a firm that falls into the definition of full scope BIPRU investment firm because it has obtained a waiver or has a Part IV permission that enables it to calculate an ORCR instead of the fixed overheads requirement (see BIPRU 6.1.2 G).

Reduction of the ORCR

12.8

The ORCR of a firm to which this rule applies is the lower of:

(1)

the ORCR that would have applied but for this rule; and

(2)

12/88 of the higher of the following:

(a)

the sum of credit risk capital requirement and the market risk capital requirement; and

(b)

the fixed overheads requirement, notwithstanding that the fixed overheads requirement does not apply.

12.9

The fraction 12/88 in BIPRU TP 12.8R(2) increases in accordance with the table in BIPRU TP 12.10R.

12.10

Table: Increase in 12/88 fraction
This table belongs to BIPRU TP 12.9R

Date on which increase takes effect

Fraction

1 January 2008

27/88

1 January 2009

42/88

1 January 2010

57/88

1 January 2011

72/88

Minimum capital requirement

12.11

(1)

A firm must have capital resources at least equal to the capital resources requirement that applies to it under whichever part of IPRU applies to the firm under BIPRU TP 1.4R.

(2)

A firm must calculate its capital resources for the purposes of this rule in accordance with the same part of IPRU.

(3)

The following provisions of BIPRU TP 2 (Capital floors for a firm using the IRB or AMA approaches) apply for the purposes of this rule:

(a)

BIPRU TP 2.14R to BIPRU TP 2.15G (Adjustments to the calculation of capital resources);

(b)

BIPRU TP 2.18R to BIPRU TP 2.19G (CAD 1 model and VaR model);

(c)

BIPRU TP 2.20R to BIPRU TP 2.21G (Individual capital guidance);

(d)

BIPRU TP 2.22R to BIPRU TP 2.27G (How to apply IPRU for the purposes of the capital floor calculations); and

(e)

BIPRU TP 2.29R (Solo consolidation and the capital floor calculations).

Consolidation

12.12

A firm may only calculate the consolidated operational risk requirement with respect to its UK consolidation group or non-EEA sub-group in accordance with BIPRU TP 122 if the group in question satisfies the following conditions:

(1)

there is no credit institution in the group;

(2)

the consolidated capital resources requirement of the group is calculated in accordance with stage 2 in BIPRU 8 Annex 5 R (Consolidation requirements for a group containing a CAD full scope firm);

(3)

the group meets the conditions in BIPRU TP 12.1R(3) and (4) applied on a consolidated basis; and

(4)

the firm has a waiver that modifies BIPRU 8 (Group risk - consolidation) so as to require the firm to calculate its consolidated operational risk requirement in accordance with BIPRU TP 12.

Minimum consolidated capital requirement

12.13

If a firm applies BIPRU TP 12.12R to its UK consolidation group or non-EEA sub-group it must apply BIPRU TP 12.11R to that group in accordance with BIPRU TP 2.31R to BIPRU TP 2.33G (Consolidated capital floors for a firm using the IRB approach or AMA (advanced measurement approach)).

Changes in a firm's business

12.14

The Capital Adequacy Directive says that a competent authority may agree to reduce the capital floor implemented by BIPRU TP 12.11R and BIPRU TP 12.13R if such a reduction is prudentially justified by a reduction in the size of the firm's business. Those rules implement that option by requiring a firm to apply the IPRU requirements to its business as it changes over time.

06/06/2008

BIPRU TP 13

Other operational risk transitionals

Application

13.1

BIPRU TP 13 applies to a BIPRU firm.

Purpose

13.2

BIPRU TP 13 implements Articles 155 of the Banking Consolidation Directive and Article 44 of the Capital Adequacy Directive.

Relevant indicator

13.3

Until 31 December 2012, a percentage of 15% applies to the business line "Trading and Sales" of a firm whose relevant indicator (as referred to in BIPRU 6.4.6 R) for the business line "Trading and Sales" represents at least 50% of the total of the relevant indicators for all of the firm's business lines in accordance with BIPRU 6.4.6 R to BIPRU 6.4.16 G (Calculating the ORCR under the standardised approach to operational risk).

Reduced operational risk charge in 2007

13.4

BIPRU TP 3.21R (Reduced ORCR for a firm applying pre-CRD capital requirements in 2007) also contains a transitional rule about operational risk.

Systems and controls in 2007

13.5

A reference in BIPRU 6 (Operational risk) to SYSC 4 to SYSC 10 (referred to in this rule as the "common platform requirements") or a part of those requirements must be read as being to the corresponding provisions of SYSC 3. This rule ceases to have effect on 1 November 2007 or on any earlier date on which the firm elects to comply with the common platform requirements in accordance with SYSC.

01/01/2007

BIPRU TP 14

Market risk: VaR models

Application

14.1

BIPRU TP 14 applies to a BIPRU firm that:

(1)

has had a VaR model permission since 1 January 2007; and

(2)

on 31 December 2006 calculated its capital requirements under IPRU using the VaR model approach (as then in force) under a waiver or (in the case of a firm to which IPRU(BANK) or IPRU(BSOC) applied) written guidance (a "written concession").

Purpose

14.2

BIPRU TP 14 implements Article 47 of the Capital Adequacy Directive.

Duration of transitional

14.3

BIPRU TP 14 applies until 31 December 2009 or any earlier date specified in the firm's VaR model permission.

Specific risk calculations for VaR models

14.4

A firm may treat:

(1)

the VaR specific risk minimum requirements and the provisions about backtesting in relation to specific risk as being replaced by the provisions of the written concession referred to in BIPRU TP 14.1 relating to specific risk; and

(2)

the incremental risk charge as being replaced by the provisions of that written concession relating to the calculation of capital requirements for specific risk.

31/12/2011

BIPRU TP 15

Commodities firm transitionals: Exemption from capital requirements

Application

15.1

Subject to BIPRU TP 15.2R, BIPRU TP 15 applies to a BIPRU investment firm:

(1)

whose main business consists exclusively of the provision of investment services or investment activities in relation to the financial instruments set out in points 5, 6, 7, 9 and 10 of Section C of Annex I to the MIFID; and

(2)

to whom the ISD would not have applied if it had remained in force in the form it was in on 31 December 2006.

15.2

BIPRU TP 15.13R to BIPRU TP 15.14G apply to any firm to which BIPRU 8 (Group risk - consolidation) applies.

Purpose

15.3

BIPRU TP 15 implements Article 48(1) of the Capital Adequacy Directive.

Duration of exemption

15.4

BIPRU TP 15 applies until 31 December 2014.

[Note: CAD Article 48(1)]

15.5

If there are any modifications pursuant to paragraphs 2 and 3 of Article 48 of the Capital Adequacy Directive (European Commission review of prudential regime for exempt commodity firms), the FSA will revoke BIPRU TP 15 if the date of coming into force of the implementing measures in relation to those changes is before the date in BIPRU TP 15.4R.

Exemption

15.6

The provisions of GENPRU and BIPRU on capital requirements and GENPRU 1.2 (Adequacy of financial resources) do not apply to a firm to which BIPRU TP 15 applies. However BIPRU 10(Large exposures requirements) continues to apply, including the CNCOM.

15.7

If a firm meets the conditions in BIPRU TP 16 (Commodities firm transitionals: large exposures) it will be exempt from BIPRU 10 as well.

15.8

An exempt BIPRU commodities firm (which is the name in the Glossary given to a firm with the benefit of the exemption in BIPRU TP 15.6R) may be subject to the requirements of Chapter 3 of IPRU(INV). Details of which exempt BIPRU commodities firm are subject to those requirements can be found in Chapter 3 of IPRU(INV).

15.9

The table in BIPRU TP 15.10G provides an indication of which parts of GENPRU and BIPRU generally apply to an exempt BIPRU commodities firm and which parts in general do not apply. If a section is shown as not in general applying the table also identifies any significant aspects of that section that do apply.

