BIPRU TP 17 Large exposures: Exemptions for intra-group exposures for banks and investment firms

1Application

17.1

R

This section applies to a BIPRU firm other than a building society.

Purpose

17.2

G

This section deals with the exemption or partial exemption of intra-group exposures from large exposure limits. It exempts some intra-group exposures. It allows a firm to use certain of the intra-group exemptions in IPRU for others. In some cases those IPRU exemptions apply in a modified form.

17.3

G

This section only applies to exposures to concentration risk group counterparties. This term broadly covers group members if they and the firm are subject to consolidated supervision by the FSA, another EEA competent authority or certain non-EEA regulators. The full definition can be found in the Glossary.

Duration of transitional

17.4

R

(1) Subject to (2), this section applies until 31 December 2009.2

(2) This section applies to the following until 31 December 2010:2

(a) a BIPRU limited activity firm; and2

(b) a BIPRU limited licence firm.2

General rule

17.5

R

A firm may, to the extent permitted by this section, treat an exposure to a concentration risk group counterparty as exempt or partially exempt for the purposes of BIPRU 10 (Concentration risk) or, if the firm applies BIPRU TP 3 (Pre CRD capital requirements applying on a solo basis during 2007), the relevant part of IPRU.

Effect of this section on intra-group concentration risk exemptions in BIPRU 10

17.6

R

If a firm applies this section, BIPRU 10.8 to BIPRU 10.10 (Integrated groups) do not apply.

17.7

G

The effect of BIPRU TP 17.6R is that a firm should not apply BIPRU 10.8 to BIPRU 10.10 (Integrated groups) to some exposures to concentration risk group counterparties and this section to others. The purpose of BIPRU TP 17.6R is that a firm should choose between treating intra-group exposures under the BIPRU 10 integrated group regime and treating them under the IPRU rules but that it should not mix the two approaches.

17.8

G

If a firm applies this section, BIPRU 10.7 (Treasury concession and intra-group securities financing transactions) continues to apply. However BIPRU 10.7 will not apply if the firm applies BIPRU TP 3 (Pre CRD capital requirements applying on a solo basis during 2007).

Treatment of intra-group exposures

17.9

R

If a firm applies this section it must allocate each exposure to its concentration risk group counterparties to one of the categories in the table in BIPRU TP 17.10R and apply the applicable treatment in that table to it.

17.10

R

Table: Treatment for types of group counterparty

This table belongs to BIPRU TP 17.9R

(1) Exposure to an undertaking that is a member of the firm's UK integrated group

Exempt

(2) Exposure to a domestic concentration risk group counterparty that is not a member of its UK integrated group

Not exempt or partially exempt unless an exemption outside this section is available

(3) An exposure to a foreign concentration risk group counterparty

Apply the treatment in the applicable part of the table in BIPRU TP 17.11R.

If it does not qualify as exempt or partially exempt under that table then it is not exempt or partially exempt unless an exemption outside this section is available

A domestic concentration risk group counterparty means a concentration risk group counterparties that meets the condition in BIPRU 10.8.4 R (4) (Establishment in the United Kingdom)

A foreign concentration risk group counterparty means a concentration risk group counterparty that does not meet the condition in BIPRU 10.8.4 R (4)

17.11

R

Table: Treatment of exposures to non-UK undertakings

This table belongs to BIPRU TP 17.10R

Bank

Apply the treatment in BIPRU TP 17.15R

Investment management firm

Treat exposure as exempt if it falls within paragraph (g) or (h) of the definition of exempt exposure in the Glossary to chapter 5 of IPRU(INV)

Treat exposure as partially exempt if it falls within paragraph (c) of the definition of partially exempt exposure in the Glossary to chapter 5 of IPRU(INV)

Paragraph (g) of the definition of exempt exposure is adjusted by replacing the reference to the Second Consolidated Supervision Directive and Directive 93/6 (the old version of the Capital Adequacy Directive) with a reference to the Banking Consolidation Directive and the Capital Adequacy Directive.

UCITS investment firm

Same as for investment management firm

Securities and futures firm

Treat exposure as exempt if it falls within rules 10-192(1)(g) or 10-192(1)(n) of chapter 10 of IPRU(INV)

Treat exposure as partially exempt if it falls within rule 10-192(2)(c) of chapter 10 of IPRU(INV)

Rule 10-192(1)(g) of chapter 10 of IPRU(INV) is adjusted by replacing the reference to rules 10-200 to 10-203 of chapter 10 of IPRU(INV) with a reference to BIPRU 8 and the consolidation provisions of BIPRU TP.

Personal investment firm

Treat exposure as exempt if it falls within item 11 in Table 13.6.2(1) of Chapter 13 of IPRU(INV)

Treat exposure as exempt or partially exempt if it falls within item 15 in Table 13.6.2(1) of Chapter 13 of IPRU(INV)

Note: A firm must apply any exemption or partial exemption in IPRU in accordance with the applicable IPRU rule.

