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BIPRU 1.1 Application

BIPRU 1.1.1GRP

1There is no overall application statement for BIPRU. Each chapter or section has its own application statement. Broadly speaking however, BIPRU applies to:

  1. (1)

    a bank;

  2. (2)

    a building society;

  3. (3)

    a BIPRU investment firm; and

  4. (4)

    groups containing such firms.

BIPRU 1.1.2R

BIPRU applies to a firm in relation to the whole of its business, except where a particular provision provides for a narrower scope.

BIPRU 1.1.3GRP

In the main BIPRU only applies to a UCITS investment firm in respect of designated investment business (excluding scheme management activity). However BIPRU 2.2 (Internal capital adequacy standards), BIPRU 2.3 (Interest rate risk in the non-trading book), BIPRU 8 (Group risk - consolidation) and BIPRU 11 (Disclosure) apply to the whole of its business.

Purpose

BIPRU 1.1.4GRP

BIPRU 1.1 implements in part Articles 3(1)(b), 5, 9, 10 and 20 of the Capital Adequacy Directive.

3

Guidance on the categorisation of BIPRU investment firms

BIPRU 1.1.5G

Guidance on the categorisation of investment firms for the purposes of BIPRU and GENPRU is 3included in PERG 13 (Guidance on the scope of the Markets in Financial Instruments Directive and the recast Capital Adequacy Directive).

3

The definition of a BIPRU firm

BIPRU 1.1.6R

Subject to BIPRU 1.1.7 R, a BIPRU firm means a firm that is:[deleted]

  1. (1)

    a building society; or

  2. (2)

    a bank; or

  3. (3)

    a full scope BIPRU investment firm; or

  4. (4)

    a BIPRU limited licence firm; or

  5. (5)

    a BIPRU limited activity firm.

BIPRU 1.1.7RRP

None of the following is a BIPRU firm and each of the following is excluded from each of the categories of BIPRU investment firm listed in BIPRU 1.1.6 R (3) to BIPRU 1.1.6R (5) and BIPRU 1.1.18 R (2) to (4):

  1. (1)

    an incoming EEA firm;

  2. (2)

    an incoming Treaty firm;

  3. (3)

    any other overseas firm;

  4. (4)

    an ELMI;

  5. (5)

    an insurer; and

  6. (6)

    an ICVC.

BIPRU 1.1.8R

A firm falling within BIPRU 1.1.6 R (3) to BIPRU 1.1.6R (5) is a BIPRU investment firm. A BIPRU investment firm includes a UCITS investment firm that is not excluded under BIPRU 1.1.7 R.

BIPRU 1.1.9G

EEA firms are subject to the prudential standards of their home state regulator. But the Banking Consolidation Directive permits a host state competent authority to require a BCD credit institution to meet certain standards relating to its liquidity. The FSA's approach to liquidity for such firms is set out in BIPRU 12.4

4
BIPRU 1.1.10GRP
  1. (1)

    This paragraph applies to an undertaking that would be a third country BIPRU firm if it were authorised under the Act.

  2. (2)

    Except in exceptional circumstances, it is the FSA's policy that it will not give an overseas applicant a Part IV permission unless the FSA is satisfied that the applicant will be subject to prudential regulation by its home state regulatory body that is broadly equivalent to that provided for in the Handbook and the applicable EEA prudential sectoral legislation. The FSA will take into account not only the requirements to which the firm is subject but how they are enforced. The FSA will also take into account the laws, regulations and administrative provisions to which it is subject in its home state. The reasons for that policy include:

    1. (a)

      it is unlikely that a firm that is not subject to equivalent supervision will be able to satisfy the threshold conditions (and in particular threshold condition 5 (Suitability)) and it is unlikely that it will be possible to establish that the firm does satisfy them;

    2. (b)

      such a firm is likely to pose a threat to the interests of consumers and potential consumers, particularly as effective supervision of an overseas firm depends on cooperation between the FSA and the regulatory body that authorises the firm in its home country and on the FSA being able to place appropriate reliance on the supervision carried out by such regulatory body; and

    3. (c)

      under Article 38(1) of the Banking Consolidation Directive the FSA should not apply to branches of credit institutions having their head office outside the EEA, when commencing or carrying on their business, provisions which result in more favourable treatment than that accorded to branches of credit institutions having their head office in the EEA.

  3. (3)

    If an undertaking is not subject to equivalent supervision in its home state and it wishes to carry on in the United Kingdom regulated activities coming within the scope of the activities that define a BIPRU firm it should establish a subsidiary undertaking in the United Kingdom. Such a subsidiary undertaking should be able to show, amongst other things, how it would comply with the threshold conditions (and in particular threshold conditions 3 (Close links) and 5 (Suitability)).

  4. (4)

    If in exceptional circumstances the FSA does grant a Part IV permission to an undertaking that is not subject to equivalent prudential regulation the FSA is likely to take measures under the regulatory system to compensate for the lack of equivalent supervision. These may include applying the prudential requirements for BIPRU firms to the firm.