15.10

Table: Parts of GENPRU and BIPRU that apply to exempt BIPRU commodities firms
This table belongs to BIPRU TP 15.9G

GENPRU and BIPRU provisions

A Y denotes that the provision generally does apply
An N denotes that generally it does not apply

Remarks

GENPRU TP (Transitional provisions)

GENPRU 1.1 (Application and scope)

GENPRU 1.2 (Adequacy of financial resources)

GENPRU 1.3 (Valuation)

GENPRU 1.4 (Actions for damages)

GENPRU 1.5 (Application of GENPRU 1 to Lloyd's)

Not applicable as does not apply to BIPRU firms

GENPRU 2.1 (Calculation of capital resources requirements)

GENPRU 2.2 (Capital resources)

This applies for the purposes of BIPRU 10. If BIPRU 10 does not apply this does not apply either.

GENPRU 2.3 (Application of GENPRU 2 to Lloyd's)

Not applicable as does not apply to BIPRU firms

GENPRU 3.1 (Cross sector groups)

Only applies if the firm is a member of a financial conglomerate

GENPRU 3.2 (Third-country groups)

Provisions about financial conglomerate only apply if the firm is a member of a financial conglomerate
See remarks on BIPRU 8 for provisions about a third-country banking and investment group

BIPRU TP (Transitional provisions)

BIPRU 1.1 (Application and scope)

BIPRU 1.2 (Definition of the trading book)

BIPRU 1.3 (Application for advanced approaches)

Provisions about BIPRU 2.1 and BIPRU 8 apply to the extent those parts of BIPRU apply. Otherwise does not apply.

BIPRU 1.4 (Actions for damages)

BIPRU 2.1 (Solo consolidation)

Applies for the purposes of BIPRU 10.

BIPRU 2.2 (Adequacy of financial resources)

BIPRU 2.3 (Interest rate risk in the non-trading book)

BIPRU 3 (Standardised approach to credit risk)

BIPRU 4 (The IRB approach)

BIPRU 5 (Credit risk mitigation)

BIPRU 6 (Operational risk)

BIPRU 7 (Market risk)

BIPRU 7.8.38 R and BIPRU 7.3.39 R (Risk management systems and controls) apply in theory although it is unlikely that a firm will be able to carry out these activities without losing the exemption in BIPRU TP 15.

BIPRU 8 (Group risk - consolidation)

See BIPRU TP 15.13R to BIPRU TP 15.14G

BIPRU 9 (Securitisation)

BIPRU 9.1.6R to BIPRU 9.1.8G (Risk systems) apply

BIPRU 10 (Large exposures)

If firm also qualifies for exemption under BIPRU TP 16 (Commodities firm transitionals: large exposures) BIPRU 10 does not apply except as described in BIPRU TP 16.7G

BIPRU 11 (Disclosure)

BIPRU 12

Chapter does not yet exist

BIPRU 13 (Financial derivatives, SFTs and long settlement transactions)

BIPRU 14 (Capital requirements for settlement and counterparty risk)

15.11

SYSC applies to an exempt BIPRU commodities firm.

Definitions

15.12

The terms financial instrument, investment services and investment activities have the same meaning as they do in the MIFID.

Consolidation

15.13

BIPRU TP 15 does not apply for the purposes of BIPRU 8 with respect to a firm's UK consolidation group or, as the case may be, non-EEA sub-group unless the following conditions are satisfied:

(1)

there is no credit institution in that group;

(2)

each investment firm in the group meets the conditions in BIPRU TP 15.1R(1);

(3)

each investment firm whose head office is in an EEA State satisfies the conditions in BIPRU TP 15.1R(2); and

(4)

any investment firm whose head office is outside the EEA would have fallen into BIPRU TP 15.1R(2) if:

(a)

its head office had been in an EEA State; and

(b)

it had carried on all its business in the EEA and had obtained whatever authorisations for doing so were required under the ISD in the form that Directive was in on 31 December 2006.

15.14

If an exempt BIPRU commodities firm is a member of a group that meets the conditions in BIPRU TP 15.13R, BIPRU 8 will not apply to the group. Chapter 14 of IPRU(INV) (Consolidation) applies instead.

31/12/2010

BIPRU TP 16

Commodities firm transitionals: large exposures

Application

16.1

Subject to BIPRU TP 16.2R, BIPRU TP 16 applies to a BIPRU investment firm that satisfies the following conditions:

(1)

it satisfies the requirements in BIPRU TP 15.1R and it remains eligible to apply the treatment in BIPRU TP 15 (Commodities firm transitionals: Exemption from capital requirements);

(2)

the firm provides investment services or investment activities related to the financial instruments listed in points 5, 6, 7, 9 and 10 of Section C of Annex I of the MIFID;

(3)

the firm does not provide such investment services or undertake such investment activities for, or on behalf of, retail clients;

(4)

breaches of the limits referred to in BIPRU TP 16.6R arise in connection with exposures resulting from contracts that are financial instruments as listed in (2) and relate to commodities or underlyings within the meaning of point 10 of Section C of Annex I of the MIFID and are calculated in accordance with BIPRU 13 (Financial derivatives, SFTs and long settlement transactions) or in connection with exposures resulting from contracts concerning the delivery of commodities or emission allowances; and

(5)

it satisfies the requirements in BIPRU TP 16.8R.

16.2

BIPRU TP 16.11R applies to any firm to which BIPRU 8 (Group risk - consolidation) applies.

Purpose

16.3

BIPRU TP 16 implements Article 45 of the Capital Adequacy Directive. The condition in BIPRU TP 16.1R(1) is in addition to the Directive conditions.

Duration of transitional

16.4

The treatment in BIPRU TP 16 is available until 31 December 2014.
[Note: CAD Article 45(1)]

16.5

If there are any modifications consequent on the treatment of large exposures, pursuant to Article 119 of the Banking Consolidation Directive, the FSA will revoke BIPRU TP 16 if the date of coming into force of the implementing measures in relation to those changes is before the date in BIPRU TP 16.4R. If the FSA revokes BIPRU TP 15 it will also revoke BIPRU TP 16 at the same time.

Exemption

16.6

(1)

A firm may exceed the limits concerning large exposures in BIPRU 10.5.6 R (25% limit).

(2)

The CNCOM does not apply.

16.7

Broadly speaking the effect of BIPRU TP 16.6R is that BIPRU 10(Large exposures) does not apply to a firm that meets the conditions in BIPRU TP 16.1R. However BIPRU 10.12 (Systems and controls and general) continues to apply.

Documented strategy

16.8

A firm must have a documented strategy for managing and, in particular, for controlling and limiting risks arising from the concentration of exposures. The firm must notify the FSA of this strategy and all material changes to this strategy without delay. The firm must make appropriate arrangements to ensure a continuous monitoring of the creditworthiness of borrowers, according to their impact on concentration risk. These arrangements must enable the firm to react adequately and sufficiently promptly to any deterioration in that creditworthiness.

16.9

Where a firm exceeds the internal limits set according to the strategy referred to in BIPRU TP 16.8R, it must notify the FSA without delay of the size and nature of the excess and of the counterparty.

Definitions

16.10

The terms financial instrument, investment services and investment activities have the same meaning as they do in the MIFID.

Consolidation

16.11

BIPRU TP 16 does not apply for the purposes of BIPRU 8 (Group risk - consolidation) with respect to a firm's UK consolidation group or, as the case may be, non-EEA sub-group unless the following conditions are satisfied:

(1)

the group satisfies the requirements in BIPRU TP 15.13 (Application of BIPRU TP 15 on a consolidated basis) and the firm remains eligible to apply the treatment in BIPRU TP 15.13 with respect to that UK consolidation group or, as the case may be, non-EEA sub-group;

(2)

there is no credit institution in that group;

(3)

each investment firm in the group meets the conditions in BIPRU TP 16.1R(2) and (3); and

(4)

the group meets the conditions in BIPRU TP 16.1R(4) to (5) applied on a consolidated basis.

