BIPRU 8.7 Consolidated capital resources requirements

A firm must calculate the consolidated capital resources requirement of its UK consolidation group or non-EEA sub-group in accordance with the method identified by the decision tree in BIPRU 8 Annex 5 (Decision tree for identifying the consolidated capital resources requirement of a UK consolidation group or a non-EEA sub-group).

A firm must calculate a consolidated requirement component by applying the risk capital requirement applicable to that consolidated requirement component to the UK consolidation group or non-EEA sub-group in accordance with BIPRU 8.7.13 R. Except where BIPRU 8.7.34 R to BIPRU 8.7.38 R allow the requirements of another regulator to be used, the risk capital requirement must be calculated in accordance with the FSA's rules. The risk capital requirement applicable to a consolidated requirement component is the one specified in the second column of the table in BIPRU 8.7.12 R.

1. (1)

   A firm must calculate a consolidated requirement component by using one of the methods in this rule.

2. (2)

   Under the first method a firm must:

   1. (a)

      apply the risk capital requirement set out in BIPRU 8.7.12 R to each undertaking in the UK consolidation group or non-EEA sub-group; and

   2. (b)

      add the risk capital requirements together.

3. (3)

   Under the second method a firm must:

   1. (a)

      treat the whole UK consolidation group or non-EEA sub-group as a single undertaking; and

   2. (b)

      apply the risk capital requirement set out in BIPRU 8.7.12 R to the group on an accounting consolidation basis.

4. (4)

   The third method is a mixture of methods one and two. Under the third method a firm must:

   1. (a)

      treat one or more parts of the UK consolidation group or non-EEA sub-group as separate single undertakings;

   2. (b)

      apply the risk capital requirement set out in BIPRU 8.7.12 R to each such part of the group on an accounting consolidation basis;

   3. (c)

      apply the risk capital requirement set out in BIPRU 8.7.12 R to each of the remaining undertakings in the UK consolidation group or non-EEA sub-group (if any); and

   4. (d)

      add the risk capital requirements together.

5. (5)

   A firm may use different methods for different consolidated requirement components.

A firm must notify the FSA which method under BIPRU 8.7.13 R it applies for which consolidated requirement component and to which parts of the UK consolidation group or non-EEA sub-group it is applying an aggregation approach and to which parts it is applying an accounting consolidation approach.

BIPRU 8.7.18 G to BIPRU 8.7.23 R relate to the calculation of the consolidated credit risk requirement.

A firm may use a combination of the CCR standardised method, the CCR mark to market method and the CCR internal model method on a permanent basis with respect to the firm's UK consolidation group or non-EEA sub-group for the purposes of calculating the consolidated credit risk requirement. In particular, where the firm is permitted to apply the CCR internal model method on a consolidated basis with respect to its UK consolidation group or non-EEA sub-group, it may combine the use of CCR standardised method and CCR mark to market method on a permanent basis for financial derivative instruments and long settlement transaction not covered by its CCR internal model method permission.

BIPRU 9.4.1 R (Minimum requirements for recognition of significant credit risk transfer) as applied on a consolidated basis requires the transfer to be to a person outside the UK consolidation group or non-EEA sub-group.

A firm must not use both the financial collateral simple method and the financial collateral comprehensive method with respect to its UK consolidation group or non-EEA sub-group.

1. (1)

   A firm may only treat an exposure as exempt under BIPRU 3.2.25 R (Zero risk-weighting for intra-group exposures) as applied on a consolidated basis if the member of the UK consolidation group or non-EEA sub-group that has the exposure:

   1. (a)

      is a BIPRU firm and that exposure is exempt under BIPRU 3.2.25 R as it applies to that BIPRU firm on a solo basis; or

   2. (b)

      meets the conditions in BIPRU 3.2.25 R (1)(d) (Condition relating to establishment in the UK) and that exposure would be exempt under (a) if that member was a BIPRU firm.

2. (2)

   The notification obligation in BIPRU 3.2.35 R applies.