  5. (5)

    An overseas firm that is subject to equivalent supervision is subject to the threshold conditions and the Principles. BIPRU and GENPRU do not generally apply. However BIPRU 124 applies to a credit institution with respect to liquidity risk in relation to its United Kingdom branch.

    4

Types of investment firm: Limited activity firms

BIPRU 1.1.11R

A limited activity firm means (as specified by Article 20(3) of the Capital Adequacy Directive (Exemptions from operational risk)) a CAD investment firm that satisfies the following conditions:

  1. (1)

    it meets the criteria in (a) or the criteria in (b):

    1. (a)

      it deals on own account only:

      1. (i)

        for the purpose of fulfilling or executing a client order; or

      2. (ii)

        for the purpose of gaining entrance to a clearing and settlement system or a recognised investment exchange or designated investment exchange when acting in an agency capacity or executing a client order; or

    2. (b)

      it satisfies the following conditions:

      1. (i)

        it does not hold client money or securities in relation to investment services that it provides and is not authorised to do so;

      2. (ii)

        the only investment service 3it undertakes is dealing on own account;

        3
      3. (iii)

        it has no external customers in relation to investment services it provides; and

      4. (iv)

        the execution and settlement of its transactions in relation to investment services it provides takes place under the responsibility of a clearing institution and are guaranteed by that clearing institution;

  2. (2)

    (in the case of a CAD investment firm that is a BIPRU investment firm) its base capital resources requirement is €730,000;

  3. (3)

    (in the case of a CAD investment firm that is an EEA firm) it is subject to the CRD implementation measures of its Home State for Article 9 of the Capital Adequacy Directive (Initial capital requirement of €730,000); and

  4. (4)

    (in the case of any other CAD investment firm) its base capital resources requirement would be €730,000 if it had been a BIPRU investment firm on the basis of the assumptions in BIPRU 1.1.14 R (3)(a) and BIPRU 1.1.14 R (3)(b).

Types of investment firm: Limited licence firms

BIPRU 1.1.12R

A limited licence firm means (as specified by Article 20(2) of the Capital Adequacy Directive (Exemptions from operational risk)) a CAD investment firm that is not authorised to:

  1. (1)

    deal on own account; or

  2. (2)

    provide the investment services of underwriting or placing financial instruments (as referred to in point 63 of Section A of Annex I of MiFID3) on a firm commitment basis.

    33

Types of investment firm: CAD full scope firm

BIPRU 1.1.13R

A CAD full scope firm means a CAD investment firm that is not a limited activity firm or a limited licence firm.

Types of investment firm: CAD investment firm

BIPRU 1.1.14R
  1. (1)

    In accordance with Article 3(1)(b) of the Capital Adequacy Directive, a person is a CAD investment firm if it falls into (2) or (3).

  2. (2)

    A person whose head office is in an EEA State is a CAD investment firm if it is an investment firm that is subject to the requirements imposed by MiFID3 but excludes the following:

    3
    1. (a)

      a bank, a building society or an ELMI;

    2. (b)

      a credit institution;

    3. (c)

      a local; and

    4. (d)

      an exempt CAD firm.

  3. (3)

    An investment firm whose head office is not in an EEA State is a CAD investment firm if it would have fallen into (2) if:

    1. (a)

      its head office had been in an EEA State; and

    2. (b)

      it had carried on all its business in the EEA and had obtained whatever authorisations for doing so are required under MiFID3.

      3
BIPRU 1.1.15G

The following are 3excluded from the definition of a CAD investment firm and hence from the definition of BIPRU investment firm:3

33
  1. (1)

    an investment firm to which MiFID does not apply under Article 2(1); and3

  2. (2)

    an investment firm with the benefit of an exemption pursuant to Article 3 of MiFID.3

Types of investment firm: Exempt CAD firm

BIPRU 1.1.16R

In accordance with Article 3(1)(b)(iii) of the Capital Adequacy Directive (Definitions), an exempt CAD firm means an investment firm that satisfies the following conditions:

  1. (1)

    it would have been a CAD investment firm if exempt CAD firms were not excluded from the definition; and

  2. (2)

    it is only authorised to provide the service of investment advice and/or2 receive and transmit2 orders from investors (as referred to in Section A of Annex I of MiFID3) without in both cases22 holding money or securities belonging to its clients and which2 for that reason may not at any time place itself in debit with its2 clients.

    223222

Types of BIPRU investment firm

BIPRU 1.1.17R
  1. (1)

    A BIPRU limited licence firm means a limited licence firm that falls into (4).

  2. (2)

    A BIPRU limited activity firm means a limited activity firm that falls into (4).

  3. (3)

    A full scope BIPRU investment firm means a CAD full scope firm that falls into (4).

  4. (4)

    A limited licence firm, limited activity firm or CAD full scope firm falls into (4) if:

    1. (a)

      it is a firm; and

    2. (b)

      its head office is in the United Kingdom and it is not otherwise excluded from the definition of BIPRU firm under BIPRU 1.1.7 R.