31/12/2010

BIPRU TP 20

Standardised credit risk transitionals

Application

20.1

This section applies to a BIPRU firm.

Days past due

20.2

(1)

This rule applies to an exposure in another EEA State of a type to which a CRD implementation measure in that EEA State for the first paragraph of Article 154(1) of the Banking Consolidation Directive (Transitional rule for days past due for claims on PSEs and corporates and retail exposures) applies.

(2)

If the number of days past due set under that CRD implementation measure is greater than the number in BIPRU 3.4.96 R (Treatment of items past due for more than 90 days) that higher number applies.

20.3

BIPRU TP 20.2R applies until 31 December 2011 or any earlier date on which the relevant CRD implementation measure ceases to apply.

20.4

BIPRU TP 20.2R implements (in part) Article 154(1) of the Banking Consolidation Directive.

Central government exposures

20.5

Until 31 December 2015, a 0% risk weight applies to exposures to the central government of the United Kingdom and of the Bank of England denominated and funded in the currency of another EEA State.

20.6

If the CRD implementation measures of another EEA State apply a 0% risk weight to exposures to its central government or central bank denominated and funded in the domestic currency of another EEA State a firm must risk weight such exposures in the same manner.

20.7

BIPRU TP 20.6R applies until 31 December 2015 or any earlier date on which the relevant CRD implementation measure ceases to apply.

20.8

BIPRU TP 20.5R to BIPRU TP 20.7R implements (in part) Article 153 of the Banking Consolidation Directive.

31/12/2010

BIPRU TP 21

Close substitutes for commodities

Application

21.1

This section applies to a BIPRU firm that on 31 December 2006 was applying the approach referred to in the first column of the table in BIPRU TP 21.3R with respect to particular grades or brands of the same commodity-class.

Commodities: close substitutes

21.2

A notice given under the IPRU provision in the second column of the table in BIPRU TP 21.3R is treated as having been given under BIPRU 7.4.23 R (Notice to the FSA about treatment of different grades or brands of the same commodity) for the purposes of BIPRU 7.4.22 R (Treatment of different grades or brands of the same commodity) with respect to the commodity grades or brands referred to in BIPRU TP 21.1R.

21.3

Table: Commodity treatments under IPRU
This table belongs to BIPRU TP 21.2R

IPRU provisions setting out commodity approach

IPRU provisions under which notice given

Paragraph 22(2) of appendix 6 of chapter 10 of IPRU(INV)

Paragraph 23 of appendix 6 of chapter 10 of IPRU(INV)

Paragraph 22(2) of chapter CM of IPRU(BANK)

Paragraph 23 of chapter CM of IPRU(BANK)

Explanation

21.3

BIPRU 7.4.22 R (1)(b) says that a firm should treat positions in different grades or brands of the same commodity-class as different commodities unless they are close substitutes and have price movements which have exhibited a stable correlation coefficient of at least 0.9 over the last 12 months. BIPRU 7.4.23 R says that a firm should notify the FSA in writing at least 20 business days prior to the date the firm starts relying on this treatment. The purpose of this section is to allow a notice given under the corresponding provisions of chapter 10 of IPRU(INV) or IPRU(BANK) to continue to have effect without the firm having to serve a new notice under BIPRU 7.4.23 R.

01/01/2007

BIPRU TP 22

Solo consolidation

Application

22.1

This section applies to a BIPRU firm that:

(1)

is a bank or building society; and

(2)

on 31 December 2006, was, in accordance with the provision of IPRU referred to in BIPRU TP 22.2R and in accordance with a concession (as defined in BIPRU TP 22.8R), solo-consolidating a subsidiary undertaking.

22.2

The provisions of IPRU referred to in BIPRU TP 22.1R are:

(1)

(in the case of a bank) section 9 of chapter CS of IPRU(BANK); and

(2)

(in the case of a building society) section 1.11 of chapter 1 of volume 1 of IPRU(BSOC).

Deemed solo consolidation waiver

22.3

A concession referred to in BIPRU TP 22.1R is treated as a solo consolidation waiver with respect to the subsidiary undertaking to which it relates if the firm notifies the FSA that the firm wishes to apply the treatment in BIPRU 2.1 (Solo consolidation) to that subsidiary undertaking.

Notice to the FSA

22.4

The following requirements apply to a notice under BIPRU TP 22.3R:

(1)

the firm must give the FSA the notice on or after 1 June 2006 and on or before 29 December 2006;

(2)

the notice must contain details of the concession concerned;

(3)

the notice must give the name of the subsidiary undertaking concerned and say where it is incorporated and has its head office; and

(4)

the notice must say whether that subsidiary undertaking is a body corporate and state the legal form of that subsidiary undertaking.

Limitations

22.5

Any condition, limitation or requirement to which a concession referred to in BIPRU TP 22.1R is subject continues to apply to the extent that it is compatible with BIPRU. In particular, if the concession was only for the purpose of large exposures it only has effect for the purposes of BIPRU 10 (Concentration risk) and if it was only for the purposes of capital adequacy it only has effect for the purposes of GENPRU 2.1.13 R (Obligation to hold capital resources equal to or greater than the capital resources requirement) or GENPRU 2.1.60 R (Calculation of base capital resources requirement for banks authorised before 1993).

Obligation to meet other qualifying conditions

22.6

A firm with a deemed solo consolidation waiver under BIPRU TP 22.3R may not apply the treatment in BIPRU 2.1 (Solo consolidation) to the subsidiary undertaking concerned unless the conditions in BIPRU 2.1.20 R to BIPRU 2.1.24 R (Solo consolidation - Minimum standards) are met with respect to that subsidiary undertaking.

Notification of relevance etc of concession

22.7

A firm which has the benefit of a concession that has effect under BIPRU TP 22.3R must notify the FSA immediately if it becomes aware of any matter which is material to the relevance or appropriateness of the concession.

Meaning of concession

22.8

A concession means for the purposes of BIPRU TP 22:

(1)

a consent or approval by the FSA under the provisions of IPRU(BANK) or IPRU(BSOC) referred to in BIPRU TP 22.2R; and

(2)

a concession also means for the purposes of BIPRU TP 22 a written concession as defined in SUP TP 1.4 (Grandfathering of concessions granted by the FSA's predecessor regulators: rules in the Handbook) or SUP TP 1.2.6A (Grandfathering of concessions granted by the FSA's predecessor regulators: guidance in the Handbook) that had effect for the purposes of the provisions of IPRU(BANK) or IPRU(BSOC) referred to in BIPRU TP 22.2R.

22.9

BIPRU TP 22.8R(2) provides a mechanism for keeping in effect solo consolidation concessions granted by the Bank of England and the Building Societies Commission.

06/04/2007

BIPRU TP 23

Record keeping transitionals

Application

23.1

This section applies to a BIPRU investment firm.

Duration of transitional

23.2

This section applies until 1 November 2007.

Continuing record keeping requirements

23.3

A firm in the first column of the table in BIPRU TP 23.4R must comply with the rules in IPRU(INV) specified in the second column adjusted in accordance with BIPRU TP 23.5R.

23.4

Table: List of IPRU reporting rules
This table belongs to BIPRU TP 23.3R

Type of firm

IPRU(INV) rules

Investment management firm

Rule 5.3.1 of chapter 5

UCITS investment firm

Rules 7.4.1(c) and 7.6.2 of chapter 7

Securities and futures firm

Rules 10-10, 10-11 and 10-12 of chapter 10

Personal investment firm

Rules 13.1.10 to 13.1.17 of chapter 13

Adjustments

23.5

The adjustments referred to in BIPRU TP 23.3R are as follows:

(1)

a reference to a firm's financial resources requirements must be read as a reference to its obligations under GENPRU 2.1 (Calculation of capital resources requirement) and any capital resources requirement under BIPRU TP;

(2)

the terms trading book and non-trading book have the meanings in the Glossary; and

(3)

a reference to requirements in IPRU(INV) must be read as a reference to the requirements of GENPRU and BIPRU applicable to the firm concerned.

