BIPRU 8.3 Scope and basic consolidation requirements for non-UK 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-UK sub-group5.

The remainder of this section sets out a process for identifying a non-UK sub-group5 in straightforward cases.

A firm will not be a member of a non-UK sub-group5 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 isa CAD investment firm,4 financial institution or asset management company whose head office is outside the UK5 (a third country investment services undertaking4);

   44
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 the UK5.

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-UK sub-group5.

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-UK sub-groups5.

Similarly if there is more than one BIPRU firm that holds a participation in the third country investment services undertaking4 in accordance with BIPRU 8.3.7G (2)(b) then the sub-group of each such BIPRU firm is a potential non-UK sub-group5.

The effect of BIPRU 8.3.7G (3) is that a non-UK sub-group5 cannot be headed by a parent institution in the UK5.

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

1. (1)

   it is a CAD investment firm,4 financial institution or asset management company whose head office is outside the UK5 (a third country investment services undertaking);

   4
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-UK sub-group5.

The financial holding company identified in BIPRU 8.3.12 G may be a parent financial holding company in the UK5.

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-UK sub-groups5.

Similarly if there is more than one financial holding company that holds a participation in the third country investment services undertaking4 in accordance with BIPRU 8.3.12G (2)(b) then the sub-group of each such financial holding company is a potential non-UK sub-group5.

The firm should apply the process in BIPRU 8.3.12 G to a third country investment services undertaking4 even though it may be also be part of a potential non-UK sub-group5 under BIPRU 8.3.7 G.

Having identified potential non-UK sub-groups5 for each third country investment services undertaking4 in its UK consolidation group the firm should then eliminate overlapping potential non-UK sub-groups5 in the following way. If:

1. (1)

   one potential non-UK sub-group5 is 1contained within a wider potential non-EEA sub-group5; and

2. (2)

   the third country investment services undertaking4 in the two potential non-UK sub-groups5 are the same;

   4

then the smaller potential non-UK sub-group5 is eliminated.

If there is a chain of three or more potential non-UK sub-groups5, each with the same third country investment services undertaking,4 the elimination process may remove all but the highest.

Each remaining potential non-UK sub-group is a non-UK sub-group5, even though it may be part of a wider non-UK sub-group5.

If a UK consolidation group is headed by a parent financial holding company in the UK5 the result of the elimination process may be that a firm's UK consolidation group contains only one non-UK sub-group5 and that the non-UK sub-group5 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-UK sub-group5. However as the UK consolidation group and the non-UK sub-group5 are the same, in practice this means that the additional non-UK sub-group5 consolidation disappears.

Even where the requirements for a non-UK sub-group5 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-UK sub-group5 and that they both contain the same members.