Alternative classification of BIPRU investment firms

BIPRU 1.1.18R

BIPRU investment firm are divided into the following classes for the purposes of the calculation of the base capital resources requirement and for the purpose of any other provision of the Handbook that applies this classification:

  1. (1)

    a UCITS investment firm;

  2. (2)

    a BIPRU 50K firm;

  3. (3)

    a BIPRU 125K firm; and

  4. (4)

    a BIPRU 730K firm.

Types of investment firm: BIPRU 125K firm

BIPRU 1.1.19R

A BIPRU 125K firm means a BIPRU investment firm that satisfies the following conditions:

  1. (1)

    it does not:

    1. (a)

      deal on own account; or

    2. (b)

      underwrite issues of financial instruments (as referred in Section A of Annex I of MiFID3) on a firm commitment basis;

      3
  2. (2)

    it holds clients' money or securities in relation to investment services it provides or is authorised to do so;

  3. (3)

    it offers one or more of the following services (all as referred to in Section A of Annex I of MiFID3):

    3
    1. (a)

      reception and transmission of investors' orders for financial instruments; or

    2. (b)

      the execution of investors' orders for financial instruments; or

    3. (c)

      the management of individual portfolios of investments in financial instruments;

      3
  4. (4)

    it is not a UCITS investment firm and;3

    3
  5. (5)

    it does not operate a multilateral trading facility.3

Types of investment firm: BIPRU 50K firm

BIPRU 1.1.20R

A BIPRU 50K firm means a BIPRU investment firm that satisfies the following conditions:

  1. (1)

    it satisfies the conditions in BIPRU 1.1.19 R (1)and (3);

  2. (2)

    it does not hold clients' money or securities in relation to investment services it provides and it is not authorised to do so;

    3
  3. (3)

    it is not a UCITS investment firm; and3

    3
  4. (4)

    it does not operate a multilateral trading facility.3

Types of investment firm: 730K firm

Types of investment firm: Part IV permission

BIPRU 1.1.22R

A firm also falls into one of the categories of BIPRU investment firm listed in BIPRU 1.1.6 R (3)to (5) or BIPRU 1.1.18 R if its Part IV permission contains a requirement that it comply with the rules in GENPRU and BIPRU applicable to that category of firm. If a firm is subject to such a requirement and it would otherwise also fall into another category of BIPRU investment firm it does not fall into that other category.

Meaning of dealing on own account

BIPRU 1.1.23RRP
  1. (1)

    Dealing on own account means (for the purpose of GENPRU and BIPRU) the service of dealing in any financial instruments for own account as referred to in point 33 of Section A of Annex I 3to MiFID3, subject to (2) and (3).

    333
  2. (2)

    In accordance with Article5(2) of the Capital Adequacy Directive (Definition of dealing on own account), a CAD investment firm that executes investors' orders for financial instruments and holds such financial instruments for its own account does not for that reason deal on own account if the following conditions are met:

    1. (a)

      such position only arise as a result of the CAD investment firm's failure to match investors' orders precisely;

    2. (b)

      the total market value of all such positions is no higher than 15% of the CAD investment firm's initial capital;

    3. (c)

      (in the case of a BIPRU investment firm) it complies with the main BIPRU firm Pillar 1 rules and BIPRU 10 (Concentration risk);

    4. (d)

      (in the case of a CAD investment firm that is an EEA firm) it complies with the CRD implementation measures of its Home State for Articles 18 and 20 (Minimum capital requirements) and 28 (Large exposures) of the Capital Adequacy Directive;

    5. (e)

      (in the case of any other CAD investment firm) it would comply with the rules in (2)(c) if it had been a BIPRU investment firm on the basis of the assumptions in BIPRU 1.1.14 R (3)(a) and BIPRU 1.1.14R (3)(b); and

    6. (f)

      such positions are incidental and provisional in nature and strictly limited to the time required to carry out the transaction in question.

  3. (3)

    In accordance with Article 5(2) of the Capital Adequacy Directive, the holding of non-trading book positions in financial instruments in order to invest capital resources is not dealing on own account for the purposes referred to in BIPRU 1.1.18 R.

Interpretation of the definition of types of firm and undertaking

BIPRU 1.1.24R

For the purposes of the definitions in BIPRU 1.1, a person does any of the activities referred to in BIPRU 1.1 if:

  1. (1)

    it does that activity anywhere in the world; or

  2. (2)

    if its permission includes that activity; or

  3. (3)

    (in the case of an EEA firm) it is authorised by its Home State regulator to do that activity; or

  4. (4)

    (if the carrying on of that activity is prohibited in a state or territory without an authorisation in that state or territory) that firm has such an authorisation.

BIPRU 1.1.25R

For the purposes of the definitions in BIPRU 1.1, a person offers any of the services referred to in BIPRU 1.1.19 R (3)if:

  1. (1)

    it offers that service anywhere in the world; or

  2. (2)

    any of BIPRU 1.1.24 R (1) to BIPRU 1.1.24R (4) apply.

BIPRU 1.1.26R

For the purposes of the definitions in BIPRU 1.1, a person has an authorisation to do any of the activities referred to in BIPRU 1.1 if any of BIPRU 1.1.24 R (2) to (4) apply.