BIPRU TP 16 Commodities firm transitionals: large exposures

1Application

16.1

R

Subject to BIPRU TP 16.2R, BIPRU TP 16 applies to a BIPRU investment firm that satisfies the following conditions:

(1)

it satisfies the requirements in BIPRU TP 15.1R and it remains eligible to apply the treatment in BIPRU TP 15 (Commodities firm transitionals: Exemption from capital requirements);

(2)

the firm provides investment services or investment activities related to the financial instruments listed in points 5, 6, 7, 9 and 10 of Section C of Annex I of the MIFID;

(3)

the firm does not provide such investment services or undertake such investment activities for, or on behalf of, retail clients;

(4)

breaches of the limits referred to in BIPRU TP 16.6R arise in connection with exposures resulting from contracts that are financial instruments as listed in (2) and relate to commodities or underlyings within the meaning of point 10 of Section C of Annex I of the MIFID and are calculated in accordance with BIPRU 13 (Financial derivatives, SFTs and long settlement transactions) or in connection with exposures resulting from contracts concerning the delivery of commodities or emission allowances; and

(5)

it satisfies the requirements in BIPRU TP 16.8R.

16.2

R

BIPRU TP 16.11R applies to any firm to which BIPRU 8 (Group risk - consolidation) applies.

Purpose

16.3

G

BIPRU TP 16 implements Article 45 of the Capital Adequacy Directive. The condition in BIPRU TP 16.1R(1) is in addition to the Directive conditions.

Duration of transitional

16.4

R

The treatment in BIPRU TP 16 is available until 31 December 2014.2

[Note: CAD Article 45(1)]2

16.5

G

If there are any modifications consequent on the treatment of large exposures, pursuant to Article 119 of the Banking Consolidation Directive, the FCA will revoke BIPRU TP 16 if the date of coming into force of the implementing measures in relation to those changes is before the date in BIPRU TP 16.4R. If the FCA revokes BIPRU TP 15 it will also revoke BIPRU TP 16 at the same time.

Exemption

16.6

R

(1)

A firm may exceed the limits concerning large exposures in BIPRU 10.5.6 R (25% limit).

(2)

The CNCOM does not apply.

16.7

G

Broadly speaking the effect of BIPRU TP 16.6R is that BIPRU 10 (Large exposures2) does not apply to a firm that meets the conditions in BIPRU TP 16.1R. However BIPRU 10.12 (Systems and controls and general) continues to apply.

Documented strategy

16.8

R

A firm must have a documented strategy for managing and, in particular, for controlling and limiting risks arising from the concentration of exposures. The firm must notify the FCA of this strategy and all material changes to this strategy without delay. The firm must make appropriate arrangements to ensure a continuous monitoring of the creditworthiness of borrowers, according to their impact on concentration risk. These arrangements must enable the firm to react adequately and sufficiently promptly to any deterioration in that creditworthiness.

16.9

R

Where a firm exceeds the internal limits set according to the strategy referred to in BIPRU TP 16.8R, it must notify the FCA without delay of the size and nature of the excess and of the counterparty.

Definitions

16.10

R

The terms financial instrument, investment services and investment activities have the same meaning as they do in the MIFID.

Consolidation

16.11

R

BIPRU TP 16 does not apply for the purposes of BIPRU 8 (Group risk - consolidation) with respect to a firm's UK consolidation group or, as the case may be, non-EEA sub-group unless the following conditions are satisfied:

(1)

the group satisfies the requirements in BIPRU TP 15.13 (Application of BIPRU TP 15 on a consolidated basis) and the firm remains eligible to apply the treatment in BIPRU TP 15.13 with respect to that UK consolidation group or, as the case may be, non-EEA sub-group;

(2)

there is no credit institution in that group;

(3)

each investment firm in the group meets the conditions in BIPRU TP 16.1R(2) and (3); and

(4)

the group meets the conditions in BIPRU TP 16.1R(4) to (5) applied on a consolidated basis.