01/01/2007

BIPRU TP 24

Mid market valuations

Application

24.1

This section applies to a BIPRU firm.

Duration of transitional

24.2

This section applies until 1 January 2008.

Transitional rule

24.3

When marking to market (see GENPRU 1.3.14 R to GENPRU 1.3.16 R (General requirements: Marking to market)) for the purposes of valuing a trading book item for the purpose of BIPRU 14 (Capital requirements for settlement and counterparty risk), a firm may choose between using the mid market value and the more prudent side of bid/offer whether or not the firm is a significant market maker in the item concerned. A firm must be consistent in the basis it chooses.

01/01/2007

BIPRU TP 25

Exclusions from consolidation

Application

25.1

This section applies to a firm to which BIPRU 8 (Group risk - consolidation) applies.

Duration of transitional

25.2

This section applies until 1 January 2008. However BIPRU TP 25.8R continues in force until it is revoked.

Transitional rule

25.3

A firm may exclude a member of its UK consolidation group or non-EEA sub-group that would otherwise have been included under BIPRU 8.5 (Basis of consolidation) if, as at 31 December 2006, that member was excluded from the firm's UK consolidation group in accordance with any of the following:

(1)

bullet points one or three of paragraph 6 of section 4 of Chapter CS of IPRU(BANK) (exclusion from consolidation where inclusion would be inappropriate or misleading or where there are legal impediments to the transfer of information); or

(2)

section 1.13 of Chapter 1 of Volume 1 of IPRU(BSOC) (exclusion of subsidiary undertakings where inclusion in the consolidation would be misleading or inappropriate); or

(3)

IPRU(INV) 14.2.5R(2) (exclusion from consolidation where inclusion would be inappropriate or misleading); or

(4)

any waiver from the consolidation provisions of Chapter 14 of IPRU(INV) or (in the case of IPRU(BSOC)) a written consent or approval by the FSA on the ground set out in indent one of Article 52(3) of the Directive 2000/12 (the previous version of the Banking Consolidation Directive) (exclusion from consolidation where there are legal impediments to the transfer of information).

25.4

A firm may only apply BIPRU TP 25.3R to a member of its UK consolidation group or non-EEA sub-group if the firm or another member of its UK consolidation group notifies the FSA in writing that it intends to apply that rule to that member and the notice complies with the following requirements:

(1)

the FSA was notified on or after 1 November 2006 and on or before 29 December 2006;

(2)

the notice must give the name of the member concerned and say where it is incorporated and has its head office; and

(3)

the notice must say whether that member is a body corporate and state the legal form of that member.

Limitations

25.5

Any condition, limitation or requirement to which the treatment in BIPRU TP 25.3R is subject continues to apply to the extent that it is compatible with BIPRU.

Obligation to meet other qualifying conditions

25.6

A firm may only apply the treatment in BIPRU TP 25.3R if the conditions in whichever is applicable of Article 73(1)(a) (exclusion from consolidation where there are legal impediments to transfer of information) or Article 73(1)(c) (exclusion from consolidation where inclusion would be inappropriate or misleading) of the Banking Consolidation Directive continue to be satisfied.

Notification of relevance etc of concession

25.7

A firm must notify the FSA immediately if it becomes aware of any matter which is material to the relevance or appropriateness of the continuance of the treatment in BIPRU TP 25.3R.

Small balance sheet size exclusion

25.8

If a firm excluded a member of its UK consolidation group or non-EEA sub-group from the firm's UK consolidation group in accordance with:

(1)

bullet point two of paragraph 6 of section 4 of Chapter CS of IPRU(BANK) (exclusion from consolidation where combined balance sheet is below certain thresholds);

(2)

IPRU(INV) 14.2.5R(1) (exclusion from consolidation where combined balance sheet is below certain thresholds); or

(3)

a written consent or approval by the FSA under IPRU(BSOC) on the ground set out in indent two of Article 52(3) of the Directive 2000/12 (the previous version of the Banking Consolidation Directive) (exclusion from consolidation where combined balance sheet is below certain thresholds);

the firm need not notify the FSA under BIPRU 8.5.9 R (exclusion from consolidation where combined balance sheet is below certain thresholds) as long as it has notified the FSA of its intention to take advantage of this rule and that notice complies with BIPRU TP 25.4R.

01/01/2007

BIPRU TP 26

Quantitative aspects of BIPRU 12: all firms to which BIPRU 12 applies

Application

26.1

BIPRU TP 26 applies to a firm which as at 1 December 2009 falls into BIPRU 12.1.1 R.

Transitional provisions

26.2

(1)

(2)

(3)

(4)

(5)

(6)

Material to which the transitional provision applies

Transitional Provision

Transitional provision: dates in force

Handbook provisions: coming into force

BIPRU 12.2 and BIPRU 12.5 to BIPRU 12.9

In relation to a firm which as at 30 November 2009 calculates its liquidity resources in accordance with Chapter LS of IPRU(BANK), the sections listed in column (2) do not apply.

1 December 2009 until 31 May 2010

1 December 2009

BIPRU 12.2 and BIPRU 12.5 to BIPRU 12.9

Subject to (3), in relation to a firm which as at 30 November 2009 calculates its liquidity resources in accordance with IPRU(BSOC), the sections listed in column (2) do not apply.

1 December 2009 until 31 May 2010

1 December 2009

BIPRU 12.2 and BIPRU 12.5 to BIPRU 12.9

In relation to a firm which as at 30 November 2009 calculates its liquidity resources in accordance with IPRU(BSOC) and which as at 1 June 2010 has a simplified ILAS waiver, the sections listed in column (2) do not apply.

1 December 2009 until 30 September 2010

1 December 2009

BIPRU 12.2 and BIPRU 12.5 to BIPRU 12.9

In relation to a firm which as at 30 November 2009 calculates its liquidity resources in accordance with Chapter LM of IPRU(BANK) and which is not an incoming EEA firm or a third country BIPRU firm, the sections listed in column (2) do not apply.

1 December 2009 until 30 September 2010

1 December 2009

BIPRU 12.2 and BIPRU 12.5 to BIPRU 12.9

In relation to a firm which as at 30 November 2009 calculates its liquidity resources in accordance with Chapter LM of IPRU(BANK) and which is an incoming EEA firm or a third country BIPRU firm, the sections listed in column (2) do not apply.

1 December 2009 until 31 October 2010

1 December 2009

BIPRU 12.2 and BIPRU 12.5 to BIPRU 12.9

In relation to an incoming EEA firm or a third country BIPRU firm which as at 30 November 2009 has a Global Liquidity Concession (as described in IPRU(BANK) Chapter LM 4(2)), the sections listed in column (2) do not apply.

1 December until 31 October 2010 or, if earlier, the date on which the firm ceases to have a Global Liquidity Concession

1 December 2009

BIPRU 12.2 and BIPRU 12.5 to BIPRU 12.9

In relation to a firm which as at 1 December 2009 is a full scope BIPRU investment firm and which is also an ILAS BIPRU firm, the sections listed in column (2) do not apply.

1 December 2009 until 31 October 2010

1 December 2009

BIPRU 12.2 and BIPRU 12.8

In relation to a firm which as at 1 December 2009 is a non-ILAS BIPRU firm, the sections listed in column (2) do not apply.

1 December 2009 until 31 October 2010

1 December 2009

Guidance for a firm which becomes an ILAS BIPRU firm or non-ILAS BIPRU firm after 1 December 2009

26.3

BIPRU TP 26 applies to a firm which becomes either an ILAS BIPRU firm or a non-ILAS BIPRU firm (as the case may be) on 1 December 2009. A firm which becomes an ILAS BIPRU firm or non-ILAS BIPRU firm after that date and before the end of the transitional period which would otherwise have applied will not therefore have the benefit of those rules and will be expected to comply with the rules and guidance in BIPRU 12 from the date on which it becomes either an ILAS BIPRU firm or a non-ILAS BIPRU firm (as the case may be).