For the purposes of calculating the consolidated market risk requirement of a UK consolidation group or non-EEA sub-group, a firm must apply BIPRU 1.2.3 R (Definition of the trading book) and BIPRU 1.2.17 R (Size thresholds for the purposes of the definition of the trading book) to the whole UK consolidation group or non-EEA sub-group as if the group were a single undertaking.

A firm may not apply the second method in BIPRU 8.7.13R (3) (accounting consolidation for the whole group) or apply accounting consolidation to parts of its UK consolidation group or non-EEA sub-group under method three as described in BIPRU 8.7.13R (4)(a) for the purposes of the calculation of the consolidated market risk requirement unless the group or sub-group and the undertakings in that group or sub-group satisfy the conditions in this rule. Instead the firm must use the aggregation approach described in BIPRU 8.7.13R (2) (method one) or BIPRU 8.7.13R (4)(c). Those conditions are as follows:

1. (1)

   each of the undertakings in that group or sub-group is an institution that is:

   1. (a)

      a BIPRU firm;

   2. (b)

      an EEA firm;

   3. (c)

      a recognised third country credit institution; or

   4. (d)

      a recognised third country investment firm;

2. (2)

   each of the undertakings referred to in (1) that is a BIPRU firm has capital resources that are equal to or in excess of its capital resources requirement and complies with BIPRU 10 (Large exposures1 requirements);

   1
3. (3)

   each of the undertakings referred to in (1) that is an EEA firm complies with the CRD implementation measures in its EEA State that correspond to the requirements in (2);

4. (4)

   each of the undertakings referred to in (1) that is a recognised third country credit institution or recognised third country investment firm complies with laws in the state or territory in which it has its head office that are equivalent to the requirements of the Banking Consolidation Directive or Capital Adequacy Directive relating to capital adequacy and concentration risk;

5. (5)

   there is no material legal, regulatory or contractual impediment to the transfer of funds between those undertakings in that group or sub-group;

6. (6)

   there is no material legal, regulatory or contractual impediment to mutual financial support between those undertakings in that group or sub-group;

7. (7)

   the market risk position of the undertakings are monitored and managed on a co-ordinated basis; and

8. (8)

   there is satisfactory allocation of capital within the group or sub-group.

For the purposes of calculating the consolidated operational risk requirement, a firm must apply BIPRU 6.2.9 R to BIPRU 6.2.12 R (Combination of different methodologies) to the whole UK consolidation group or non-EEA sub-group as if the group were a single undertaking.

1. (1)

   This rule sets out how BIPRU 6.3.2 R (3) (Negative figure arising in calculation of the relevant indicator under the basic indicator approach) applies on a consolidated basis.

2. (2)

   If the calculation for any individual undertaking under method one in BIPRU 8.7.13R (2) (application of aggregation approach to the whole group) or method three as described in BIPRU 8.7.13R (4)(c) (mixture of aggregation and accounting consolidation) or for any sub-group created under method three as described in BIPRU 8.7.13R (4)(a) results in a figure of zero or a negative figure, that figure must be excluded.

3. (3)

   If a firm is using method two in BIPRU 8.7.13 R (accounting consolidation approach for the whole group), BIPRU 6.3.2 R (3) applies to the UK consolidation group or non-EEA sub-group as if it were a single undertaking.

4. (4)

   (3) also applies to a sub-group created under method 3 as described in BIPRU 8.7.13R (4)(a).

In accordance with BIPRU 8.2.1 R and BIPRU 8.3.1 R (The basic consolidation rules for a UK consolidation group or non-EEA sub-group), a firm may exclude that part of the risk capital requirement that arises as a result of:

1. (1)

   (in respect of the consolidated credit risk requirement) intra-group balances; or

2. (2)

   (in respect of the consolidated operational risk requirement and consolidated fixed overheads requirement) intra-group transactions;

with other undertakings in the UK consolidation group or non-EEA sub-group.

1. (1)

   This rule applies when the rules applicable under BIPRU 8.7.12 R apply differently for different types of firms.

