BIPRU 2.1 Solo consolidation

3Pursuant to the third paragraph of article 95(2) of the UK CRR, this section applies requirements that correspond to4 Articles 70 and 118 of the Banking Consolidation Directive3so far as they apply under Articles 2 and 28 of the Capital Adequacy Directive to CAD investment firms3 that are subject to the requirements imposed by the UK legislation that implemented4 MiFID (or which would have been subject to those requirements4 if its head office were in the UK4), but excluding a bank, building society, a credit institution, a local and an exempt CAD firm..

The rules in GENPRU and BIPRU do not allow a firm that is a parent undertaking to incorporate the capital and requirements of a subsidiary undertaking in the calculation of that firm's capital resources and capital resources requirement. A firm that wishes to incorporate a subsidiary undertaking for this purpose should therefore apply for a solo consolidation waiver.

BIPRU 1.3 (Applications for advanced approaches) explains how to apply for a solo consolidation waiver.

The appropriate regulator will not grant a firm a solo consolidation waiver with respect to a subsidiary undertaking unless the firm and the subsidiary undertaking meet the standards in BIPRU 2.1.19 R to BIPRU 2.1.24 R.

A solo consolidation waiver will modify the relevant parts of GENPRU, BIPRU and SYSC referred to in BIPRU 2.1.7 R to BIPRU 2.1.8 R to apply BIPRU 2.1 to a firm.

For example, the effect of BIPRU 2.1.13 R is that if a firm that is applying BIPRU 2.1 is a limited licence firm it should continue to apply the capital resources and capital resources requirement applicable to a limited licence firm.

The following are the criteria that the appropriate regulator will take into account when considering whether the condition in BIPRU 2.1.24 R 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 subsidiary undertaking and what impact those other interests may have on the firm's control over the subsidiary undertaking and on the ability of the firm to require a transfer of funds or repayment of liabilities;

3. (3)

   whether the prompt transfer of funds or repayment of liabilities to the firm might harm the reputation of the firm or its subsidiary undertakings;

4. (4)

   whether there are any tax disadvantages for the firm or the subsidiary undertaking as a result of the transfer of funds or repayment of liabilities;

5. (5)

   whether there are any exchange controls that may have an impact on the transfer of funds or repayment of liabilities;

6. (6)

   whether there are assets in the subsidiary undertaking available either to be transferred or liquidated for the purposes of the transfer of funds or repayment of liabilities;

7. (7)

   whether any regulatory requirements impact on the ability of the subsidiary undertaking to transfer funds or repay liabilities promptly;

8. (8)

   whether the purpose of the subsidiary undertaking prejudices the prompt transfer of funds or repayment of liabilities;

9. (9)

   whether the legal structure of the subsidiary undertaking prejudices the prompt transfer of funds or repayment of liabilities;

10. (10)

    whether the contractual relationships of the subsidiary undertaking with the firm and other third parties prejudices the prompt transfer of funds or repayment of liabilities;

11. (11)

    whether past and proposed flows of funds between the subsidiary undertaking and the firm demonstrate the ability to make prompt transfer of funds or repayment of liabilities; and

12. (12)

    whether the degree of solo consolidation by the firm undermines the appropriate regulator's ability to assess the soundness of the firm as a legal entity (taking into account any other subsidiary undertakings to which BIPRU 2.1 is being applied).

The effect of BIPRU 2.1.19 R is that even though a firm's solo consolidation waiver applies BIPRU 2.1 with respect to a subsidiary undertaking, the firm should not apply BIPRU 2.1 with respect to that subsidiary undertaking unless in addition it meets the conditions in BIPRU 2.1.20 R to BIPRU 2.1.24 R.

A firm should not apply BIPRU 2.1 to a subsidiary undertaking to which the firm's solo consolidation waiver applies if it ceases to be a subsidiary undertaking of the firm even if the solo consolidation waiver is not varied by removing the subsidiary undertaking.

If a subsidiary undertaking referred to in BIPRU 2.1.27 G later becomes a subsidiary undertaking again the firm should not apply BIPRU 2.1 to it unless the solo consolidation waiver is varied to re-apply it with respect to the subsidiary undertaking.