01/12/2009

BIPRU TP 27

Application of GENPRU 1.2, BIPRU 12.3 and BIPRU 12.4: all firms to which BIPRU 12 applies

Application

27.1

BIPRU TP 27 applies to a firm which as at 1 December 2009 falls into BIPRU 12.1.1 R.

Transitional Provisions

27.2

(1)

(2)

(3)

(4)

(5)

Material to which the transitional provision applies

Transitional Provision

Handbook provisions: coming into force

BIPRU 12.3 and BIPRU 12.4

References to the overall liquidity adequacy rule contained in the rules and guidance in the sections of the Handbook listed in column (2) are replaced by ones to the overall financial adequacy rule.

1 December 2009

GENPRU 1.2.26 R

For the purposes of complying with GENPRU 1.2.26 R as regards the adequacy of liquidity resources, a firm must apply the rules and guidance in BIPRU 12.3 and BIPRU 12.4 instead of applying the ICAAP rules.

1 December 2009

Duration and application of BIPRU TP 27.2

27.3

In relation to each firm falling into BIPRU 12.1.1 R, BIPRU TP 27.2 applies in the way described in BIPRU TP 27.4.

27.4

(1)

(2)

(3)

(4)

Transitional provision: dates in force

Transitional provision: application

1 December 2009 until 31 May 2010

A firm which as at 30 November 2009 calculates its liquidity resources in accordance with Chapter LS of IPRU(BANK).

1 December 2009 until 31 May 2010

Subject to (3), a firm which as at 30 November 2009 calculates its liquidity resources in accordance with IPRU(BSOC).

1 December 2009 until 30 September 2010

A firm which as at 30 November 2009 calculates its liquidity resources in accordance with IPRU(BSOC) and which as at 1 June 2010 has a simplified ILAS waiver.

1 December 2009 until 30 September 2010

A firm which as at 30 November 2009 calculates its liquidity resources in accordance with Chapter LM of IPRU(BANK) and which is not an incoming EEA firm or a third country BIPRU firm.

1 December 2009 until 31 October 2010

A firm which as at 30 November 2009 calculates its liquidity resources in accordance with Chapter LM of IPRU(BANK) and which is an incoming EEA firm or a third country BIPRU firm.

1 December 2009 until 31 October 2010

A firm which as at 1 December 2009 is a full scope BIPRU investment firm and which is also an ILAS BIPRU firm.

1 December 2009 until 31 October 2010

A firm which as at 1 December 2009 is a non-ILAS BIPRU firm.

Guidance for a firm which becomes an ILAS BIPRU firm or non-ILAS BIPRU firm on 1 December 2009

27.5

BIPRU TP 27 applies to a firm which becomes either an ILAS BIPRU firm or a non-ILAS BIPRU firm (as the case may be) on 1 December 2009. A firm which becomes an ILAS BIPRU firm or non-ILAS BIPRU firm after that date and before the end of the transitional period which would otherwise have applied will not therefore have the benefit of those rules and will be expected to comply with the rules and guidance in BIPRU 12 from the date on which it becomes either an ILAS BIPRU firm or a non-ILAS BIPRU firm (as the case may be).

01/12/2009

BIPRU TP 28

BIPRU 12.3 and BIPRU 12.4: banks with a Global Liquidity Concession

Application

28.1

BIPRU TP 28 applies to an incoming EEA firm or third country BIPRU firm which as at 30 November 2009 has a Global Liquidity Concession (as described in IPRU(BANK) Chapter LM 4(2)).

Duration of transitional provisions

28.2

BIPRU TP 28 applies until 31 October 2010 or, if earlier, the date on which the firm's Global Liquidity Concession expires.

Transitional provisions

28.3

(1)

(2)

(3)

(4)

(5)

(6)

Material to which the transitional provision applies

Transitional Provision

Transitional provision: dates in force

Handbook provisions: coming into force

BIPRU 12.3 and BIPRU 12.4

The rules and guidance in the sections listed in column (2) do not apply.

1 December 2009 until 31 October 2010

1 December 2009

01/12/2009

BIPRU TP 29

Liquid assets buffer scalar: simplified ILAS BIPRU firms

Application

29.1

BIPRU TP 29 applies to a simplified ILAS BIPRU firm.

Duration of transitional provisions

29.2

BIPRU TP 29 applies from 1 December 2009 until 31 December 2015.

Transitional provisions

29.3

A simplified ILAS BIPRU firm falling into BIPRU TP 29.1 must ensure that:

(1)

at all times between 1 October 2010 and 29 February 2012, its liquid assets buffer is no less than 30% of the amount of its simplified buffer requirement;

(2)

at all times between 1 March 2012and 30 June 2013, its liquid assets buffer is no less than 50% of its simplified buffer requirement; and

(3)

at all times between 1 July 2013 and 31 December 2015, its liquid assets buffer is no less than 70% of its simplified buffer requirement.

29.4

The effect of BIPRU TP 29.3 is that a firm that is a simplified ILAS BIPRU firm has a transitional period until 31 December 2015 to build up its liquid assets buffer so that at the end of that period it holds in its buffer assets equal to 100% of its simplified buffer requirement.

29.5

In relation to a firm which becomes a simplified ILAS BIPRU firm after 25 March 2011, the FSA will consider as part of that firm's simplified ILAS waiver application how to apply the scalar approach described in BIPRU TP 29.3 to the firm in question. The FSA will incorporate the scalar into the terms of the firm's simplified ILAS waiver.

01/07/2011

BIPRU TP 30

Liquidity floor for certain banks

Application

30.1

BIPRU TP 30 applies to a firm which as at 1 December 2009 is a standard ILAS BIPRU firm and which as at 30 November 2009 calculated its liquidity resources in accordance with Chapter LM of IPRU(BANK).

Duration of transitional provisions

30.2

BIPRU TP 30 applies:

(1)

in the case of an incoming EEA firm or a third country BIPRU firm, from 1 November 2010 until the earlier of the date on which the firm receives individual liquidity guidance from the FSA and 31 December 2012; and

(2)

in the case of any other firm, from 1 October 2010 until the earlier of the date on which the firm receives individual liquidity guidance from the FSA and 31 December 2012.

Transitional provisions

30.3

A standard ILAS BIPRU firm falling into BIPRU TP 30.1 must ensure that at all times between 1 October 2010 or 1 November 2010 (as relevant) and the expiry of BIPRU TP 30 it maintains liquidity resources which are no less in amount than the higher of:

(1)

the amount it assesses as adequate in its ILAA; and

(2)

the amount that it would have maintained during that period had it calculated its liquidity resources solely in accordance with Chapter LM of IPRU(BANK) in the form in which it appeared on 30 September 2010 or 31 October 2010 (as relevant).

30.4

(1)

For the purpose of BIPRU 12.9.14 R(Regulatory intervention points for ILAS BIPRU firms) and for the duration of BIPRU TP 30, there is added one further event which is to constitute a regulatory intervention point for a standard ILAS BIPRU firm.

(2)

The further event to which (1) refers is the amount of the firm's liquid assets falling below, or being expected to fall below, the level required in BIPRU TP 30.3.

30.5

(1)

BIPRU TP 30.3 R deals with the overall amount of liquidity resources a firm is required to hold. It does not specify the proportion of those liquidity resources that a firm must hold in a liquid assets buffer that meets the liquid asset buffer requirements (BIPRU 12.2.8 R (1) and BIPRU 12.7).

(2)

The FSA recognises that it may take time for a firm to build a buffer which is of a sufficient size and quality and that the transition from the FSA's liquidity regime in force immediately prior to the BIPRU 12 regime is likely to be a gradual one (see BIPRU 12.2.10 G).

(3)

In carrying out its ILAA, a firm must record the evidence which supports its assessment of the adequacy of its liquid assets buffer (see BIPRU 12.5.13 R (3)). While a firm is building up its liquid assets buffer, its assessment of the adequacy of that buffer should include an analysis of its ability to satisfy its liquidity needs with liquidity resources that are not eligible to be included in the liquid assets buffer.

