BIPRU 8.3 Scope and basic consolidation requirements for non-EEA sub-groups

The base capital resources requirement does not apply on a consolidated basis.

The sub-group identified in BIPRU 8.3.1 R is called a non-EEA sub-group.

BIPRU 8 Annex 3 (Examples of how to identify a non-EEA sub-group) sets out examples of how to identify a non-EEA sub-group.

The remainder of this section sets out a process for identifying a non-EEA sub-group in straightforward cases.

A firm will not be a member of a non-EEA sub-group unless it is1 also a member of a UK consolidation group. So the first step is to identify each undertaking in the firm's UK consolidation group that satisfies the following conditions:

1. (1)

   it isan institution, financial institution or asset management company whose head office is outside the EEA (a third country banking or investment services undertaking);

2. (2)

   one of the following applies:

   1. (a)

      it is a subsidiary undertaking of a BIPRU firm in that UK consolidation group; or

   2. (b)

      a BIPRU firm in that UK consolidation group holds a participation in it; and

3. (3)

   that BIPRU firm is not a parent institution in a Member State.

The sub-group of the BIPRU firm identified in BIPRU 8.3.7G (2)(a) or BIPRU 8.3.7G (2)(b) is a potential non-EEA sub-group.

If more than one BIPRU firm is a direct or indirect parent undertaking in accordance with BIPRU 8.3.7G (2)(a) then the sub-groups of each of 1them are all potential non-EEA sub-groups. This is illustrated in example three in BIPRU 8 Annex 3 (Examples of how to identify a non-EEA sub-group), where the sub-group of UK bank 1 and the sub-group of UK bank 2 are potential non-EEA sub-groups.

Similarly if there is more than one BIPRU firm that holds a participation in the third country banking or investment services undertaking in accordance with BIPRU 8.3.7G (2)(b) then the sub-group of each such BIPRU firm is a potential non-EEA sub-group.

The effect of BIPRU 8.3.7G (3) is that a non-EEA sub-group cannot be headed by a parent institution in a Member State. This is illustrated in example one of BIPRU 8 Annex 3 (Examples of how to identify a non-EEA sub-group).

The firm should then identify each undertaking in the firm's UK consolidation group that satisfies the following conditions:

1. (1)

   it is an institution, financial institution or asset management company whose head office is outside the EEA (a third country investment services undertaking);

2. (2)

   one of the following applies:

   1. (a)

      it is a subsidiary undertaking of a financial holding company in that UK consolidation group; or

   2. (b)

      a financial holding company in that UK consolidation group holds a participation in it;

3. (3)

   the head office of that financial holding company is in the United Kingdom; and

4. (4)

   that financial holding company has a subsidiary undertaking that is a BIPRU firm.

The sub-group of the financial holding company identified in BIPRU 8.3.12G (2)(a) or BIPRU 8.3.12G (2)(b) is a potential non-EEA sub-group.

The financial holding company identified in BIPRU 8.3.12 G may be a parent financial holding company in a Member State. This is illustrated by example 2 of BIPRU 8 Annex 3 (Examples of how to identify a non-EEA sub-group).

If more than one financial holding company is a direct or indirect parent undertaking in accordance with BIPRU 8.3.12G (2)(a) then the sub-groups of each of 1them are all potential non-EEA sub-groups.

Similarly if there is more than one financial holding company that holds a participation in the third country banking or investment services undertaking in accordance with BIPRU 8.3.12G (2)(b) then the sub-group of each such financial holding company is a potential non-EEA sub-group.

The firm should apply the process in BIPRU 8.3.12 G to a third country banking or investment services undertaking even though it may be also be part of a potential non-EEA sub-group under BIPRU 8.3.7 G.

Having identified potential non-EEA sub-groups for each third country banking or investment services undertaking in its UK consolidation group the firm should then eliminate overlapping potential non-EEA sub-groups in the following way. If:

1. (1)

   one potential non-EEA sub-group is 1contained within a wider potential non-EEA sub-group; and

2. (2)

   the third country banking or investment services undertakings in the two potential non-EEA sub-groups are the same;

then the smaller potential non-EEA sub-group is eliminated.

If there is a chain of three or more potential non-EEA sub-groups, each with the same third country banking or investment services undertakings, the elimination process may remove all but the highest. This is illustrated in example three in BIPRU 8 Annex 3 (Examples of how to identify a non-EEA sub-group). In this example there are four potential non-EEA sub-groups and the elimination process results in just one remaining (the one headed by the UK parent financial holding company in a Member State).

Each remaining potential non-EEA sub-group is a non-EEA sub-group, even though it may be part of a wider non-EEA sub-group.

Examples four and five in BIPRU 8 Annex 3 (Examples of how to identify a non-EEA sub-group) show how the same group may contain two non-EEA sub-groups even though the smaller potential non-EEA sub-group is part of a bigger one. The reason for there being two non-EEA sub-groups in these examples is that one of the third country banking or investment services undertakings is not a member of both potential non-EEA sub-groups.

If a UK consolidation group is headed by a parent financial holding company in a Member State the result of the elimination process may be that a firm's UK consolidation group contains only one non-EEA sub-group and that the non-EEA sub-group is the same as the UK consolidation group. In theory that means that there are two sets of consolidation requirements, one in relation to the UK consolidation group and one in relation to the non-EEA sub-group. However as the UK consolidation group and the non-EEA sub-group are the same, in practice this means that the additional non-EEA sub-group consolidation disappears. This is illustrated in example three in BIPRU 8 Annex 3 (Examples of how to identify a non-EEA sub-group). The effect of BIPRU 8.3.7G (3) is that this is not the case if the UK consolidation group is headed by a parent institution in a Member State, as illustrated in example 1 in BIPRU 8 Annex 3.

Even where the requirements for a non-EEA sub-group are absorbed into those for the UK consolidation group a firm should still make clear in its regulatory reporting that the consolidation figures relate to a UK consolidation group and a non-EEA sub-group and that they both contain the same members.

The examples in this section have so far assumed that the only EEA State involved is the United Kingdom. If a potential non-EEA sub-group that would otherwise be regulated by the FSA contains a potential non-EEA sub-group in another EEA State then the United Kingdom one is eliminated if the third country banking or investment services undertaking in the UK potential non-EEA sub-group and the potential non-EEA sub-group in the other EEA State are the same. The intention here is that the EEA competent authority closest to the third country banking or investment services undertaking should be responsible for the non-EEA sub-group subconsolidation. Example 6 in BIPRU 8 Annex 3 (Examples of how to identify a non-EEA sub-group) illustrates this situation.