Prudential Regulation Authority Rulebook

1.1

This Part applies to:

1. (1) every firm that is a CRR firm; and
2. (2) a CRR consolidation entity.

1.1A

1. (1) a firm must comply with this Part on an individual basis.
2. (2) a CRR consolidation entity must comply with this Part on a consolidated basis, and for this purpose, references to a firm in this Part (other than in 1.1 and 1.1A) mean a CRR consolidation entity.

1.2

The changes to this rule are effective from 23:00 on 31/12/2020.

In this Part the following definitions shall apply:

Capital Buffers Regulations

means the Capital Requirements (Capital Buffers and Macro-prudential Measures) Regulations 2014 (SI 2014/894).

exposure

has the meaning given to it in Article 389 of the CRR.

French NFC

means a counterparty that has its registered office in France, and which, at its level and at the highest level of consolidation of its group, belongs to the non-financial corporations sector as defined in point 2.45 of Annex A to Regulation (EU) No 549/2013 of the European Parliament and of the Council of 21 May 2013 on the European system of national and regional accounts in the European Union.

G-SII

means a person identified by the PRA in accordance with Part 4 of the Capital Buffers Regulations.

group of connected French NFCs

means

(a) where a French NFC is part of a group and the ultimate parent of the group has its registered office in France, the group and all its connected entities within the meaning of point (39) of Article 4(1) of the CRR;

(b) where a French NFC is part of a group and the ultimate parent of the group has its registered office outside France, the set of French NFCs in the same group and all other entities in France or abroad over which those French NFCs have direct or indirect control, or which are economically dependent on them, within the meaning of point (39) of Article 4(1) of the CRR.

highly indebted

in relation to a French NFC or a group of connected French NFCs, means that, at the highest level of group consolidation, the following two conditions are met, each condition being calculated based on accounting items defined in accordance with the applicable standard, as presented in the group's financial statements, such statements certified where appropriate by a chartered accountant:

(a) the first condition is that the leverage ratio is greater than 100%, where the leverage ratio is the ratio between total debt net of cash, and equity; and

(b) the second condition is that the financial charges coverage ratio is less than 3, where the financial charges coverage ratio is the ratio between, on the one hand, earnings before interest and tax (EBIT), and, on the other hand, interest and similar charges.

non-core large exposures group or NCLEG

means all counterparties that:

1. (a) are listed in a firm's NCLEG non-trading book permission or NCLEG trading book permission; and
2. (b) in relation to a firm, satisfy the conditions in 2.1 or 2.2.

NCLEG non-trading book exemption

means the exemption in 2.1.

NCLEG non-trading book permission

means a permission given by the PRA in respect of Article 400(2)(c) of the CRR to apply the NCLEG non-trading book exemption.

NCLEG trading book exemption

means the exemption in 2.2.

NCLEG trading book permission

means a permission given by the PRA in respect of Article 400(2)(c) of the CRR to apply the NCLEG trading book exemption.

O-SII

means a person identified by the PRA in accordance with Part 5 of the Capital Buffers Regulations.

qualifying exposure

means an exposure which has an original exposure value greater than or equal to €300 million, calculated in accordance with Articles 389 and 390 of the CRR before taking into account the effect of credit risk mitigation techniques and exemptions set out in Articles 399 to 403 of the CRR (and as required to be reported in accordance with Article 9 of the Supervisory Reporting ITS).

resolution exemption

means the exemption in 2.4

resolution exposure

means an exposure to resolution liabilities that ensures that losses can be absorbed and passed from the firm to its resolution entity.

resolution liabilities

means liabilities that meet the following criteria:

1. (a) the instrument that creates the liabilities must be issued and fully paid up;
2. (b) the liabilities are not secured or guaranteed by, the firm, its parent undertaking or any subsidiaries of the firm or its parent undertaking;
3. (c) the liabilities have a minimum effective remaining maturity of one year (where liabilities include an incentive to redeem, the maturity date shall, for the purposes of determining eligibility, be considered to be the date at which the incentive arises);
4. (d) the liabilities do not depend on derivatives for their value (put or call options will not in and of themselves be sufficient to disqualify a liability for this purpose absent any other dependency on derivatives);
5. (e) the liabilities are not subject to contractual set-off or netting arrangements;
6. (f) the liabilities are able to absorb losses and recapitalise the issuer of the liability, such as through being written down and/or converted to equity, without the use of stabilisation or resolution powers at the level of the issuer of the liability;
7. (g) the liabilities are subordinated to the operating liabilities of the issuer; and
8. (h) the liabilities do not take the form of equity.

sovereign large exposures exemption

means the exemption in 3.1.

sovereign large exposures permission

means a permission given by the PRA in respect of Article 400(2)(g) or (h) of the CRR to apply the sovereign large exposures exemption.

trading book exposure allocation

means the allocation in 2.2

1.3

Unless otherwise defined:

1. (1) any italicised expression used in this Part and in the CRR has the same meaning as in the CRR; and
2. (2) any italicised expression used in this Part and in the CRD has the same meaning as in the CRD.