01/11/2011

BIPRU TP 31

Consequential changes to the Handbook occasioned by BIPRU 12: all firms to which BIPRU 12 applies

Application

31.1

BIPRU TP 31 applies to a firm which as at 1 December 2009 falls into BIPRU 12.1.1 R.

31.2

The Prudential Sourcebook for Banks, Building Societies and Investment Firms (Liquidity) (Consequential Amendments) Instrument 2009 (FSA 2009/68) comes into force on 1 December 2009 (with the exception of Annex F which comes into force on 1 June 2010). The effect of BIPRU TP 26 is that the quantitative aspects of BIPRU 12 are disapplied for a period following 1 December 2009, the exact period of disapplication varying according to the type of firm in question. As a result of the phased application of the quantitative aspects of BIPRU 12, the associated consequential Handbook changes are also phased. BIPRU TP 31 deals with the phasing of those consequential Handbook changes.

31.3

Transitional Provisions

(1)

(2)

(3)

(4)

(5)

(6)

Material to which the transitional provision applies

Transitional Provision

Transitional provision: dates in force

Handbook provisions: coming into force

The changes to GENPRU set out in Annex C (Part 2) to instrument FSA 2009/68.

In relation to a firm which as at 30 November 2009 calculates its liquidity resources in accordance with Chapter LS of IPRU(BANK), the changes effected by the Annex listed in column (2) do not apply.

1 December 2009 until 31 May 2010

1 December 2009

The changes to GENPRU set out in Annex C (Part 2) to instrument FSA 2009/68.

Subject to (3), in relation to a firm which as at 30 November 2009 calculates its liquidity resources in accordance with IPRU(BSOC), the changes effected by the Annex listed in column (2) do not apply.

1 December 2009 until 31 May 2010

1 December 2009

The changes to GENPRU set out in Annex C (Part 2) to instrument FSA 2009/68.

In relation to a firm which as at 30 November 2009 calculates its liquidity resources in accordance with IPRU(BSOC) and which as at 1 June 2010 has a simplified ILAS waiver, the changes effected by the Annex listed in column (2) do not apply.

1 December 2009 until 30 September 2010

1 December 2009

The changes to GENPRU set out in Annex C (Part 2) to instrument FSA 2009/68.

1 December 2009 until 30 September 2010

1 December 2009

The changes to GENPRU set out in Annex C (Part 2) to instrument FSA 2009/68.

1 December 2009 until 31 October 2010

1 December 2009

The changes to GENPRU set out in Annex C (Part 2) to instrument FSA 2009/68.

In relation to an incoming EEA firm or a third country BIPRU firm which as at 30 November 2009 has a Global Liquidity Concession, the changes effected by the Annex listed in column (2) do not apply.

1 December until 31 October 2010 or, if earlier, the date on which the firm ceases to have a Global Liquidity Concession

1 December 2009

The changes to GENPRU set out in Annex C (Part 2) to instrument FSA 2009/68.

In relation to a firm which as at 1 December 2009 is a full scope BIPRU investment firm and which is also an ILAS BIPRU firm, the changes effected by the Annex listed in column (2) do not apply.

1 December 2009 until 31 October 2010

1 December 2009

The changes to GENPRU set out in Annex C (Part 2) to instrument FSA 2009/68.

In relation to a firm which as at 1 December 2009 is a non-ILAS BIPRU firm, the changes effected by the Annex listed in column (2) do not apply.

1 December 2009 until 31 October 2010

1 December 2009

01/12/2009

BIPRU TP 32

Consequential changes to the Handbook occasioned by BIPRU 12: simplified ILAS building societies

32.1

Application

BIPRU TP 32 applies to a firm which:

(1)

as at 30 November 2009 calculates its liquidity resources in accordance with IPRU(BSOC); and

(2)

as at 1 June 2010 has a simplified ILAS waiver.

32.2

Transitional Provisions

(1)

(2)

(3)

(4)

(5)

(6)

Material to which the transitional provision applies

Transitional Provision

Transitional provision: dates in force

Handbook provisions: coming into force

The changes to IPRU(BSOC) set out in Annex F to instrument FSA 2009/68.

The changes effected by the Annex listed in column (2) do not apply.

1 June 2010 until 30 September 2010

1 December 2009

01/12/2009

BIPRU TP 33

Intra-group exposures: Transitional provisions for core UK group and large exposures

Application

33.1

(1)

This section applies to a BIPRU firm that on 30 December 2010 was applying any of the exemptions under the following provisions in the version in force on that date:

(a)

BIPRU 3.2.25 R (Zero risk-weighting for intra-group exposures);

(b)

BIPRU 10.6.5 R to BIPRU 10.6.7 R (Parental guarantees and capital maintenance arrangements);

(c)

BIPRU 10.7 (Treasury concession and intra-group securities financing transactions);

(d)

BIPRU 10.8 (UK integrated group); or

(e)

BIPRU 10.9 (Wider integrated group), if it has a wider integrated group waiver that expires after 31 December 2010.

(2)

In order to continue applying any of the exemptions in (1), a firm must be able on an ongoing basis to demonstrate to the FSA that it continues to comply fully with the provisions applicable to that exemption.

Duration of transitional

33.2

This section applies until 31 December 2012.

Zero risk-weighting for intra-group exposures

33.3

A firm may assign a risk weight of 0% to exposures that are eligible for that treatment under the criteria in BIPRU 3.2.25 R in the version in force on 30 December 2010.

Exemptions from large exposures limits for intra-group exposures

33.4

A firm may, to the extent permitted by this section, treat an exposure to a concentration risk group counterparty as exempt or partially exempt in accordance with BIPRU 10 (Concentration risk requirements) in the version in force on 30 December 2010.

33.5

The term concentration risk group counterparty broadly covers group members if they and the firm are subject to consolidated supervision by the FSA , another EEA competent authority or certain non-EEA regulators. The full definition can be found in the Glossary in the version in force on 30 December 2010.

33.6

If the context requires, BIPRU 8.9 (Consolidated concentration risk requirements) as it was in force on 30 December 2010 continues to apply to a firm that applies BIPRU TP 33.4 R.

Effect of this section on intra-group exemptions in BIPRU 10

33.7

If a firm applies this section, BIPRU 10.8A (Intra-group exposures: core UK group) to BIPRU 10.9A (Intra-group exposures: exposures outside of the core UK group) do not apply.

33.8

The effect of BIPRU TP 33.7 is that a firm should not apply BIPRU 10.8A (Intra-group exposures: core UK group) to BIPRU 10.9A (Intra-group exposures: exposures outside the core UK group) to some exposures to core concentration risk group counterparties, non-core concentration risk group counterparties or connected counterparties and this section to others. The purpose of BIPRU TP 33.7 R is that a firm should choose between treating intra-group exposures under BIPRU 10.8A (Intra-group exposures: core UK group) to BIPRU 10.9A (Intra-group exposures: exposures outside the core UK group) and treating them under this section but that it should not mix the approaches.

Notice to the FSA

33.9

A firm may only apply the treatment in BIPRU TP 33.3 R or BIPRU TP 33.4 R if the firm has notified the FSA in writing that it intends to apply the relevant rule to the particular counterparty or concentration risk group counterparty respectively.

33.10

The notice in BIPRU TP 33.9 R must comply with the following requirements:

(1)

the FSA was notified on or before 31 December 2010;

(2)

the notice must give the following:

(a)

in the case of the treatment in BIPRU TP 33.3 R:

(i) the name of the counterparty concerned; and

(ii) details of the firm's initial plans on how and when it will ensure that exposures that will not be within its core UK group are treated in accordance with the relevant rules in BIPRU 3;

(b)

in the case of the treatment in BIPRU TP 33.4 R:

(i) the name of the concentration risk group counterparty concerned and the intra-group exemption or exemptions that apply to it; and

(ii) details of the firm's initial plans on how and when it intends to comply with the large exposures limits that apply to a core UK group or non-core large exposures group.

