1This chapter applies to:

1. (1)

   a BIPRU firm that is a member of a UK consolidation group;

2. (2)

   a BIPRU firm that is a member of a non-EEA sub-group; and2

3. (3)

   [deleted]2

   2
4. (4)

   a firm that is not a BIPRU firm and is a parent financial holding company in a Member State in a UK consolidation group.

This chapter does not apply to a firm in BIPRU 8.1.1R (1) to BIPRU 8.1.1R (3) which is a member of the UK consolidation group or non-EEA sub-group if the interest of the relevant UK consolidation group or non-EEA sub-group in that firm is no more than a participation.

A firm that is a member of a UK consolidation group must comply, to the extent and in the manner prescribed in BIPRU 8.5, with the obligations laid down in GENPRU 1.2 (Adequacy of financial resources), the main BIPRU firm Pillar 1 rules (but not the base capital resources requirement) and BIPRU 10 (Large exposures2 requirements) on the basis of the consolidated financial position of:

1. (1)

   where either Test 1A or Test 1B in BIPRU 8 Annex 1 (Decision tree identifying a UK consolidation group) apply, the parent institution in a Member State in the UK consolidation group; or

2. (2)

   where either Test 1C or Test 1D in BIPRU 8 Annex 1 apply, the parent financial holding company in a Member State.

Further to BIPRU 8.2.1 R, a firm that is a member of a UK consolidation group must at all times ensure that the consolidated capital resources of the UK consolidation group are equal to or exceed its consolidated capital resources requirement.

A firm'sUK consolidation group means a1 group that is identified as a UK consolidation group in accordance with the decision tree in BIPRU 8 Annex 1 R (Decision tree identifying a UK consolidation group); the members of that group are:1

1. (1)

   1where either Test 1A or Test 1B in BIPRU 8 Annex 1 R apply, the members of the consolidation group made up of the sub-group of the parent institution in a Member State identified in BIPRU 8 Annex 1 R together with any other person who is a member of that consolidation group because of a consolidation Article 12(1) relationship or an Article 134 relationship; or

2. (2)

   1where either Test 1C or Test 1D in BIPRU 8 Annex 1 R apply, the members of the consolidation group made up of the sub-group of the parent financial holding company in a Member State identified in BIPRU 8 Annex 1 R together with any other person who is a member of that consolidation group because of a consolidation Article 12(1) relationship or an Article 134 relationship;

in each case only persons included under BIPRU 8.5 (Basis of consolidation) are included in the UK consolidation group.1

For the purposes of this chapter, what would otherwise be a UK consolidation group is not a UK consolidation group if all the members of that UK consolidation group wholly form part of another UK consolidation group.

1. (1)

   A BIPRU firm that is a subsidiary undertaking of a BIPRU firm or of a financial holding company must apply the requirements laid down in GENPRU 1.2 (Adequacy of financial resources), the main BIPRU firm Pillar 1 rules (but not the base capital resources requirement) and BIPRU 10 (Large exposures2 requirements) on a sub-consolidated basis if the BIPRU firm, or the parent undertaking where it is a financial holding company, have a third country banking or investment services undertaking as a subsidiary undertaking or hold a participation in such an undertaking.

   2
2. (2)

   (1) only applies if the FSA is required by the Banking Consolidation Directive or the Capital Adequacy Directive to supervise the group established under (1) under Article 73(2) of the Banking Consolidation Directive (Non-EEA sub-groups).

Further to BIPRU 8.3.1 R, a firm that is a member of a non-EEA sub-group must at all times ensure that the consolidated capital resources of that non-EEA sub-group are equal to or exceed its consolidated capital resources requirement.

This section applies to a BIPRU investment firm 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 or credit institution in the UK consolidation group or non-EEA sub-group .

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

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 UKparent 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:

1. (1)

   (if each CAD investment firm in the UK consolidation group or non-EEA sub-group is a limited licence firm) the capital resources requirement for a BIPRU limited licence firm; or

2. (2)

   (in any other case) the capital resources requirement for a BIPRU limited activity firm.

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 FSA 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 FSA 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 FSA immediately it becomes aware of any breach of BIPRU 8.4.11 R.

A firm must include only the following types of undertaking in a UK consolidation group or non-EEA sub-group for the purposes of this chapter:

1. (1)

   a BIPRU firm;

2. (2)

   an institution;

3. (3)

   a financial institution;

4. (4)

   an asset management company;

5. (5)

   a financial holding company; and

6. (6)

   an ancillary services undertaking.

A firm must include any subsidiary undertaking in the UK consolidation group or non-EEA sub-group in full in the calculations in this chapter.

