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BIPRU 10.8A Intra-group exposures: core UK group

Application

BIPRU 10.8A.1R

1This section applies to a firm if:

  1. (1)

    it is a member of a core UK group (under BIPRU 3.2.25 R and this section); and

  2. (2)

    it has a core UK group waiver.

Definition of core UK group

BIPRU 10.8A.2R

An undertaking is a member of a firm's core UK group if, in relation to the firm, that undertaking satisfies the following conditions:

  1. (1)

    it is a core concentration risk group counterparty;

  2. (2)

    it is an institution, financial holding company, financial institution, asset management company or ancillary services undertaking;

  3. (3)

    (in relation to a subsidiary undertaking) 100% of the voting rights attaching to the shares in its capital is held by the firm or a financial holding company (or a subsidiary undertaking of the financial holding company), whether individually or jointly, and that firm or financial holding company (or its subsidiary undertaking) must have the right to appoint or remove a majority of the members of the board of directors, committee of management or other governing body of the undertaking;

  4. (4)

    it is subject to the same risk evaluation, measurement and control procedures as the firm;

  5. (5)

    it is incorporated in the United Kingdom; and

  6. (6)

    there is no current or foreseen material practical or legal impediment to the prompt transfer of capital resources or repayment of liabilities from the counterparty to the firm.

BIPRU 10.8A.3G

In relation to BIPRU 10.8A.2R (3), a subsidiary undertaking should generally be 100% owned and controlled by a single shareholder. However, if a subsidiary undertaking has more than one shareholder, that undertaking may be a member of the core UK group if all its shareholders are also members of that same core UK group.

BIPRU 10.8A.4G

If a core concentration risk group counterparty is of a type that falls within the scope of the Council Regulation of 29 May 2000 on insolvency proceedings (Regulation 1346/2000/EC) and it is established in the United Kingdom other than by incorporation, a firm wishing to include that counterparty in its core UK group may apply to the FSA for a waiver of BIPRU 10.8A.2R (5) if it can demonstrate fully to the FSA that the counterparty's centre of main interests is situated in the United Kingdom within the meaning of that Regulation.

Minimum standards

BIPRU 10.8A.5R
  1. (1)

    For the purpose of BIPRU 10.8A.2R (6), a firm must be able to demonstrate fully to the FSA the circumstances and arrangements, including legal arrangements, by virtue of which there are no material practical or legal impediments, and none are foreseen, to the prompt transfer of capital resources or repayment of liabilities from the counterparty to the firm.

  2. (2)

    In relation to a counterparty that is not a firm, the arrangements referred to in (1) must include a legally binding agreement with each firm that is a member of the core UK group that it will promptly on demand by the firm increase that firm's capital resources by an amount required to ensure that the firm complies with GENPRU 2.1 (Calculation of capital resources requirements), BIPRU 10 (Large exposures requirements) and any other requirements relating to capital resources or concentration risk imposed on a firm by or under the regulatory system.

BIPRU 10.8A.6G

The FSA will consider the following criteria when assessing whether the condition in BIPRU 10.8A.2R (6) is going to be met:

  1. (1)

    the speed with which funds can be transferred or liabilities repaid to the firm and the simplicity of the method for the transfer or repayment;

  2. (2)

    whether there are any interests other than those of the firm in the core concentration risk group counterparty and what impact those other interests may have on the firm's control over the core group concentration risk group counterparty and the ability of the firm to require a transfer of funds or repayment of liabilities;

  3. (3)

    whether there are any tax disadvantages for the firm or the core concentration risk group counterparty as a result of the transfer of funds or repayment of liabilities;

  4. (4)

    whether the purpose of the core concentration risk group counterparty prejudices the prompt transfer of funds or repayment of liabilities;

  5. (5)

    whether the legal structure of the core concentration risk group counterparty prejudices the prompt transfer of funds or repayment of liabilities;

  6. (6)

    whether the contractual relationships of the core concentration risk group counterparty with the firm and other third parties prejudices the prompt transfer of funds or repayment of liabilities; and

  7. (7)

    whether past and proposed flows of funds between the core concentration risk group counterparty and the firm demonstrate the ability to make prompt transfer of funds or repayment of liabilities.

BIPRU 10.8A.7G
  1. (1)

    Firms are referred to the guidance relating to 0% risk weights for exposures within a core UK group under the standardised approach as follows:

    1. (a)

      BIPRU 3.2.28 G in respect of BIPRU 10.8A.2R (3) on same risk evaluation, measurement and control procedures; and

    2. (b)

      BIPRU 3.2.30 G and BIPRU 3.2.31 G in respect of BIPRU 10.8A.2R (6) on prompt transfer of capital resources and repayment of liabilities.

  2. (2)

    For the purpose of BIPRU 10.8A.5R (2), the obligation to increase the firm's capital resources may be limited to capital resources available to the counterparty and may reasonably exclude such amount of capital resources that, if transferred to the firm, would cause the counterparty to become balance sheet insolvent in the manner contemplated in section 123(2) of the Insolvency Act 1986.

Exemption for a core UK group

BIPRU 10.8A.8R

If this section applies, exposures between members of the core UK group are exempt from the limits described in BIPRU 10.5 (Limits on exposures).

BIPRU 10.8A.9G

The FSA will expect a firm to which this section applies not to use any member of its core UK group which is not a firm to route lending or to have exposures to any third party in excess of the limits in BIPRU 10.5 (Limits on exposures).

Calculation of capital resources for a core UK group

BIPRU 10.8A.10R

For the purposes of this section, a firm must calculate the capital resources of the core UK group in accordance with GENPRU 3 Annex 1 R Part 2 (Method 2 of Annex 1 of the Financial Groups Directive (Deduction and aggregation Method)) and apply the limits set out in this section to those capital resources rather than the capital resources of the firm. For these purposes the definition of solo capital resources is adjusted so that the rules on which the calculation for each member of the core UK group is based are the ones that would apply under the procedure in BIPRU 8.6.6 R to BIPRU 8.6.9 R (Consolidated capital resources).

BIPRU 10.8A.11G

The calculation of capital resources under GENPRU 3 Annex 1 R Part 2 (Method 2 of Annex 1 of the Financial Groups Directive (Deduction and aggregation Method) is based on the solo capital resources of members of a financial conglomerate. The definition of solo capital resources depends on what type of undertakings the financial conglomerate contains. For example, if a financial conglomerate contains a bank the solo capital resources calculation for every group member in the banking sector and the investment services sector is based on the capital resources calculation for banks. The purpose of BIPRU 10.8A.10R is to apply the corresponding procedure that applies under BIPRU 8.6 (Calculation of capital resources on a consolidated basis for BIPRU firms).

Notification

BIPRU 10.8A.12R

A firm must immediately notify the FSA in writing it if becomes aware that any exposure that it has treated as exempt under this section or any counterparty that it has been treating as a member of its core UK group has ceased to meet the conditions for application of the treatment in this section.