31/12/2010

BIPRU TP 34

Large exposures: General transitional provisions

Application

34.1

This section applies to a BIPRU firm.

Purpose

34.2

This section implements the intra-group exemption in Article 113(3)(f) and the national discretion for exemptions in Articles 113(4)(a) and (c) of the Banking Consolidation Directive and the national discretion for trading book concentration risk excess in Article 31 of the Capital Adequacy Directive.

Duration of transitional

34.3

This section applies until 31 December 2010.

Version of BIPRU to be used

34.4

Any reference in this section to BIPRU is to the version in force on 30 December 2010.

Rules in BIPRU that apply until 31 December 2010

34.5

The following rules apply until 31 December 2010:

(1)

BIPRU 10.6.3 R (10) (Exemption for covered bonds from the large exposure limit);

(2)

BIPRU 10.5 (Limits on exposures and large exposures);

(3)

BIPRU TP 17 (Large exposures: Exemptions for intra-group exposures for banks and investment firms), if a firm has a waiver that expires on 31 December 2010 which has the effect of allowing it to apply the exemptions in BIPRU TP 17; and

(4)

BIPRU TP 19 (Large exposures: Exemptions for intra-group exposures on a consolidated basis), if a firm has a waiver that expires on 31 December 2010 which has the effect of allowing it to apply the exemptions in BIPRU TP 17 on a consolidated basis.

34.6

The Capital Requirements Directive (Large Exposures) Instrument 2010 (FSA 2010/41) comes into force on 31 December 2010. The effect of BIPRU TP 34.5R is that the BIPRU provisions contained in that instrument that amend, delete or replace, the rules set out in BIPRU TP 34.5R are disapplied until 1 January 2011.

31/12/2010

BIPRU Sch 1

Record keeping requirements

01/01/2007

1 The aim of the guidance in the following table is to give the reader a quick overall view of the relevant record keeping requirements.

2 It is not a complete statement of those requirements and should not be relied on as if it were.

3 Table

Handbook
reference

Subject of Record

Contents of Record

When record must be made

Retention Period

BIPRU 2.2.5 G

Firm's ICAAP

(1) The results of the ICAAP
(2) An explanation of the processes used
(3) How the process is used internally and for what purpose
(4) Internal governance
(5) The main sources of risk to which the firm is exposed
(6) How the firm is managing each of those risks
(7) Details of stress and scenario testing that has been conducted
(8) The rationale behind the chosen scenarios
(9) The results of those scenario tests

Annually

Not specified

BIPRU 5.2.3 R,
BIPRU 5.4.11 R (2),
BIPRU 9.5.1 R (5)

Legal opinions confirming enforceability

A record of the legal review showing enforceability of credit protection arrangements in all relevant jurisdictions

Not specified, but before risk mitigant is recognised

Review conducted as necessary

BIPRU 5.2.9 R

Risk management processes

Documented risk management processes to control the risks that firm may be exposed to as a result of carrying out credit risk mitigation

Not specified, but before risk mitigant is recognised

Not specified

BIPRU 5.4.12 R

Collateral procedures

(1) A clear and robust procedure for the liquidation of collateral
(2) Documented policies covering the types and amounts of collateral accepted

Not specified, but before collateral is recognised

Not specified

BIPRU 5.4.59 R,
BIPRU 5.4.60 R

Volatility adjustments for financial collateral

(1) Documentation of a system estimating volatility adjustments and the integration of the volatility adjustments in its risk management process
(2) Review of system estimating volatility adjustments

Not specified, but before own estimates of volatility adjustments approach is used for capital purposes

Not specified

BIPRU 5.7.8 R

System to manage concentration of risk arising from guarantees and credit derivatives

Documentation of a system to manage potential concentration risk arising from unfunded credit protection and how this interacts with its management of its overall risk profile

Not specified, but before unfunded credit protection is recognised

Not specified

BIPRU 7.10.53 R,
BIPRU 7.10.54 G

Material risks not captured in the firm's VaR model

Documented risks not captured in the VaR model and creation of a prudent incremental PRR charge for the risk not captured

Not specified

BIPRU 9.4.3 R

Legal opinions for securitised exposures

A record of the legal opinions confirming that the securitised exposures have been put beyond the reach of the originator

Not specified, but before securitised exposures are excluded from capital calculation

Review conducted as necessary

BIPRU 9.13.12 R (1)

Capital plan in case of early amortisation

For controlled amortisation, the capital/liquidity plan to ensure that sufficient capital and liquidity are available in the event of early amortisation

Not specified

BIPRU 9.13.21 R

Capital plan in case of either scheduled or early amortisation

The capital plan to address the capital implications of both scheduled and early amortisation

Not specified

BIPRU 12.3.8 R (1)

A firm's liquidity risk tolerance

An appropriately documented account of the firm's liquidity risk tolerance

Not specified

BIPRU 12.4.13 R

A firm's contingency funding plan

Formal documentation of the contingency funding plan

Not specified

BIPRU 12.5.4 R (2)

An ILAS BIPRU firm's ILAA

A written record of the firm's ILAA

Not specified

BIPRU 12.5.13 R (2)

ILAA methodology

Evidence supporting the behavioural assumptions that an ILAS BIPRU firm makes in carrying out its BIPRU 12.5.6 R stress tests for the purpose of its ILAA

Not specified

BIPRU 12.5.13 R (3)

ILAA methodology

Evidence supporting an ILAS BIPRU firm's assessment of the adequacy of its liquidity buffer for the purpose of its ILAA

Not specified

BIPRU 12.6.13 R

The simplified ILAS waiver application

A written policy statement assessing the likelihood of withdrawal of retail deposits in the circumstances described in BIPRU 12.6.11 R (2)(a)

Not specified

BIPRU 12.6.21 R

A simplified ILAS BIPRU firm's ILSA

A written record of the firm's ILSA

Not specified

BIPRU 12.7.11 R

Periodic realisation of assets

A written policy setting out the firm's approach to periodic realisation of its assets

Not specified

BIPRU 13.6.48 R

Operation of CCR management system

Documented set of internal policies, controls and procedures concerning the operation of the CCR management system

Prior to application for CCR internal model method permission

Continuous

BIPRU 13.7.6 R (2)

Legal opinion regarding netting agreements

A record of legal opinions that, in the event of a legal challenge, relevant courts and administrative authorities would find that the firm's claims and obligations would be limited to the net sum in BIPRU 13.7.6 R (1)

On entering into a transaction and making use of netting agreements

While transaction held

31/12/2010

BIPRU Sch 2

Notification and reporting requirements

01/01/2007

1 The aim of the guidance in the following table is to give the reader a quick overall view of the relevant notification requirements.

2 It is not a complete statement of those requirements and should not be relied on as if it were.

3 Table

Handbook reference

Matter to be notified

Contents of notification

Trigger event

Time allowed

BIPRU 1.2.30 R

Adoption of or significant change to a trading book policy statement

Copy of the trading book policy statement

Adoption of or significant change to a trading book policy statement

Immediately

BIPRU 3.2.35 R (5)

Fact of exposure or firm ceasing to meet the conditions in BIPRU 3.2.25 R

(5): Fact of exposure or firm ceasing to meet the conditions in BIPRU 3.2.25 R

(5): Ceasing to meet conditions

(5): First report date after the obligation to notify becomes due

BIPRU 7.2.48B R

Total sum of a firm's weighted net long and net short securitisation and resecuritisation positions, broken down by types of underlying assets

Periodically as set out in SUP 16.12

In accordance with SUP 16.12

BIPRU 7.4.23 R

Intention to rely on approach in BIPRU 7.4.22 R (1)(b)

Fact of intention and details on which commodities the firm intends to treat as same commodity-class and justification

Intention to rely

At least 20 business days prior to the date the firm starts relying on BIPRU 7.4.23 R

BIPRU 7.5.4 R

Intention to use an exclusion under BIPRU 7.5.4 R (1)

