BIPRU 8.4 CAD Article 22 groups and investment firm consolidation waiver

This section applies to a BIPRU firm1 with an investment firm consolidation waiver.

If a firm has an investment firm consolidation waiver with respect to its UK consolidation group or non-EEA sub-group but that UK consolidation group or non-EEA sub-group ceases to meet the definition of a CAD Article 22 group the firm must comply with the rest of this chapter rather than this section notwithstanding the investment firm consolidation waiver.

1. (1)

   A CAD Article 22 group means a UK consolidation group or non-EEA sub-group that meets the conditions in this rule.

2. (2)

   There must be no bank, building society , credit institution or investment firm1 in the UK consolidation group or non-EEA sub-group .

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3. (3)

   Each CAD investment firm in the UK consolidation group or non-EEA sub-group which is an EEA firm must use the definition of own funds given in the CRD implementation measure of its EEA State for Article 16 of the Capital Adequacy Directive.

4. (4)

   Each CAD investment firm in the UK consolidation group or non-EEA sub-group must be a:

   1. (a)

      limited activity firm; or

   2. (b)

      limited licence firm.

5. (5)

   Each CAD investment firm in the UK consolidation group or non-EEA sub-group which is an EEA firm must:

   1. (a)

      meet the requirements imposed by the CRD implementation measures of its EEA State for Articles 18 and Article 20 of the Capital Adequacy Directive on an individual basis; and

   2. (b)

      deduct from its own funds any contingent liability in favour of other members of the UK consolidation group or non-EEA sub-group.

6. (6)

   Each BIPRU firm1 in the UK consolidation group or non-EEA sub-group must comply with the main BIPRU firm Pillar 1 rules on an individual basis.

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If a firm has an investment firm consolidation waiver, it must ensure that any financial holding company in the UK consolidation group or the non-EEA sub-group that is the UK parent financial holding company in a Member State of a CAD investment firm in the UK consolidation group or non-EEA sub-group has capital resources, calculated under BIPRU 8.4.12 R, in excess of the sum of the following (or any higher amount specified in the investment firm consolidation waiver):

1. (1)

   the sum of the solo notional capital resources requirements for each CAD investment firm, financial institution, asset management company and ancillary services undertaking in the UK consolidation group or the non-EEA sub-group, as calculated in accordance with BIPRU 8.4.13 R; and

2. (2)

   the total amount of any contingent liability in favour of CAD investment firms, financial institutions, asset management companies and ancillary services undertakings in the UK consolidation group or non-EEA sub-group.

A firm must calculate the capital resources of the parent financial holding company in a Member State for the purpose of BIPRU 8.4.11 R as follows:

1. (1)

   the capital resources are the sum of capital resources calculated at stages D (Total tier one capital before deductions) and I (Total tier two capital) of the version of the capital resources table in GENPRU 2 Annex 4 (Capital resources table for a BIPRU investment firm deducting material holdings) as adjusted in accordance with this rule;

2. (2)

   capital resources at stage D must not include innovative tier one capital resources, but they may be included at stage I if (5) allows this;

3. (3)

   the amount of the items which may be included at stage I must not exceed the amount calculated at stage D of the capital resources table;

4. (4)

   the amount of the items which may be included in lower tier two capital in stage I must not exceed 50% of the amount calculated at stage D of the capital resources table; and

5. (5)

   GENPRU 2.2.25 R (Limits on the use of different forms of capital: Use of higher tier capital in lower tiers) and GENPRU 2.2.27 R (Use of innovative tier one capital in lower stages of capital) apply.

The solo notional capital resources requirement as referred to in BIPRU 8.4.11R (1) is calculated in the same way as the capital resources requirement for a BIPRU firm.1

A firm must exclude material holdings in the notional calculation of the credit risk capital requirement for the purposes of BIPRU 8.4.13 R. A firm must identify whether it has any material holdings and the amount of them in accordance with GENPRU 2.2 (Capital resources) and GENPRU 2 Annex 4 (Capital resources table for a BIPRU investment firm deducting material holdings).

Intra-group exposures must not be netted for the purpose of BIPRU 8.4.11 R.

A firm may not use an advanced prudential calculation approach for the purpose of BIPRU 8.4.11 R.

If a firm has an investment firm consolidation waiver, it must:

1. (1)

   ensure that each CAD investment firm in the UK consolidation group or non-EEA sub-group which is a firm or an EEA firm has in place systems to monitor and control the sources of capital and funding of all the members in the UK consolidation group or non-EEA sub-group;

2. (2)

   notify the FCA of any serious risk that could undermine the financial stability of the UK consolidation group or non-EEA sub-group, as soon as the firm becomes aware of that risk, including those associated with the composition and sources of the capital and funding of members of the UK consolidation group or non-EEA sub-group;

3. (3)

   report the amount of the consolidated capital resources and consolidated capital resources requirement of the UK consolidation group or non-EEA sub-group on a periodic basis as set out in the investment firm consolidation waiver;

4. (4)

   report any large exposures risks of members of the UK consolidation group or non-EEA sub-group including any undertakings not located in an EEA State on a periodic basis set out in the investment firm consolidation waiver;

5. (5)

   notify the FCA immediately it becomes aware that the UK consolidation group or non-EEA sub-group has ceased to meet the conditions for being a CAD Article 22 group; and

6. (6)

   notify the FCA immediately it becomes aware of any breach of BIPRU 8.4.11 R.