BIPRU 8.7 Consolidated capital resources requirements

A firm must calculate the consolidated capital resources requirement of its UK consolidation group or non-UK sub-group5 as the higher of the following consolidated requirements components:3

1. (1)

   the sum of the consolidated credit risk requirement and the consolidated market risk requirement; and3

2. (2)

   the consolidated fixed overheads requirement. 3

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-UK sub-group5 in accordance with BIPRU 8.7.13 R. The5 risk capital requirement must be calculated in accordance with the appropriate regulator'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-UK sub-group5; 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-UK sub-group5 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-UK sub-group5 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-UK sub-group5 (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 appropriate regulator 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-UK sub-group5 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-UK sub-group5 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-UK sub-group5, 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-UK sub-group5.

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-UK sub-group5.

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-UK sub-group5 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-UK sub-group5, 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-UK sub-group5 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-UK sub-group5 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; or5

   2. (b)

      [deleted]5

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   3. (c)

      [deleted]3

      3
   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 ;

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3. (3)

   [deleted]5

4. (4)

   each of the undertakings referred to in (1) that is a 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 GENPRU and BIPRU5 relating to capital adequacy;

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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.

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-UK sub-groups5), 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 the4 consolidated fixed overheads requirement) intra-group transactions;

with other undertakings in the UK consolidation group or non-UK sub-groups5.

1. (1)

   2This rule applies to a firm if:

   1. (a)

      an institution in its UK consolidation group or non-UK sub-group5 is subject to any of the rules or requirements of, or administered by, a third-country competent authority applicable to its financial sector that correspond to the sectoral rules applicable to that financial sector (“corresponding sectoral rules”); or

   2. (b)

      a part of its UK consolidation group or non-UK sub-group5 constitutes the whole of a group subject to the consolidated capital requirements of a third-country competent authority under the corresponding sectoral rules applicable to the banking sector or the investment services sector for a state or territory outside the UK5.

2. (2)

   A firm may not use the requirements under any of the corresponding sectoral rules of a state or territory outside the UK5 in order to calculate the consolidated capital resources requirement of its UK consolidation group or non-UK sub-group5 for the purpose of this chapter.