2. (2)

   Where a firm's UK consolidation group or non-EEA sub-group is a group identified at Stage 1 in BIPRU 8 Annex 5 (Decision tree for identifying the consolidated capital resources requirement of a UK consolidation group or a non-EEA sub-group), the rules that apply are those that apply to a bank that is a BIPRU firm.

3. (3)

   Where a firm's UK consolidation group or non-EEA sub-group is a group identified at Stage 2 in BIPRU 8 Annex 5, the rules that apply are those that apply to a full scope BIPRU investment firm.

4. (4)

   Where a firm's UK consolidation group or non-EEA sub-group is a group identified at Stage 3 in BIPRU 8 Annex 5, the rules that apply are those that apply to a BIPRU limited activity firm.

5. (5)

   Where a firm's UK consolidation group or non-EEA sub-group is a group identified at Stage 4 in BIPRU 8 Annex 5, the rules that apply are those that apply to a BIPRU limited licence firm.

A firm may calculate the risk capital requirement for an institution in the firm's UK consolidation group or non-EEA sub-group that is an EEA firm in accordance with the CRD implementation measures in the EEA firm's EEA State that correspond to the FSA's rules that would otherwise apply under this section if the institution is subject to those CRD implementation measures.

1. (1)

   This rule applies where:

   1. (a)

      an institution in a firm's UK consolidation group or non-EEA sub-group is subject to any of the sectoral rules applicable to its financial sector for a state or territory outside the EEA that correspond to the FSA's rules that would otherwise apply under this section;

   2. (b)

      those sectoral rules are shown in BIPRU 8 Annex 6 (Non–EEA regulators' requirements deemed CRD-equivalent for individual risks) as having been assessed as being equivalent to the FSA rules in relation to the consolidated requirement component in question; and

   3. (c)

      that institution is incorporated in and has its head office in that state or territory.

2. (2)

   If the conditions in this rule are satisfied, a firm may apply the sectoral rules referred to in (1) in order to calculate the risk capital requirement for the institution referred to in (1) provided that:

   1. (a)

      the firm has no reason to believe that the use of the sectoral rules referred to in (1) would produce a lower figure for the consolidated requirement component than would be produced by calculating the risk capital requirement under the FSA's rules in accordance with this section; or

   2. (b)

      the firm increases the amount produced under the sectoral rules referred to in (1) and the firm has no reason to believe that the use of such figures would produce a lower figure for the consolidated requirement component than would be produced by calculating the risk capital requirement under the FSA's rules in accordance with this section.

1. (1)

   This rule applies if:

   1. (a)

      a firm is applying an accounting consolidation approach to part of its UK consolidation group or non-EEA sub-group under method three as described in BIPRU 8.7.13R (4)(a); and

   2. (b)

      the part of the group in (a) constitutes the whole of a group subject to the consolidated capital requirements of a competent authority under the CRD implementation measures relating to consolidation under the Banking Consolidation Directive or the Capital Adequacy Directive.

2. (2)

   If the conditions in this rule are satisfied, a firm may apply the consolidated capital requirement in (1)(b) as the risk capital requirement for the group identified in (1)(a) so far as that consolidated capital requirement corresponds to the FSA's rules that would otherwise apply under this section.

1. (1)

   This rule applies if:

   1. (a)

      a firm is applying an accounting consolidation approach to part of its UK consolidation group or non-EEA sub-group under method three as described in BIPRU 8.7.13R (4)(a);

   2. (b)

      the part of the group in (a) constitutes the whole of a group subject to the consolidated capital requirements of a third country competent authority under the sectoral rules for the banking sector or the investment services sector; and

   3. (c)

      those sectoral rules are shown in BIPRU 8 Annex 6 (Non–EEA regulators' requirements deemed CRD-equivalent for individual risks) as having been assessed as being equivalent to the FSA's rules in relation to the consolidated requirement component in question.

2. (2)

   If the conditions in this rule are satisfied, a firm may apply the consolidated capital requirement in (1)(b) as the risk capital requirement for the group identified in (1)(a) so far as that consolidated capital requirement corresponds to the FSA's rules that would otherwise apply under this section. However a firm may only do this if it also complies with BIPRU 8.7.35R (2).