In carrying out the calculations for the purposes of this chapter a firm must only include the relevant proportion of an undertaking that is a member of the UK consolidation group or non-EEA sub-group:

1. (1)

   by virtue of a consolidation Article 12(1) relationship;

2. (2)

   by virtue of an Article 134 relationship; or

3. (3)

   because the group holds a participation in it.

In BIPRU 8.5.5 R, the relevant proportion is either:

1. (1)

   (in the case of a participation) the proportion of shares issued by the undertaking held by the UK consolidation group or the non-EEA sub-group; or

2. (2)

   (in the case of a consolidation Article 12(1) relationship or an Article 134 relationship), such proportion (if any) as stated in the Part IV permission of the firm.

GENPRU 2.1.46 R (Adjustment of the variable capital requirement calculation for UCITS investment firms) does1 not apply for the purpose of this chapter.

A firm may, having first notified the FSA in writing in accordance with SUP 15.7 (Form and method of notification), exclude an institution, asset management company, financial institution or ancillary services undertaking that is a subsidiary undertaking in, or an undertaking in which a participation is held by, the UK consolidation group or non-EEA sub-group if the balance sheet total of that undertaking is less than the smaller of the following two amounts:

1. (1)

   10 million Euros;

2. (2)

   1% of the balance sheet total of the parent undertaking or the undertaking that holds the participation.

A firm must include undertakings, to which BIPRU 8.5.9 R would otherwise apply, if the balance sheet total of those undertakings taken together breaches the limit in BIPRU 8.5.9 R.

A firm must calculate the consolidated capital resources of its UK consolidation group or its non-EEA sub-group by applying GENPRU 2.2 (Capital resources) to its UK consolidation group or non-EEA sub-group on an accounting consolidation basis, treating the UK consolidation group or non-EEA sub-group as a single undertaking. The firm must adjust GENPRU 2.2 in accordance with this section for this purpose.

3This section applies to a firm if another member of its group intends to issue a capital instrument on or after 1 March 2012 for inclusion in the firm'scapital resources or consolidated capital resources of its UK consolidation group or non-EEA sub-group.

3A firm must notify the FSA in writing of the intention of another member of its group which is not a firm to issue a capital instrument which the firm intends to include within its capital resources or the consolidated capital resources of its UK consolidation group or non-EEA sub-group as soon as it becomes aware of the intention of the groupundertaking to issue the capital instrument. When giving notice, a firm must:

1. (1)

   provide details of the amount of capital to be raised through the intended issue and whether the capital is intended to be issued to external investors or within its group;

2. (2)

   identify the stage of the capital resources table the capital instrument is intended to fall within;

3. (3)

   include confirmation from a senior manager of the firm responsible for authorising the inclusion of the issue within capital resources or consolidated capital resources that the capital instrument complies with the rules applicable to instruments included in the stage of the capital resources table identified in (2); and

4. (4)

   provide details of any features of the capital instrument which are novel, unusual or different from a capital instrument of a similar nature previously issued by the firm or widely available in the market or not specifically contemplated by GENPRU 2.2.

This rule does not apply to a firm if a groupundertaking intends to issue a capital instrument listed in BIPRU 8.6.1E R.

3A firm must provide a further notification to the FSA in writing including all the information required in BIPRU 8.6.1BR (1) to (4) as soon as it becomes aware of any changes that are proposed to the intended date of issue, amount of issue, type of investors, stage of capital or any other feature of the capital instrument previously notified to the FSA.

3If a groupundertaking proposes to establish a debt securities program for the issue of capital instruments which the firm intends to include within its capital resources or the consolidated capital resources of its UK consolidation group or non-EEA sub-group, it must:

1. (1)

   notify the FSA of the establishment of the program; and

2. (2)

   provide the information required by BIPRU 8.6.1BR (1) to (4);

as soon as it becomes aware of the proposed establishment. The FSA must be notified of any changes, in accordance with BIPRU 8.6.1C R.

3The capital instruments to which BIPRU 8.6.1B R does not apply are:

1. (1)

   ordinary shares issued by a groupundertaking which:

   1. (a)

      are the most deeply subordinated capital instrument issued by that groupundertaking;

   2. (b)

      meet the criteria set out in GENPRU 2.2.83R (2) and GENPRU 2.2.83R (3) and GENPRU 2.2.83A R; and

   3. (c)

      are the same as ordinary shares previously issued by that groupundertaking;

2. (2)

   debt instruments issued from a debt securities program established by a groupundertaking, provided the program was notified to the FSA prior to its first drawdown, in accordance with BIPRU 8.6.1D R; and

3. (3)

   capital instruments which are not materially different in terms of their characteristics and eligibility for inclusion in a particular tier of capital to capital instruments previously issued by a groupundertaking for inclusion in the firm'scapital resources or consolidated capital resources of its UK consolidation group or non-EEA sub-group.