Fact of intention and the terms on which the relevant item will be excluded from the firm's foreign currency PRR calculation

Intention to use

Before use of the exclusion

BIPRU 7.10.55ZA R

Material shortfall in the amount of capital required under the all price risk measure identified as a result of performing the stress tests under BIPRU 7.10.55Z R

Information about the stress tests and the material shortfall in capital

Existence of a material shortfall in capital

No later than two business days after the business day on which the material shortfall occurred

BIPRU 7.10.104 R

Occurrence of backtesting exception

Fact of backtesting exception

Backtesting exception

Orally within 2 business days, and written account of all backtesting exceptions that Month, within 5 business days after the Month

BIPRU 7.10.129 R

Operation of the VaR model, systems and controls relating to it and changes to the VaR model and those systems and controls

Documentation specified in the VaR model waiver/VaR model permission

FSA specified requirements

No later than number of business days after the end of each quarter specified in the VaR model permission

BIPRU 7.10.130 R

Details of significant planned changes to the VaR model

Information about the nature of the change and an estimate of the impact on VaR numbers and the incremental risk charge

Intention to change

Prior to any changes being implemented

BIPRU 8.4.18 R(2)

Serious risk that could undermine the financial stability of the CAD Article 22 group

Fact of serious risk to group financial stability

Events/
activities leading to serious risk to group financial stability

As soon as the firm becomes aware of that risk

BIPRU 8.4.18 R (3)

Consolidated capital resources and consolidated capital resources requirement of the CAD Article 22 group as set out in the investment firm consolidation waiver

Amount of CAD Article 22 group consolidated capital resources and consolidated capital resources requirement

Periodically as set out in the investment firm consolidation waiver

Not specified

BIPRU 8.4.18 R (4)

Large exposures risks of the CAD Article 22 group including undertakings not located in a member State

Periodically as set out in the investment firm consolidation waiver

Not specified

BIPRU 8.5.9 R

Intention to exclude an undertaking from consolidation

Fact of intention and details of undertaking to be excluded

Intention to exclude

In accordance with SUP 15.7

BIPRU 8.7.16 R

(1) The choice of consolidation technique in BIPRU 8.7.13 R it applies for which consolidated requirement component: and
(2) to which members of the relevant group it is applying the different methods in BIPRU 8.7.13 R

(1) The choice of consolidation technique in BIPRU 8.7.13 R to be applied for each consolidated requirement component
(2) the members of the relevant group to which it is applying the different methods in BIPRU 8.7.13 R

See SUP 16

BIPRU 9.6.2 R

Provision of implicit support to a securitisation

(1) Provision of non-contractual support, and
(2) The regulatory capital impact of providing implicit support

Provision of implicit support

Not specified

BIPRU 10.8A.12 R

Exposure being treated as exempt under BIPRU 10.8A (Core UK group) ceases to meet the conditions for application of the treatment

Fact or expectation of any exposure to which it has applied the treatment ceases to meet the conditions for application of the treatment

Awareness of situation

Immediately

BIPRU 10.9A.8 R (2)

Intention to use BIPRU 10.9A.8 R (1) to concentrate an exposure to a particular member of the non-core large exposures group that exceeds 25% of the capital resources of the firm's core UK group

Fact of intention and the information in BIPRU 10.9A.8 R (3)

Intention to use BIPRU 10.9A.8 R (1)

Not specified

BIPRU 10.9A.12 R

Exposure being treated as exempt under BIPRU 10.9A (Intra-group exposures: exposures outside the core UK group) ceases to meet the conditions for application of the treatment

Fact or expectation of any exposure to which it has applied the treatment ceases to meet the conditions for application of the treatment

Awareness of situation

Immediately

BIPRU 10.12.6 R

Artificial transfer, transaction or arrangement.

Fact of entry into a transfer, transaction or arrangement of the type mentioned in BIPRU 10.12.5 R

Entry into an artificial transfer, transaction or arrangement

Not specified

BIPRU 12.4.9 R

Results of the BIPRU 12.4 stress tests

The results referred to in column (2)

The carrying out of the BIPRU 12.4 stress tests

To be reported in a timely manner

BIPRU 12.6.13 R (2)

A simplified ILAS BIPRU firm's policy statement prepared in accordance with BIPRU 12.6.13 R

The policy statement referred to in column (2)

The firm's decision to apply for a simplified ILAS waiver

Prior to the firm's application for a simplified ILAS waiver

BIPRU 12.9.13 R

The occurrence of any of the events identified in BIPRU 12.9.14 R

Fact of occurrence and adequately reasoned explanation for the deviation

The occurrence of any of the events identified in BIPRU 12.9.14 R

As soon as the firm becomes aware of the event in question

BIPRU 12.9.18 R

A firm's liquidity remediation plan

The matters identified in BIPRU 12.9.18 R

The occurrence of any of the events identified in BIPRU 12.9.14 R

Within two days of the notification made under BIPRU 12.9.13 R

BIPRU 13.2.2 R

Counterparty risk exposure of non-standard type

Fact of exposure, counterparty involved, nature of the exposure and capital treatment adopted

Entry into non-standard exposure

Immediately

BIPRU 13.6.20 R

Cessation to comply with requirements set out in BIPRU 13.6 for CCR internal model method permission

Plan for timely return to compliance or demonstration that the effect of non-compliance is immaterial

Ceasing to comply with requirements

Immediately

31/12/2011

BIPRU Sch 3

Fees and other requirement payments

01/01/2007

There are no requirements for fees or other payments in BIPRU.

01/01/2007

BIPRU Sch 4

Powers exercised

01/01/2007

BIPRU 4.1

The following powers and related provisions in the Act have been exercised by the FSA to make the rules in BIPRU:
Section 138 (General rule-making power)
Section 148(3) (Modification or waiver of rules)
Section 149 (Evidential provisions)
Section 150(2) (Actions for damages) and
Section 156 (General supplementary powers)

01/01/2007

BIPRU Sch 4.2

The following additional powers have been exercised by the FSA to make the rules in BIPRU:

Regulation 2(3) (application for permission) of the Capital Requirements Regulations 2006 (SI 2006/3221)

06/10/2009

BIPRU Sch 4.3

The following power in the Act has been exercised by the FSA to give the guidance in BIPRU:

Section 157(1) (Guidance).

01/01/2007

BIPRU Sch 5

Rights of action for damages

01/01/2007

1. The table below sets out the rules in BIPRU contravention of which by an authorised person may be actionable under section 150 of the Act (Actions for damages) by a person who suffers loss as a result of the contravention.

2. If a "Yes" appears in the column headed "For private person", the rule may be actionable by a private person under section 150 (or, in certain circumstances, his fiduciary or representative; see article 6(2) and (3)(c) of the Financial Services and Markets Act 2000 (Rights of Action) Regulations 2001 (SI 2001/2256)). A "Yes" in the column headed "Removed" indicates that the FSA has removed the right of action under section 150(2)of the Act. If so, a reference to the rule in which it is removed is also given.

3. The column headed "For other person" indicates whether the rule may be actionable by a person other than a private person (or his fiduciary or representative) under article 6(2) and (3) of those Regulations. If so, an indication of the type of person by whom the rule may be actionable is given.

Chapter/Appendix

Section/Annex

Right of action under section 150

For private person

Removed

For other person

All rules in BIPRU

Yes - BIPRU 1.4.1 R

01/01/2007

BIPRU Sch 6

Rules than can be waived

01/01/2007

The rules in BIPRU may be waived by the FSA under section 148 of the Act (Modification or waiver of rules). However, if the rules incorporate requirements laid down in European directives, it will not be possible for the FSA to grant a waiver that would be incompatible with the United Kingdom's responsibilities under those directives. It therefore follows that if a rule in BIPRU contains provisions which derive partly from a directive, and partly not, the FSA will be able to consider a waiver of the latter requirements only, unless the directive provisions are optional rather than mandatory.

01/01/2007