17.12

G

The effect of BIPRU TP 17.9R to BIPRU TP 17.11R is that a firm may only apply the IPRU and other treatments in the table in BIPRU TP 17.11R to non-UK undertakings. An exposure to a UK undertaking is exempt if it is a member of the firm's UK integrated group. If the UK undertakings is not a member of the firm's UK integrated group no exemption is available even if an exemption would have been available under IPRU.

17.13

G

If an exposure to a concentration risk group counterparty is not exempt or partially exempt under the table in BIPRU TP 17.10R or BIPRU TP 17.11R the exemptions in BIPRU 10.5 (Excess exposures in the trading book), BIPRU 10.6 (General exemptions) and BIPRU 10.7 (Treasury concession and intra-group securities financing transactions) may be available. BIPRU 10.8 to BIPRU 10.10 (Integrated groups) do not apply. However none of the exemptions in BIPRU 10 will apply if the firm applies BIPRU TP 3 (Pre CRD capital requirements applying on a solo basis during 2007).

17.14

G

BIPRU TP 1.3R explains whether a BIPRU investment firm is a securities and futures firm, an investment management firm or a personal investment firm.

Exemption for banks

17.15

R

An exposure of a bank coming within column 1 of row (3) of the table in BIPRU TP 17.10R is exempt if:

(1)

both the counterparty and the bank are in the same integrated banking group as defined in BIPRU TP 17.16R;

(2)

both the counterparty and the bank are included within the scope of consolidation on a full basis with respect to the same UK consolidation group;

(3)

the counterparty is not a member of that UK consolidation group in which no more than a participation is held;

(4)

BIPRU 8.2.1 R (Main consolidation rule for UK consolidation groups) applies to the firm with respect to that UK consolidation group; and

(5)

capital resources are freely transferable between the counterparty and the UK bank referred to in BIPRU TP 17.16R(1).

17.16

R

An integrated banking group means, in relation to a firm, a group of undertakings (the "potential integrated banking group") that satisfy the following conditions:

(1)

the potential integrated banking group is managed as an integrated banking business by a UK bank; and

(2)

the UK bank in (1) is the principal bank in the potential integrated banking group.

17.17

G

An undertaking is included within the scope of consolidation of a group on a full basis as referred to in BIPRU TP 17.15R(2) if it is at the head of the group or if its assets and liabilities are taken into account in full as referred to in BIPRU 8.5.4 R (Basis of inclusion of undertakings in consolidation).

Notification

17.18

R

A firm may not apply this section unless it has given one Month's prior notice to the FSA that it intends do so. That notice must specify which category of firm listed in the table in BIPRU TP 17.11R it belongs to.

17.19

R

A firm need only give the FSA the notice required in BIPRU TP 17.18R once rather than with respect to each exposure.

17.20

R

A firm may stop applying this section if it has given one Month's prior notice to the FSA that it intends to do so.

17.21

R

If a firm stops applying this section it may start to apply it again if it notifies the FSA under BIPRU TP 17.18R that it intends to do so.

17.22

R

A firm must notify the FSA if it becomes aware that any exposure that it has treated as exempt or partially exempt under this section has ceased to meet the conditions for that treatment.

Combination of this section with BIPRU TP 3

17.23

R

A firm may apply this section even if it also applies BIPRU TP 3 (Pre CRD capital requirements applying on a solo basis during 2007). However such a firm may not apply the treatments in the table in BIPRU TP 17.11R but must instead apply the corresponding provisions in the part of IPRU that it is applying under BIPRU TP 3.

17.24

G

The part of IPRU(BANK) that corresponds to BIPRU TP 17.15R is paragraph 2b) of part 3.1.1 of section 3 of Chapter CS as applied by Chapter LE for large exposures purposes.

17.25

G

The reason for BIPRU TP 17.23R is that BIPRU TP 3 (Pre CRD capital requirements applying on a solo basis during 2007) already allows a firm to use the IPRU exemptions and partial exemptions listed in the table in BIPRU TP 17.11R so it is not necessary to give the firm an additional right to apply those treatments under this section.

17.26

G

In general this section does not give any exemption that is not available under IPRU. However the exemption in row (1) of the table in BIPRU TP 17.10R (exposures within the UK integrated group) is not in IPRU although in practice a firm may find that the IPRU exemptions will cover most or all the things covered by the exemption in the table in BIPRU TP 17.10R.

17.27

G

If row (2) of the table in BIPRU TP 17.10R (certain exposures to UK counterparties) treats an exposure as non-exempt a firm that applies BIPRU TP 3 (Pre CRD capital requirements applying on a solo basis during 2007) may still treat it as exempt if the relevant provisions of IPRU allow this.

Consolidation

17.28

G

The application of this section on a consolidated basis is dealt with in BIPRU TP 19 (Large exposures: Exemptions for intra-group exposures on a consolidated basis).