3A firm must notify the FSA in writing, no later than the date of issue, of the intention of a groupundertaking to issue a capital instrument listed in BIPRU 8.6.1E R which the firm intends to include within its capital resources or the consolidated capital resources of its UK consolidation group or non-EEA sub-group. When giving notice a firm must:

1. (1)

   provide the information set out at BIPRU 8.6.1BR (1) to (3); and

2. (2)

   confirm that the terms of the capital instrument have not changed since the previous issue of that type of capital instrument by that groupundertaking.

The capital resources gearing rules apply for the purposes of calculating consolidated capital resources. They apply to the UK consolidation group or non-EEA sub-group on an accounting consolidation basis, treating the UK consolidation group or non-EEA sub-group as a single undertaking.

Where a firm's UK consolidation group or non-EEA sub-group includes a building society, the firm must calculate that group's consolidated capital resources using the calculation of capital resources for building societies.

Where a firm's UK consolidation group or non-EEA sub-group includes a bank or credit institution but not a building society, the firm must calculate that group's consolidated capital resources using the calculation of capital resources for banks.

Where a firm's UK consolidation group or non-EEA sub-group does not include a bank, building society or credit institution, the firm must calculate that group's consolidated capital resources using the calculation of capital resources in GENPRU 2 Annex 4 (Capital resources table for a BIPRU investment firm deducting material holdings) or GENPRU 2 Annex 5 (Capital resources table for a BIPRU investment firm deducting illiquid assets).

A firm must give one Month's prior notice to the FSA before starting to use or stopping using the method in GENPRU 2 Annex 5 (Capital resources table for a BIPRU investment firm deducting illiquid assets).

1. (1)

   This rule sets out how to determine whether minority interests in an undertaking in a UK consolidation group or non-EEA sub-group may be included in tier one capital, tier two capital or tier three capital for the purpose of calculating consolidated capital resources (each referred to as a "tier" of capital in this rule).

2. (2)

   A firm must identify the item of capital of the undertaking in question that gives rise to that minority interest.

3. (3)

   A firm must include the minority interest in the tier of capital in which that undertaking would have to include the capital referred to in (2) if it were a firm calculating its capital resources on a solo basis under whichever method applies to the group under BIPRU 8.6.6 R to BIPRU 8.6.8 R1.

4. (4)

   This rule does not apply to a minority interest created by consolidated indirectly issued capital.

For the purposes of this chapter, GENPRU 2.2.123 R to GENPRU 2.2.137 R (Indirectly issued tier one capital (BIPRU firm only)) do not apply. A firm may only include consolidated indirectly issued capital in consolidated capital resources (whether as a minority interest or otherwise) in accordance with this section.

Consolidated indirectly issued capital means any capital instrument issued by a member of the UK consolidation group or non-EEA sub-group where:

1. (1)

   some or all of the following conditions are satisfied:

   1. (a)

      that capital is issued to an SPV; or

   2. (b)

      that capital is issued by an SPV; or

   3. (c)

      the subscription for the capital issued by the member of the group in question is funded directly or indirectly by an SPV; and

2. (2)

   any of the SPVs referred to in (1) is a member of the UK consolidation group or non-EEA sub-group or a subsidiary undertaking of any member of the UK consolidation group or non-EEA sub-group.

A firm may only include consolidated indirectly issued capital in the consolidated capital resources of its UK consolidation group or non-EEA sub-group if:

1. (1)

   it is issued by an SPV that is a member of the UK consolidation group or non-EEA sub-group to persons who are not members of the UK consolidation group or non-EEA sub-group; and

2. (2)

   the conditions in BIPRU 8.6.16 R to BIPRU 8.6.18 R are satisfied.

Consolidated indirectly issued capital that is eligible for inclusion in the consolidated capital resources of a UK consolidation group or non-EEA sub-group may only be included as a minority interest created by the capital instrument issued by the SPV referred to in BIPRU 8.6.13 R. If it is eligible, it is innovative tier one capital.

For the purposes of this section, an undertaking is an SPV if the main activity of the SPV is to raise funds for undertakings in:

1. (1)

   (in the case of a UK consolidation group) that UK consolidation group; or

2. (2)

   (in the case of a non-EEA sub-group) that non-EEA sub-group or any UK consolidation group of which it forms part.

The SPV referred to in BIPRU 8.6.13 R must satisfy the conditions in GENPRU 2.2.127 R (Conditions that an SPV has to satisfy if indirectly issued capital is to be included in capital resources on a solo basis) as modified by the following:

1. (1)

   references in GENPRU 2.2.127R (1) to being controlled by the firm are to being controlled by a member of the firm'sUK consolidation group or non-EEA sub-group as the case may be; and

2. (2)

   references to the firm'sgroup are to the firm'sUK consolidation group or non-EEA sub-group as the case may be.

The capital issued by the SPV referred to in BIPRU 8.6.13 R must satisfy the conditions in GENPRU 2.2.129 R (Conditions that capital issued by an SPV has to satisfy if indirectly issued capital is to be included in capital resources on a solo basis) as modified by the following:

1. (1)

   references to the firm'sgroup are to the firm'sUK consolidation group or non-EEA sub-group as the case may be;

2. (2)

   the substitution obligation in GENPRU 2.2.129R (2) need not be the firm's but may apply to any member of the UK consolidation group or non-EEA sub-group as the case may be; and

3. (3)

   that substitution obligation applies if the consolidated capital resources of the UK consolidation group or non-EEA sub-group, as the case may be, fall, or are likely to fall, below its consolidated capital resources requirement.

The SPV referred to in BIPRU 8.6.13 R must invest the funds raised from the issue of capital by the SPV by subscribing for capital resources issued by an undertaking that is a member of the UK consolidation group or non-EEA sub-group. Those capital resources must satisfy the following conditions:

1. (1)

   those capital resources must at least comply with the requirements for lower tier two capital; and

2. (2)

   the first call date or fixed maturity date (if any) of those capital resources must not arise before the first call date on the instrument issued by the SPV.

In relation to the obligation to substitute described in BIPRU 8.6.17R (2), a firm must take all reasonable steps to ensure that the undertaking in question has at all times sufficient authorised and unissued tier one instruments other than innovative tier one instruments (and authority to issue them) to enable it to discharge the obligation to substitute.

A firm must comply with the requirements set out in GENPRU 2.2.135R (Notifying the FSA of unusual transactions in relation to indirectly issued capital) and GENPRU 2.2.137 R (Contents of marketing documents in relation to indirectly issued capital) in relation to consolidated indirectly issued capital included in consolidated capital resources.

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'srules. 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 riskposition 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'sUK consolidation group or non-EEA sub-group that is an EEA firm in accordance with the CRD implementation measures in the EEA firm'sEEA State that correspond to the FSA'srules that would otherwise apply under this section if the institution is subject to those CRD implementation measures.

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'srules that would otherwise apply under this section.

1. (1)

   2This rule applies to a firm if:

   1. (a)

      an institution in its UK consolidation group or non-EEA sub-group 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-EEA sub-group 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 EEA.

2. (2)

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

A firm must not apply any advanced prudential calculation approach for the purposes of this chapter unless it has an advanced prudential calculation approach permission and that advanced prudential calculation approach permission requires the firm to use that advanced prudential calculation approach for those purposes.

Even if a firm has an advanced prudential calculation approach permission that allows it to use an advanced prudential calculation approach for the purposes of this chapter, the firm may not use the requirements of another state or territory to the extent they provide for that advanced prudential calculation approach. Therefore a firm may not use BIPRU 8.7.34 R and 2BIPRU 8.7.37 R2 (Use of the capital requirements of another EEA competent authority)2 if that would involve using an advanced prudential calculation approach.

The conditions in BIPRU 4.2.26 R (Combined use of methodologies under the IRB approach) apply to a firm'sUK consolidation group or non-EEA sub-group as if that group were a single undertaking.

BIPRU 6.5.27 R (6) (Insurance should be provided by a third party entity for the purposes of the advanced measurement approach) is amended to provide that the insurance must be provided by an undertaking that is not in the same group as the firm or other members of the UK consolidation group or non-EEA sub-group. In the case of insurance through captives and affiliates, the exposure must be laid off to an independent undertaking that is not in the same group as the firm or other members of the UK consolidation group or non-EEA sub-group, for example through reinsurance that meets the eligibility criteria.

1. (1)

   1BIPRU 10 (Large exposures) applies to a firm'sUK consolidation group or (subject to (2)) non-EEA sub-group as if it were a single undertaking.

2. (2)

   A firm may exempt the exposures of its non-EEA sub-group to its core concentration risk group counterparty or non-core concentration risk group counterparty from the limits in BIPRU 10.5 (Limits on exposures) that apply to the non-EEA sub-group on a sub-consolidated basis.

In relation to a firm, intra-group exposures that are exempt under a non-core large exposures group waiver may be excluded when calculating the limits in BIPRU 10.5 (Limits on exposures) that apply to the UK consolidation group or non-EEA sub-group, provided that the total amount of such exposures and the other exposures which are exempt under a non-core large exposures group waiver do not exceed the limit in BIPRU 10.9A.7 R (Non-trading book backstop large exposure limit for non-core large exposures group).